US short-seller Spruce Point Capital bets against MSCI

(Reuters) -Spruce Point Capital Management on Wednesday said it has taken a short position in global index provider MSCI, arguing the company is suffering from increased competition and raising questions over recent changes to how it describes revenue.

U.S.-based Spruce Point, an established short seller that has put out more than 100 reports betting against companies, said that it took a short position in MSCI's stock and via derivatives that would profit if its share price falls. It did not disclose the size of its position when asked by Reuters.

A spokesperson for MSCI did not immediately respond to requests for comment. Its shares were last down 1.4%.

"We believe MSCI is a classic case of a struggling company failing to transform itself while engaging in value-destructive acquisitions and share repurchases," Spruce Point wrote in a report.

The firm said MSCI is facing fiercer competition in its index business, which accounts for 58% of its revenue, from companies like Qontigo and the Nasdaq. Some market participants are also increasingly creating indexes in-house, instead of partnering with external parties like MSCI, the report added.

Spruce Point also said MSCI changed the language it uses to describe non-recurring revenue in its index business. In the second quarter of 2023, MSCI reported a 160% increase in non-recurring revenue and explained it as one-time license fees related to prior periods, Spruce Point said.

"Why is MSCI recognizing revenue now for something that was related to a prior period?," Spruce Point asked in its report.

MSCI's shares ended 2023 down roughly 5% and have fallen 4.1% this year, despite a broader equity market rally in recent months. Spruce Point said MSCI's shares face up to between 55% and 65% downside risk.

MSCI has nine buy and strong buy recommendations, six hold and two sell ratings, according LSE Group data.

Founded in 2009, Spruce Point has launched more than 100 short reports on companies such as cosmetics and skin care products maker e.l.f. Beauty, pest control company Rollins and Canadian fintech Nuvei. It had $273.6 in assets under management in December 2022, according to its most recent regulatory filing.

(Reporting by Carolina Mandl, in New York, additional reporting by Medha Singh in Bengaluru; Editing by Krishna Chandra Eluri, Chizu Nomiyama, Will Dunham and Michelle Price)

By Carolina Mandl