MSCI to Remove Strategy from Global Index, Billions in Fund Flows at Risk

The index operator MSCI has decided to remove Strategy (MSTR), a company led by Michael Saylor, along with several others, from its global index after determining that their nature is more akin to investment funds. This move could suppress passive investment flows into the stocks of these companies.

Last year, MSCI proposed excluding Digital Asset Treasury Companies (DAT) from the index, applicable if their held assets accounted for 50% or more of total assets. Subsequently, MSCI initiated a broader review to assess what it calls "Non-operating Companies." MSCI added that these companies exhibit certain characteristics of funds, and fund entities themselves are not included in its benchmark indices.

In after-hours trading on Wednesday, Strategy's stock price fell by 2%.

Last year, Strategy warned that if the company were removed from the index, it would lead to the sale of $2.8 billion worth of company stock and create a "chilling effect" on the development of the entire industry.

Among the companies listed for removal is Metaplanet (3350.T), which is listed in Tokyo. This company also accumulates digital assets by purchasing and holding Bitcoin. Additionally, Yellow Cake (YCA.L), a UK-based company engaged in uranium mining purchases, is included.

These companies will officially be removed from the MSCI USA Index and MSCI World Index on December 1.

Led by Michael Saylor, Strategy pioneered the digital asset treasury model last year. The company frequently funds large-scale Bitcoin purchases through the issuance of new debt and equity financing.

This model has attracted investors looking to gain indirect exposure to cryptocurrencies and has also driven up Bitcoin prices. However, this practice has made the related companies vulnerable to fluctuations in cryptocurrency prices.

Since the beginning of this year, Strategy's stock price has fallen by about 20%, while Bitcoin prices have dropped by 15%.

For companies like Strategy, inclusion in the index is crucial, as passive funds and other investors tracking benchmark indices must hold stocks of these companies according to index composition requirements.

J.P. Morgan previously estimated that if other index providers take similar actions, MSCI's adjustment could lead to up to $8.8 billion in outflows from Strategy's stock.

According to the list released by MSCI on Wednesday, some companies, including the Ethereum treasury platform SharpLink (SBET), remain on the watchlist.