Morningstar Investment in Allocator
Allocator, an investment data and technology company, has secured growth capital from independent investment research provider, Morningstar, in exchange for a minority stake in the company.
Allocator was founded by former investors in alternative funds who saw a need for comprehensive fund data and robust data management tools to improve the process of reporting, fund selection and portfolio management. Under the oversight of its data team, Allocator makes use of Robotic Process Automation to quickly and accurately process incoming data from fund managers and third-party data feeds.
Leveraging the Allocator platform, limited partners (LPs) investing in private funds gain access to standardized data on their funds and underlying investments as well as analytical tools, saving time and resources while evaluating positions. For fund managers (GP), Allocator’s security and privacy controls provide a secure way to service their clients. Following the injection of growth capital, Allocator will remain and operate as an independent entity.
Brett Kaluza, Vice President of Customer Success at PitchBook, a Morningstar company, says: "Allocator provides essential data and tools limited partners and other private capital market investors need to make informed allocation and investment decisions. Their platform capabilities perfectly align with PitchBook’s mission of delivering insights into the evolving capital markets. Our investment in Allocator will help them further advance our shared vision of providing differentiated data and insights while streamlining workflows and catalyzing confident investment decisions.”
Morningstar’s investment in Allocator brings to light some deeper trends Morningstar has been pursuing in the last decade. Known for its public markets data and tools for fixed income, equity, credit ratings and financial planning, Morningstar has been consistently progressing within private markets as private equity and other alternative assets have grown in size and importance.
Information is limited and inconsistent in private markets, and this has led to several problems in the past:
Lost M&A deals and lower-value deals
Over-valuation in private markets that didn’t translate well to public markets
Inefficiencies caused by limited players and access
According to research from EY, 46% of PE executives believe the availability of sufficiently granular data is the most important factor keeping them in an acquisition process while 44% believe that a lack of confidence in information is the most significant factor that causes a PE firm to reduce its offer or walk away from a deal. The acquisition of PitchBook, a company that delivers data, research, and technology covering the breadth of the private capital markets, including venture capital, private equity, and mergers and acquisitions (M&A), in 2016 allowed Morningstar to significantly expand its footprint in the private markets arena.
In terms of private equity as an asset class, institutional investors account for a significant portion of Pitchbook’s userbase. LPs use the platform for activities such as fund screening and due diligence, monitoring existing managers’ relative performance and comparing investment strategy with other allocators. Given the overlap in clients served, it will be interesting to see if Morningstar’s investment in Allocator will lead to opportunities for collaboration and functionality between the two platforms in future.
Outside of Pitchbook, Morningstar may see the United States Department of Labor’s recent decision to allow private equity investments by defined contribution retirement plans as further encouragement to increase its private markets credentials. Employee-sponsored defined benefit plans, such as the pension funds of public sector workers, have long been allowed to include private capital funds in their investment portfolios, turning private equity into a multi-trillion-dollar industry, but managers of defined contribution plans, including 401(k) plans, stayed cleared of private equity investments, uncertain whether federal rules allowed them to include them in their portfolios and fearful of the risk of litigation. Now, direct contribution plans are allowed to invest a component of their portfolio into private equity funds offered through professionally managed vehicles such as target-date, target-risk or balanced funds, sharply increasing the need for accurate data in new areas which are already well-served by Morningstar.
Morningstar’s Additional Investment Activity
In 2018, Morningstar founder and executive chairman Joe Mansueto personally invested in Owler, a business information and insights platform that provides company data and real-time news updates on both private and public companies. The Owler investment is further evidence of Mansueto’s interest and potentially Morningstar’s aim to bridge the gap for customers looking to understand the full impact and trends across public and private market capital flow.
Alongside its push into the private markets, Morningstar has also heavily focused on expanding its public markets offerings. The acquisition of credit ratings agency DBRS in 2019 helped Morningstar expand its footprint to Canada and Europe, while the acquisition of AdviserLogic in 2019 and PlanPlus Global in 2020 allowed for a more integrated, standardized software and enhanced risk profiling tools.
Morningstar is also a big proponent of equality and inclusivity. The firm has invested in ElleVest, a financial planning company for women, several times over the years, in addition to announcing the acquisition of Sustainalytics, a global provider of ESG and Corporate Governance research and ratings, in 2020.
"Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company's economic moat or the stability of its credit rating, this is the future of long-term investing," said Morningstar Chief Executive Officer Kunal Kapoor. "By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics' mission of contributing to a more just and sustainable global economy."
It is interesting to note that Morningstar has previously taken minority stakes in companies before it acquires them, suggesting that the company tests the waters to identify synergies in each area it invests in before fully committing. Now, with its strategic minority investment in Allocator, Morningstar may be moving towards building an all-encompassing set of data and investment tools for both private and public markets.
To learn more about Allocator and Pitchbook, visit the PE Stack Vendor Profiles page by clicking the images below.
