Morningstar is synonymous with mutual fund ratings today.
With revenues exceeding $200M and a market cap of more than $1.5B, Morningstar has become a dominant player in the personal finance market, and the 800 pound gorilla of mutual funds.
That was not always the case, however.
Throughout the 1980s, Lipper and CDA/Wiesenberger (now a division of Thomson Financial) were the leaders in mutual fund information. While Lipper focused largely on the institutional market and Wiesenberger focused on information for brokers and financial consultants, Morningstar sensed a shift in the market. The market for mutual funds was changing in the mid-1990’s, with investors becoming more savvy and focusing on self-directed investments. This created an opportunity for content providers to provide mutual fund data to a retail audience.Morningstar realized early on that in order to capture the consumer market, they had to simplify the information they provided. While brokers were expected to understand risk and performance, the average consumer did not. Morningstar created a simple four-star rating system which anyone could understand. A consumer could simply select an asset class, then review those funds which Morningstar had rated highly, to help in their selection.
Two trends during the 1990s converged to help fuel Morningstar’s growth. The first was the emergence of the Internet. This helped in two ways. Personal finance became one of the first “killer apps” of the web, providing users with information which they’d never had access to before. Ten year earlier, the most information that most people had was an S&P tearsheet sent by your broker. Now, with information plentiful, consumers could make investment decisions without using a full-service broker. A second Internet-driven factor was the dot.com boom, which fueled overall interest in investing.
The second key trend was the explosion in the mutual fund market. Shifts from defined benefit to defined contribution plans, combined with rapid growth in the 401(k) market, resulted in many thousands of new funds from hundreds of new investment management firms. Where it had previously been moderately challenging to compare fund performance between a handful of providers (Fidelity, T. Rowe Price, Dreyfus and others), it was now nearly impossible to navigate this new world with tens of thousands of choices.Morningstar successfully positioned itself to take advantage of both of these trends. Its rating system gave consumers an easy way to sift through the masses of choices, winnowing results by asset class, rating and performance. Morningstar was also quick to adopt the web as its primary platform, providing content directly to end users while also licensing their content through various channels. By the year 2000, Morningstar had established itself as the dominant player in the mutual fund information market.
In 2001, Morningstar applied its ratings success for mutual funds into stock ratings. By 2002, the company surpassed $100M in revenues.
Today, Morningstar continues its growth. Late in 2005, it acquired Ibbotson Associates, a leader in asset allocation technology and services. The Ibbotson acquisition strengthens Morningstar’s position in investment consulting and retirement services, while providing an enhanced software platform for asset allocation.
Morningstar revenues for 2005 were $227 million, with net income of more than $31 million, as compared to 2004 figures of $179 million on the topline with net income of $8.8 million.Under the leadership of founder Joe Mansueto, Morningstar has grown substantially during the past 20 years, successfully embracing change in a dynamically changing market. It has leveraged its use of ratings to create and nurture one of the strongest brands in the information industry. Morningstar has successfully transitioned itself from mostly free content (during the dot.com heyday) to a blend of free and premium content today, and has also effectively developed both direct and indirect channels for selling its content. With last year’s acquisition of Ibbotson, Morningstar indicated that it understands the need to bring content, services and technology together, to create higher value workflow solutions for its customers. Its adaptability and willingness to embrace change make Morningstar one of the Fifty Content Companies that Matter.
