1 00:00:00,040 --> 00:00:00,160 Speaker 1: Well. 2 00:00:00,160 --> 00:00:03,640 Speaker 2: Another company turning to private markets is morning Star. The 3 00:00:03,680 --> 00:00:06,960 Speaker 2: firm has been grating stock and bond funds for years, 4 00:00:07,040 --> 00:00:09,920 Speaker 2: but it's now going to begin rating less liquid private 5 00:00:09,960 --> 00:00:13,680 Speaker 2: asset funds marketed to the masses. Places say that morning 6 00:00:13,680 --> 00:00:16,960 Speaker 2: Star CEO Kunel Copport joins us now, great to have 7 00:00:17,040 --> 00:00:19,240 Speaker 2: you with us. I talk to a lot of fund 8 00:00:19,239 --> 00:00:22,040 Speaker 2: managers and a lot of them live and die by 9 00:00:22,079 --> 00:00:24,600 Speaker 2: their morning Star ratings, So talk to us a little 10 00:00:24,600 --> 00:00:28,480 Speaker 2: bit about this move into now rating also these semi 11 00:00:28,560 --> 00:00:31,960 Speaker 2: these less liquid private asset funds as well. 12 00:00:32,080 --> 00:00:33,600 Speaker 1: Yeah, good morning to you as well. 13 00:00:33,720 --> 00:00:36,720 Speaker 3: It's great to be on and I just say that 14 00:00:36,920 --> 00:00:40,360 Speaker 3: it's a reflection of where we are today in the 15 00:00:40,360 --> 00:00:44,559 Speaker 3: world of investing. I came to morning strolomost thirty years 16 00:00:44,600 --> 00:00:47,519 Speaker 3: ago and the public and private worlds were quite different. 17 00:00:48,040 --> 00:00:51,200 Speaker 3: About about a decade ago. Morning Star bock pitchbook and 18 00:00:51,400 --> 00:00:55,200 Speaker 3: we've been gathering data on private companies first and then 19 00:00:55,240 --> 00:00:59,960 Speaker 3: private credit and today there's more than five million private companies, 20 00:01:00,040 --> 00:01:02,840 Speaker 3: for instance, that we're tracking, and all of that means 21 00:01:02,880 --> 00:01:07,320 Speaker 3: that there's a growing interest, there's more assets that are 22 00:01:07,360 --> 00:01:10,520 Speaker 3: in that space, and the reality is that it's largely 23 00:01:10,560 --> 00:01:13,480 Speaker 3: been the purview of institutional investors. But when you look 24 00:01:13,480 --> 00:01:16,000 Speaker 3: at the large pools of capital, and you also look 25 00:01:16,040 --> 00:01:20,440 Speaker 3: at the reality that individual investors tend to invest for 26 00:01:20,480 --> 00:01:23,400 Speaker 3: the long haul. There's a belief that they don't, but 27 00:01:23,440 --> 00:01:27,319 Speaker 3: our data consistently shows that they do through vehicles such 28 00:01:27,319 --> 00:01:30,280 Speaker 3: as the four to one K. It's become attractive to 29 00:01:30,319 --> 00:01:33,399 Speaker 3: think about how can you bring private assets, which are 30 00:01:33,440 --> 00:01:35,440 Speaker 3: a bigger part of the market to them, especially as 31 00:01:35,480 --> 00:01:38,960 Speaker 3: public assets have become a smaller part of the market, 32 00:01:39,040 --> 00:01:42,039 Speaker 3: and so we're particularly starting to see movement on private credit. 33 00:01:42,560 --> 00:01:45,200 Speaker 3: In fact, in your headlines you were talking about private 34 00:01:45,240 --> 00:01:48,840 Speaker 3: credit as pertained to HSBC, but broadly speaking, there's a 35 00:01:48,840 --> 00:01:51,000 Speaker 3: lot of interest in private credit, and so you're starting 36 00:01:51,000 --> 00:01:53,400 Speaker 3: to see the emergence of what are called semi liquid 37 00:01:54,360 --> 00:01:57,920 Speaker 3: investment options. They might be interval funds here in the US, 38 00:01:58,000 --> 00:02:01,960 Speaker 3: they may be something like an altaff in Europe, and 39 00:02:02,000 --> 00:02:04,840 Speaker 3: the reality is that they're garnering a lot of interest, 40 00:02:05,080 --> 00:02:08,200 Speaker 3: especially here in the US, from investors, and as they've 41 00:02:08,200 --> 00:02:11,120 Speaker 3: become a more significant part of the portfolio, who better 42 00:02:11,160 --> 00:02:14,799 Speaker 3: than morning Star to help investors navigate what it all 43 00:02:14,800 --> 00:02:17,480 Speaker 3: means and how they can think about including them in 44 00:02:17,480 --> 00:02:18,200 Speaker 3: a portfolio. 45 00:02:18,320 --> 00:02:19,919 Speaker 1: It's a good point, it's an obvious fit. 46 00:02:20,120 --> 00:02:26,040 Speaker 4: I started as a research intern at Tucker Anthony thirty 47 00:02:26,120 --> 00:02:29,120 Speaker 4: years ago and was always sent to pore over the 48 00:02:29,120 --> 00:02:31,640 Speaker 4: morning Star ratings for each fund. Katie points out that 49 00:02:31,680 --> 00:02:34,840 Speaker 4: from her cross asset desk, you know, everybody she talks 50 00:02:34,840 --> 00:02:37,320 Speaker 4: to is citing a morning Star rating. How much of 51 00:02:37,360 --> 00:02:41,840 Speaker 4: your business is it now private credit and what kind 52 00:02:41,840 --> 00:02:44,680 Speaker 4: of trajectory do you expect, Yeah. 53 00:02:44,960 --> 00:02:48,079 Speaker 3: We don't quantify private credit. Pitchbook itself is a very 54 00:02:48,080 --> 00:02:51,000 Speaker 3: significant part of morning Stars o world business. It's one 55 00:02:51,000 --> 00:02:54,400 Speaker 3: of our largest segments today. And within Pitchbook we have 56 00:02:54,440 --> 00:02:57,320 Speaker 3: Pitchbook Credit. And then you know, we are now the 57 00:02:57,360 --> 00:03:00,799 Speaker 3: world's fourth largest creditrating agency in morning our DVRs and 58 00:03:00,840 --> 00:03:04,640 Speaker 3: a significant portion of the issues we're rating are on 59 00:03:04,680 --> 00:03:07,239 Speaker 3: the private credit side. But what we started to talk 60 00:03:07,280 --> 00:03:10,040 Speaker 3: about more was sort of the intersection of public and private. 61 00:03:10,080 --> 00:03:13,640 Speaker 3: We talk about this convergence that's happening, and that's an 62 00:03:13,639 --> 00:03:17,720 Speaker 3: emerging area where you suddenly have retail investors, you have 63 00:03:17,800 --> 00:03:22,680 Speaker 3: wealth advisors starting to gain access to vehicles that essentially 64 00:03:22,760 --> 00:03:26,120 Speaker 3: go beyond public and then bring in the private. And 65 00:03:26,160 --> 00:03:29,200 Speaker 3: that's new and different than what used to exist. 66 00:03:29,240 --> 00:03:32,200 Speaker 2: Well, let's talk about that. I cover ETFs for a living, 67 00:03:32,360 --> 00:03:35,520 Speaker 2: and it's been interesting to see some issuers try to 68 00:03:35,520 --> 00:03:39,640 Speaker 2: fit private assets into these publicly daily liquid vehicles. The 69 00:03:39,680 --> 00:03:43,480 Speaker 2: Apollo State Street combination, for example, comes to mind. What 70 00:03:43,640 --> 00:03:46,640 Speaker 2: is the morning Star view on that? And basically this 71 00:03:46,760 --> 00:03:50,560 Speaker 2: rush to put private assets into exchange traded funds because 72 00:03:50,600 --> 00:03:52,880 Speaker 2: there is a lot of skepticism out there and a 73 00:03:52,880 --> 00:03:55,680 Speaker 2: lot of questions about sort of the liquidity mismatch. 74 00:03:56,240 --> 00:03:59,840 Speaker 3: Yeah, So first I'll start by saying that they're probably 75 00:03:59,880 --> 00:04:03,880 Speaker 3: already are some degree of private assets in other ETFs 76 00:04:04,480 --> 00:04:07,000 Speaker 3: that have fixed income holdings. The line between public and 77 00:04:07,040 --> 00:04:10,280 Speaker 3: private has blurred, and some people think certain things are 78 00:04:10,800 --> 00:04:13,160 Speaker 3: you know, in the private space and some in the public, 79 00:04:13,240 --> 00:04:15,600 Speaker 3: but oftentimes you'll see them wrapped in there. But what 80 00:04:15,640 --> 00:04:19,560 Speaker 3: we have not really seen full on is someone coming 81 00:04:19,600 --> 00:04:23,520 Speaker 3: to market with a full on private credit ETF. Now 82 00:04:23,520 --> 00:04:26,400 Speaker 3: State Street is trying to change that, but even there, 83 00:04:26,600 --> 00:04:30,080 Speaker 3: the initial take is a mix of public and private assets, 84 00:04:30,120 --> 00:04:33,240 Speaker 3: and they've done something unique in terms of how they 85 00:04:33,279 --> 00:04:34,320 Speaker 3: are trying to make sure. 86 00:04:34,200 --> 00:04:35,320 Speaker 1: It's priced appropriately. 87 00:04:35,800 --> 00:04:38,920 Speaker 3: So we're watching it carefully. We think there's some you know, 88 00:04:39,160 --> 00:04:40,440 Speaker 3: work to be done to sort of see how the 89 00:04:40,520 --> 00:04:43,520 Speaker 3: mechanisms will play out, particularly in the stress market. But 90 00:04:43,560 --> 00:04:46,800 Speaker 3: that level of innovation I think is likely just a 91 00:04:46,839 --> 00:04:48,760 Speaker 3: tip of the sphere in terms of what we're going 92 00:04:48,839 --> 00:04:50,719 Speaker 3: to see, because more and more folks are going to 93 00:04:50,720 --> 00:04:53,320 Speaker 3: try to bring liquidity to this space, and if you 94 00:04:53,360 --> 00:04:55,599 Speaker 3: think about it, that's probably one of the main reasons 95 00:04:56,120 --> 00:05:00,000 Speaker 3: people have not accessed the private markets in the world 96 00:05:00,200 --> 00:05:02,920 Speaker 3: they have the public markets because of liquidity tends to 97 00:05:02,960 --> 00:05:05,280 Speaker 3: be an issue, and so firms like State Street, I think, 98 00:05:05,320 --> 00:05:07,840 Speaker 3: are really trying to solve this problem. And I think 99 00:05:07,880 --> 00:05:10,240 Speaker 3: the ETF that you reference is probably the first of 100 00:05:10,320 --> 00:05:12,000 Speaker 3: many such products we're likely to see. 101 00:05:12,080 --> 00:05:14,680 Speaker 2: Do you ever think we will see a true private 102 00:05:14,720 --> 00:05:18,920 Speaker 2: credit one hundred percent pure play private asset ETF, because, 103 00:05:18,960 --> 00:05:20,839 Speaker 2: like you said, you have seen the line blur, you 104 00:05:20,880 --> 00:05:23,920 Speaker 2: have seen private assets make their way into some ETFs 105 00:05:23,920 --> 00:05:26,400 Speaker 2: that also hold public assets as well. But do you 106 00:05:26,440 --> 00:05:29,200 Speaker 2: think it's a possibility that we could have the real deal? 107 00:05:30,279 --> 00:05:32,440 Speaker 3: I think it's possible, I would say, does it make 108 00:05:32,480 --> 00:05:34,680 Speaker 3: sense from an investment perspective? So if I go back 109 00:05:34,720 --> 00:05:37,560 Speaker 3: and think about, you know, even the public markets, I 110 00:05:37,560 --> 00:05:40,240 Speaker 3: remember when I was an analyst twenty five years ago. 111 00:05:40,279 --> 00:05:42,400 Speaker 3: We used to think if the world is bifurcated, you 112 00:05:42,440 --> 00:05:45,680 Speaker 3: had an international fund, you had a domestic fund, and 113 00:05:45,760 --> 00:05:48,000 Speaker 3: managers would concentrate in that fashion. And you still have 114 00:05:48,080 --> 00:05:51,000 Speaker 3: some of that, but more and more managers moved to 115 00:05:51,080 --> 00:05:53,600 Speaker 3: try to have global strategies where they pick the best companies, 116 00:05:53,640 --> 00:05:55,839 Speaker 3: the best credits, and they try to put them in 117 00:05:55,880 --> 00:05:57,640 Speaker 3: one portfolio. And I think that's what you're going to 118 00:05:57,640 --> 00:06:00,839 Speaker 3: happen here too, is the lines between public and private 119 00:06:00,960 --> 00:06:03,960 Speaker 3: will keep blurring, and so you're going to have offerings 120 00:06:03,960 --> 00:06:07,919 Speaker 3: that can hold both and move across both to ensure 121 00:06:07,960 --> 00:06:10,719 Speaker 3: that they're getting hold of the best assets. And you know, 122 00:06:10,800 --> 00:06:14,000 Speaker 3: even in our indexes and what we're trying to build 123 00:06:14,040 --> 00:06:16,440 Speaker 3: out in that space, you know, we started with the 124 00:06:16,480 --> 00:06:20,080 Speaker 3: suite of public benchmarks, We've introduced private benchmarks, and I 125 00:06:20,080 --> 00:06:22,479 Speaker 3: think the future is really in trying to blend some 126 00:06:22,560 --> 00:06:25,320 Speaker 3: of those together, because that's how people's portfolios are structured. 127 00:06:25,720 --> 00:06:28,920 Speaker 4: Canel We're trying to get a grasp on the health 128 00:06:30,000 --> 00:06:33,000 Speaker 4: and vigor of your business, just the way you would. 129 00:06:32,760 --> 00:06:35,520 Speaker 1: When you're talking to fund managers. 130 00:06:36,600 --> 00:06:40,040 Speaker 4: After S and P and Moody's cut their earnings outlooks 131 00:06:40,120 --> 00:06:43,120 Speaker 4: last month, how do you compare with them and the 132 00:06:43,120 --> 00:06:46,000 Speaker 4: big three in terms of market share, in terms of 133 00:06:46,680 --> 00:06:47,320 Speaker 4: growth rates? 134 00:06:47,320 --> 00:06:49,039 Speaker 1: Can you quantify some of these things for us? 135 00:06:49,480 --> 00:06:53,760 Speaker 3: Yeah, So in the private credit business, which I'm sorry, 136 00:06:54,000 --> 00:06:56,040 Speaker 3: in the credit ratings business, which is what I think 137 00:06:56,360 --> 00:06:59,440 Speaker 3: you know you're referring to. We're the world's fourth largest 138 00:06:59,600 --> 00:07:03,880 Speaker 3: credit agency now, so we're a little bit smaller than 139 00:07:04,320 --> 00:07:08,440 Speaker 3: the three legacy firms that you referenced, But where we 140 00:07:08,480 --> 00:07:12,040 Speaker 3: are growing and where we're focused is, you know, primarily, uh, 141 00:07:12,080 --> 00:07:16,440 Speaker 3: in adjacencies. We're very strong in Canada. We own DVRs 142 00:07:16,520 --> 00:07:20,120 Speaker 3: and so that's the premier franchise in Canada, and so 143 00:07:20,560 --> 00:07:23,360 Speaker 3: we're big partners to all the financial institutions and issuers 144 00:07:23,400 --> 00:07:25,480 Speaker 3: in Canada. And then uh, you know, around the world, 145 00:07:25,560 --> 00:07:28,080 Speaker 3: we've really tried to lean into areas where there's a 146 00:07:28,120 --> 00:07:32,560 Speaker 3: premium on transparency, there is a premium on service, and 147 00:07:32,880 --> 00:07:35,080 Speaker 3: where some of the barriers that exist in the fundamental 148 00:07:35,160 --> 00:07:38,640 Speaker 3: corporatings business in in you know, elsewhere around the world 149 00:07:38,720 --> 00:07:41,120 Speaker 3: don't exist because there's more of a level playing field. 150 00:07:41,160 --> 00:07:43,400 Speaker 3: And that's one of the interesting things about private credit 151 00:07:43,800 --> 00:07:46,680 Speaker 3: and if you're trying to rate debt there the playing 152 00:07:46,680 --> 00:07:50,000 Speaker 3: field is far more leveled because it doesn't exist uh 153 00:07:50,040 --> 00:07:53,320 Speaker 3: in the way that the traditional corporate fundamentals have existed, 154 00:07:53,720 --> 00:07:57,760 Speaker 3: which have sort of favored, if you will, the legacy players, 155 00:07:57,800 --> 00:07:59,600 Speaker 3: and in in a way that some new markets do not. 156 00:08:00,040 --> 00:08:01,640 Speaker 1: All right, Canal, we have to leave it there. 157 00:08:01,760 --> 00:08:03,800 Speaker 2: Great to have some time with you on this Friday, 158 00:08:03,800 --> 00:08:06,640 Speaker 2: that is Kunal Kapor. He is the CEO of morning 159 00:08:06,680 --> 00:08:06,880 Speaker 2: Star