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