May 16, 2025 • 8 mins
Kunal Kapoor, CEO of Morningstar Inc discusses his company's decision to rate less private asset funds. He is joined by Bloomberg's Sonali Basak, Matt Miller and Katie Greifeld.
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Episode Transcript
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Speaker 1 (00:00):
Well.
Speaker 2 (00:00):
Another company turning to private markets is morning Star. The
firm has been grating stock and bond funds for years,
but it's now going to begin rating less liquid private
asset funds marketed to the masses. Places say that morning
Star CEO Kunel Copport joins us now, great to have
you with us. I talk to a lot of fund
managers and a lot of them live and die by
(00:22):
their morning Star ratings, So talk to us a little
bit about this move into now rating also these semi
these less liquid private asset funds as well.
Speaker 1 (00:32):
Yeah, good morning to you as well.
Speaker 3 (00:33):
It's great to be on and I just say that
it's a reflection of where we are today in the
world of investing. I came to morning strolomost thirty years
ago and the public and private worlds were quite different.
About about a decade ago. Morning Star bock pitchbook and
we've been gathering data on private companies first and then
(00:55):
private credit and today there's more than five million private companies,
for instance, that we're tracking, and all of that means
that there's a growing interest, there's more assets that are
in that space, and the reality is that it's largely
been the purview of institutional investors. But when you look
at the large pools of capital, and you also look
(01:16):
at the reality that individual investors tend to invest for
the long haul. There's a belief that they don't, but
our data consistently shows that they do through vehicles such
as the four to one K. It's become attractive to
think about how can you bring private assets, which are
a bigger part of the market to them, especially as
public assets have become a smaller part of the market,
(01:39):
and so we're particularly starting to see movement on private credit.
In fact, in your headlines you were talking about private
credit as pertained to HSBC, but broadly speaking, there's a
lot of interest in private credit, and so you're starting
to see the emergence of what are called semi liquid
investment options. They might be interval funds here in the US,
they may be something like an altaff in Europe, and
(02:02):
the reality is that they're garnering a lot of interest,
especially here in the US, from investors, and as they've
become a more significant part of the portfolio, who better
than morning Star to help investors navigate what it all
means and how they can think about including them in
a portfolio.
Speaker 1 (02:18):
It's a good point, it's an obvious fit.
Speaker 4 (02:20):
I started as a research intern at Tucker Anthony thirty
years ago and was always sent to pore over the
morning Star ratings for each fund. Katie points out that
from her cross asset desk, you know, everybody she talks
to is citing a morning Star rating. How much of
your business is it now private credit and what kind
(02:41):
of trajectory do you expect, Yeah.
Speaker 3 (02:44):
We don't quantify private credit. Pitchbook itself is a very
significant part of morning Stars o world business. It's one
of our largest segments today. And within Pitchbook we have
Pitchbook Credit. And then you know, we are now the
world's fourth largest creditrating agency in morning our DVRs and
a significant portion of the issues we're rating are on
the private credit side. But what we started to talk
(03:07):
about more was sort of the intersection of public and private.
We talk about this convergence that's happening, and that's an
emerging area where you suddenly have retail investors, you have
wealth advisors starting to gain access to vehicles that essentially
go beyond public and then bring in the private. And
that's new and different than what used to exist.
Speaker 2 (03:29):
Well, let's talk about that. I cover ETFs for a living,
and it's been interesting to see some issuers try to
fit private assets into these publicly daily liquid vehicles. The
Apollo State Street combination, for example, comes to mind. What
is the morning Star view on that? And basically this
rush to put private assets into exchange traded funds because
(03:50):
there is a lot of skepticism out there and a
lot of questions about sort of the liquidity mismatch.
Speaker 3 (03:56):
Yeah, So first I'll start by saying that they're probably
already are some degree of private assets in other ETFs
that have fixed income holdings. The line between public and
private has blurred, and some people think certain things are
you know, in the private space and some in the public,
but oftentimes you'll see them wrapped in there. But what
we have not really seen full on is someone coming
(04:19):
to market with a full on private credit ETF. Now
State Street is trying to change that, but even there,
the initial take is a mix of public and private assets,
and they've done something unique in terms of how they
are trying to make sure.
Speaker 1 (04:34):
It's priced appropriately.
Speaker 3 (04:35):
So we're watching it carefully. We think there's some you know,
work to be done to sort of see how the
mechanisms will play out, particularly in the stress market. But
that level of innovation I think is likely just a
tip of the sphere in terms of what we're going
to see, because more and more folks are going to
try to bring liquidity to this space, and if you
think about it, that's probably one of the main reasons
(04:56):
people have not accessed the private markets in the world
they have the public markets because of liquidity tends to
be an issue, and so firms like State Street, I think,
are really trying to solve this problem. And I think
the ETF that you reference is probably the first of
many such products we're likely to see.
Speaker 2 (05:12):
Do you ever think we will see a true private
credit one hundred percent pure play private asset ETF, because,
like you said, you have seen the line blur, you
have seen private assets make their way into some ETFs
that also hold public assets as well. But do you
think it's a possibility that we could have the real deal?
Speaker 3 (05:30):
I think it's possible, I would say, does it make
sense from an investment perspective? So if I go back
and think about, you know, even the public markets, I
remember when I was an analyst twenty five years ago.
We used to think if the world is bifurcated, you
had an international fund, you had a domestic fund, and
managers would concentrate in that fashion. And you still have
some of that, but more and more managers moved to
(05:51):
try to have global strategies where they pick the best companies,
the best credits, and they try to put them in
one portfolio. And I think that's what you're going to
happen here too, is the lines between public and private
will keep blurring, and so you're going to have offerings
that can hold both and move across both to ensure
that they're getting hold of the best assets. And you know,
even in our indexes and what we're trying to build
(06:14):
out in that space, you know, we started with the
suite of public benchmarks, We've introduced private benchmarks, and I
think the future is really in trying to blend some
of those together, because that's how people's portfolios are structured.
Speaker 4 (06:25):
Canel We're trying to get a grasp on the health
and vigor of your business, just the way you would.
Speaker 1 (06:32):
When you're talking to fund managers.
Speaker 4 (06:36):
After S and P and Moody's cut their earnings outlooks
last month, how do you compare with them and the
big three in terms of market share, in terms of
growth rates?
Speaker 1 (06:47):
Can you quantify some of these things for us?
Speaker 3 (06:49):
Yeah, So in the private credit business, which I'm sorry,
in the credit ratings business, which is what I think
you know you're referring to. We're the world's fourth largest
credit agency now, so we're a little bit smaller than
the three legacy firms that you referenced, But where we
are growing and where we're focused is, you know, primarily, uh,
(07:12):
in adjacencies. We're very strong in Canada. We own DVRs
and so that's the premier franchise in Canada, and so
we're big partners to all the financial institutions and issuers
in Canada. And then uh, you know, around the world,
we've really tried to lean into areas where there's a
premium on transparency, there is a premium on service, and
(07:32):
where some of the barriers that exist in the fundamental
corporatings business in in you know, elsewhere around the world
don't exist because there's more of a level playing field.
And that's one of the interesting things about private credit
and if you're trying to rate debt there the playing
field is far more leveled because it doesn't exist uh
in the way that the traditional corporate fundamentals have existed,
(07:53):
which have sort of favored, if you will, the legacy players,
and in in a way that some new markets do not.
Speaker 1 (08:00):
All right, Canal, we have to leave it there.
Speaker 2 (08:01):
Great to have some time with you on this Friday,
that is Kunal Kapor. He is the CEO of morning
Star
Well.
Speaker 2 (00:00):
Another company turning to private markets is morning Star. The
firm has been grating stock and bond funds for years,
but it's now going to begin rating less liquid private
asset funds marketed to the masses. Places say that morning
Star CEO Kunel Copport joins us now, great to have
you with us. I talk to a lot of fund
managers and a lot of them live and die by
(00:22):
their morning Star ratings, So talk to us a little
bit about this move into now rating also these semi
these less liquid private asset funds as well.
Speaker 1 (00:32):
Yeah, good morning to you as well.
Speaker 3 (00:33):
It's great to be on and I just say that
it's a reflection of where we are today in the
world of investing. I came to morning strolomost thirty years
ago and the public and private worlds were quite different.
About about a decade ago. Morning Star bock pitchbook and
we've been gathering data on private companies first and then
(00:55):
private credit and today there's more than five million private companies,
for instance, that we're tracking, and all of that means
that there's a growing interest, there's more assets that are
in that space, and the reality is that it's largely
been the purview of institutional investors. But when you look
at the large pools of capital, and you also look
(01:16):
at the reality that individual investors tend to invest for
the long haul. There's a belief that they don't, but
our data consistently shows that they do through vehicles such
as the four to one K. It's become attractive to
think about how can you bring private assets, which are
a bigger part of the market to them, especially as
public assets have become a smaller part of the market,
(01:39):
and so we're particularly starting to see movement on private credit.
In fact, in your headlines you were talking about private
credit as pertained to HSBC, but broadly speaking, there's a
lot of interest in private credit, and so you're starting
to see the emergence of what are called semi liquid
investment options. They might be interval funds here in the US,
they may be something like an altaff in Europe, and
(02:02):
the reality is that they're garnering a lot of interest,
especially here in the US, from investors, and as they've
become a more significant part of the portfolio, who better
than morning Star to help investors navigate what it all
means and how they can think about including them in
a portfolio.
Speaker 1 (02:18):
It's a good point, it's an obvious fit.
Speaker 4 (02:20):
I started as a research intern at Tucker Anthony thirty
years ago and was always sent to pore over the
morning Star ratings for each fund. Katie points out that
from her cross asset desk, you know, everybody she talks
to is citing a morning Star rating. How much of
your business is it now private credit and what kind
(02:41):
of trajectory do you expect, Yeah.
Speaker 3 (02:44):
We don't quantify private credit. Pitchbook itself is a very
significant part of morning Stars o world business. It's one
of our largest segments today. And within Pitchbook we have
Pitchbook Credit. And then you know, we are now the
world's fourth largest creditrating agency in morning our DVRs and
a significant portion of the issues we're rating are on
the private credit side. But what we started to talk
(03:07):
about more was sort of the intersection of public and private.
We talk about this convergence that's happening, and that's an
emerging area where you suddenly have retail investors, you have
wealth advisors starting to gain access to vehicles that essentially
go beyond public and then bring in the private. And
that's new and different than what used to exist.
Speaker 2 (03:29):
Well, let's talk about that. I cover ETFs for a living,
and it's been interesting to see some issuers try to
fit private assets into these publicly daily liquid vehicles. The
Apollo State Street combination, for example, comes to mind. What
is the morning Star view on that? And basically this
rush to put private assets into exchange traded funds because
(03:50):
there is a lot of skepticism out there and a
lot of questions about sort of the liquidity mismatch.
Speaker 3 (03:56):
Yeah, So first I'll start by saying that they're probably
already are some degree of private assets in other ETFs
that have fixed income holdings. The line between public and
private has blurred, and some people think certain things are
you know, in the private space and some in the public,
but oftentimes you'll see them wrapped in there. But what
we have not really seen full on is someone coming
(04:19):
to market with a full on private credit ETF. Now
State Street is trying to change that, but even there,
the initial take is a mix of public and private assets,
and they've done something unique in terms of how they
are trying to make sure.
Speaker 1 (04:34):
It's priced appropriately.
Speaker 3 (04:35):
So we're watching it carefully. We think there's some you know,
work to be done to sort of see how the
mechanisms will play out, particularly in the stress market. But
that level of innovation I think is likely just a
tip of the sphere in terms of what we're going
to see, because more and more folks are going to
try to bring liquidity to this space, and if you
think about it, that's probably one of the main reasons
(04:56):
people have not accessed the private markets in the world
they have the public markets because of liquidity tends to
be an issue, and so firms like State Street, I think,
are really trying to solve this problem. And I think
the ETF that you reference is probably the first of
many such products we're likely to see.
Speaker 2 (05:12):
Do you ever think we will see a true private
credit one hundred percent pure play private asset ETF, because,
like you said, you have seen the line blur, you
have seen private assets make their way into some ETFs
that also hold public assets as well. But do you
think it's a possibility that we could have the real deal?
Speaker 3 (05:30):
I think it's possible, I would say, does it make
sense from an investment perspective? So if I go back
and think about, you know, even the public markets, I
remember when I was an analyst twenty five years ago.
We used to think if the world is bifurcated, you
had an international fund, you had a domestic fund, and
managers would concentrate in that fashion. And you still have
some of that, but more and more managers moved to
(05:51):
try to have global strategies where they pick the best companies,
the best credits, and they try to put them in
one portfolio. And I think that's what you're going to
happen here too, is the lines between public and private
will keep blurring, and so you're going to have offerings
that can hold both and move across both to ensure
that they're getting hold of the best assets. And you know,
even in our indexes and what we're trying to build
(06:14):
out in that space, you know, we started with the
suite of public benchmarks, We've introduced private benchmarks, and I
think the future is really in trying to blend some
of those together, because that's how people's portfolios are structured.
Speaker 4 (06:25):
Canel We're trying to get a grasp on the health
and vigor of your business, just the way you would.
Speaker 1 (06:32):
When you're talking to fund managers.
Speaker 4 (06:36):
After S and P and Moody's cut their earnings outlooks
last month, how do you compare with them and the
big three in terms of market share, in terms of
growth rates?
Speaker 1 (06:47):
Can you quantify some of these things for us?
Speaker 3 (06:49):
Yeah, So in the private credit business, which I'm sorry,
in the credit ratings business, which is what I think
you know you're referring to. We're the world's fourth largest
credit agency now, so we're a little bit smaller than
the three legacy firms that you referenced, But where we
are growing and where we're focused is, you know, primarily, uh,
(07:12):
in adjacencies. We're very strong in Canada. We own DVRs
and so that's the premier franchise in Canada, and so
we're big partners to all the financial institutions and issuers
in Canada. And then uh, you know, around the world,
we've really tried to lean into areas where there's a
premium on transparency, there is a premium on service, and
(07:32):
where some of the barriers that exist in the fundamental
corporatings business in in you know, elsewhere around the world
don't exist because there's more of a level playing field.
And that's one of the interesting things about private credit
and if you're trying to rate debt there the playing
field is far more leveled because it doesn't exist uh
in the way that the traditional corporate fundamentals have existed,
(07:53):
which have sort of favored, if you will, the legacy players,
and in in a way that some new markets do not.
Speaker 1 (08:00):
All right, Canal, we have to leave it there.
Speaker 2 (08:01):
Great to have some time with you on this Friday,
that is Kunal Kapor. He is the CEO of morning
Star
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