morn-20231231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
For the fiscal year ended December 31, 2023
OR
For the transition period from to
Commission File Number: 000-51280
MORNINGSTAR, INC.
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
22 West Washington Street
Chicago, Illinois
60602
(Address of Principal Executive Offices) (Zip Code)
(312) 696-6000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common stock, no par value MORN The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of shares of common stock held by non-affiliates of the registrant as of June 30, 2023 was $5.1 billion. As of February 16, 2024, there were 42,728,182 shares of the registrant's common stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the registrant's Definitive Proxy Statement for the 2024 Annual Meeting of Shareholders, which will be filed not later than 120 days after the registrant's fiscal year ended December 31, 2023, are incorporated into Part III of this Form 10-K.
Table of Contents
Table of Contents
Part I 3
Item 1. Business 3
Item 1A. Risk Factors 31
Item 1B. Unresolved Staff Comments 51
Item 1C. Cybersecurity 51
Item 2. Properties 53
Item 3. Legal Proceedings 53
Item 4. Mine Safety Disclosures 53
Item 6. [Reserved] 55
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 83
Item 8. Financial Statements and Supplementary Data 84
Item 9A. Controls and Procedures 128
Item 9B. Other Information 129
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 130
Item 10. Directors, Executive Officers, and Corporate Governance 130
Item 11. Executive Compensation 131
Item 14. Principal Accountant Fees and Services 131
Item 15. Exhibits and Financial Statement Schedules 132
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Part I
Item 1. Business
Our Mission
Our mission is to empower investor success and everything we do at Morningstar is in the service of the investor. The investing ecosystem is complex, and navigating it with confidence requires a trusted, independent voice. We deliver our perspective to institutions, advisors, and individuals with a single-minded purpose: to empower every investor with conviction that they can make better-informed decisions and realize success on their own terms.
Our Business
Morningstar, Inc. is a leading global provider of independent investment insights. Our core competencies are data, research, and design, and we employ each of these to create products that clearly convey complex investment information. We started with affordable publications for individuals, then moved to creating technology solutions for professionals to help them research and select investments for clients. Today, we offer a variety of products and solutions that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities. We also apply our investing expertise to managing assets for clients who prefer to employ the expertise of professional portfolio management teams. Since our founding in 1984, we’ve expanded our presence in global markets where investors need an independent view they can trust.
We structure our business to help investors in three key areas. First, we support individuals, financial advisors and wealth managers, asset managers, and institutions who make their own investment decisions. Through our Morningstar Data and Analytics and PitchBook segments and our Morningstar Sustainalytics products, our customers have access to a wide selection of investment data, fundamental equity research, manager research, private capital markets research, environmental, social, and governance (ESG) ratings, fund ratings, and indexes directly on our proprietary desktop or web-based software platforms, or through direct data feeds, direct shares, streaming capabilities and application programming interfaces (APIs). Major product areas and products within our Morningstar Data and Analytics segment include Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, and Morningstar Research, while the PitchBook segment includes the PitchBook Platform and data as well as Leveraged Commentary & Data (LCD).
Second, through our Morningstar Wealth and Morningstar Retirement segments, we provide investment management services and advisor tools and platforms. Morningstar Wealth's managed portfolio offerings help advisors deliver investor-friendly products based on our valuation-driven, fundamentals-based approach to investing, applying Morningstar's expertise in asset allocation, investment selection, and portfolio construction. Meanwhile Morningstar Wealth's practice and portfolio management software allows advisors to continually demonstrate their value to clients, from aggregating client accounts to provide visibility into holdings and creating an initial investment proposal, to reporting portfolio performance and providing automated rebalancing. Through Morningstar Retirement, we help retirement plan sponsors and retirement specialist advisors build high-quality savings programs for employees. Morningstar Wealth includes Investment Management, Morningstar.com, and Morningstar Office. In addition, we provide investable solutions to build portfolios based on unique Morningstar intellectual property through our Morningstar Indexes products. Investors also use our indexes as benchmarks, to create investable products based off our proprietary research, or to construct portfolios using customized indexes.
Finally, through our Morningstar Credit segment, Morningstar DBRS provides independent credit ratings services for financial institutions, corporate and sovereign entities, and structured finance products and instruments.
While other companies may offer research, ratings, data, software products, indexes, or investment management services, we are one of the few companies that can deliver all of these with the mission of empowering investor success. We believe that focus on putting investors first, paired with the way we use design and technology to communicate complex financial information, sets us apart from our peers in the financial services industry.
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Our Data, Research, and Ratings
Morningstar’s trusted data, research, and ratings underpin everything we do across our business. Our data covers a wide range of investment offerings, including managed investment products, publicly listed companies, private companies, fixed-income securities, private credit, and bank loans.
We focus our data, research, and ratings efforts on several areas:
Manager research (including mutual funds, exchange-traded funds, separately-managed accounts, and other vehicles)
We’ve been providing independent analyst research on managed investment strategies since the mid-1980s. In 2023, we united our two forward-looking managed investment ratings–the Morningstar Analyst Rating and the Morningstar Quantitative Ratings for funds–into a single rating: the Morningstar Medalist Rating. Decades of experience blending human and machine-driven research and analysis already underpinned our qualitative and quantitative ratings approaches. Combining them into a one ratings system reflects our confidence in the efficacy and quality of the combination at scale. The combination leaves underlying methodologies for analyst and quantitative ratings unchanged but simplifies how we present our ratings to investors and makes it easier to analyze, select, and monitor managed investments. The Medalist Rating covers more than 179,000 mutual funds, exchange-traded funds (ETFs), separately managed accounts, and model portfolios and more than 412,000 share classes worldwide. This augments other quantitative ratings and analytics, such as the Morningstar Rating for funds (the “star rating”), which ranks managed investment strategies such as mutual funds based on their past risk-adjusted performance versus their Morningstar category peers. We also publish research and ratings on state-sponsored college-savings plans, target-date funds, and health-savings accounts.
In addition, the Morningstar Style Box visually depicts a strategy’s underlying investment style, making it easier to compare investments and build portfolios. The star rating and style box have become important tools that millions of investors and advisors use to make investment decisions.
We also offer the Morningstar Sustainability Rating, Low Carbon Risk Designation, and Sustainability Summary to help investors evaluate funds based on ESG factors.
As of December 31, 2023, we had more than 130 manager research analysts and other researchers globally, including teams in North America, Europe, Australia, and Asia.
Public company and private market research
As part of our research efforts on individual stocks, we popularized the concepts of economic moat, a measure of competitive advantage originally developed by Warren Buffett, and margin of safety, which reflects the size of the discount in a stock's price relative to its estimated value. The Morningstar Rating for stocks is based on the stock's current price relative to our analyst-generated fair value estimates, as well as the company's level of business risk and economic moat. Our analysts cover approximately 1,600 companies using a consistent, proprietary methodology that focuses on fundamental analysis, competitive advantage assessment, and intrinsic value estimation. Morningstar’s data and research on publicly traded companies is used extensively in our products and solutions, such as institutional equity research, Morningstar Indexes such as the Morningstar Wide Moat Focus Index, our Global Market Barometer, and as a basis for equity portfolio strategies used in Morningstar Managed Portfolios.
Morningstar adheres to a globally consistent framework that integrates ESG risk into our equity research. Analysts identify valuation-relevant risks for each company using Morningstar Sustainalytics' ESG Risk Ratings, which measure a company's exposure to material ESG risks, and then evaluate the probability that those risks materialize and the associated valuation impact. Results from this research inform Morningstar's assessment of a stock's intrinsic value and the margin of safety required before assigning a Morningstar Rating for stocks.
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PitchBook’s Institutional Research Group is a provider of investment strategy, fund performance and industry research. The group leverages PitchBook’s proprietary data, such as valuations, deal multiples, and fund returns, to deliver analysis that allows clients to quickly gauge trends, price transactions, assess risks and identify notable company sets in the private capital markets. As of December 31, 2023, the team provides coverage of the private equity, venture capital, real assets, leveraged loan, high-yield bond, and private credit asset classes. PitchBook also provides full-time analyst coverage of emerging technology industries, delivering comprehensive assessments of disruptive sectors to help clients better segment and size markets, understand company and investor landscapes, evaluate opportunities, and develop conviction around the growth trajectories of emerging industries.
As of December 31, 2023, we had 128 public equity researchers and 35 private markets researchers globally, making us one of the largest providers of independent equity research. In addition to our analyst-driven coverage, we provide quantitative ratings and reports for approximately 59,000 publicly traded companies across Morningstar's solutions and cover 3.8 million privately-held companies through the PitchBook Platform.
Credit ratings
Morningstar DBRS provides global credit ratings as the world’s fourth largest credit rating agency. We rate more than 4,000 issuers and 60,000 securities worldwide, providing independent credit ratings for financial institutions, corporate and sovereign entities, and structured finance products and instruments. Our goal is to bring more clarity, diversity, and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs with the necessary expertise and resources.
As of December 31, 2023, we had 549 credit rating analysts and analytical support staff based in the United States (U.S.), Canada, Europe, and India.
ESG ratings
Morningstar Sustainalytics’ ESG Risk Ratings empower investors by providing them with the tools to assess financially material ESG risks that could affect the long-term performance of their investments at the security, fund, and portfolio levels. The ratings introduce a single measurement unit to assess ESG risks across 20 different material ESG issues (MEIs). Unlike other ESG ratings that are based on a relative, best-in-class approach, Morningstar Sustainalytics’ ESG Risk Ratings are designed to provide a powerful signal of a company’s absolute ESG risk that is comparable across peers and sub-industries while allowing for aggregation at the portfolio level. As of December 31, 2023, we rated more than 19,000 companies worldwide, and offered more than 13,700 ESG Risk Ratings free to the public so that any investor can benefit from our research.
As of December 31, 2023, we employed over 750 ESG research and data analysts based in the U.S., Canada, Europe, and Asia.
Our Segments and Products
We operate our business through five reportable segments: Morningstar Data and Analytics, PitchBook, Morningstar Wealth, Morningstar Credit, and Morningstar Retirement. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are referred to as, and included in, Corporate and All Other in our Consolidated Financial Statements.
Morningstar Data and Analytics
Morningstar Data and Analytics provides investors comprehensive data, research and insights, and investment analysis to empower investment decision-making. Morningstar Data and Analytics includes Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Direct Web Services, Morningstar Research Distribution, and Morningstar Publishing System. These productsprovide seamless access to Morningstar's managed investment, public equities, and fixed-income data, with a focus on making the work of portfolio managers, product developers, marketers, advisors, and analysts more efficient and effective. Morningstar Data, Morningstar Direct and Morningstar Advisor Workstation are the largest product areas in this segment.
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Morningstar Data's licensed data gives asset managers, redistributors, and wealth managers independent, comprehensive, and timely data and research they can use to empower investor success. Our offering spans managed investments (including mutual funds, ETFs, separate accounts, collective investment trusts, and model portfolios), equities, and fixed income securities and is available globally.
We are well-known for enriching raw data on managed investments with research-driven intellectual property, resulting in proprietary statistics, such as the Morningstar Category, Morningstar Style Box, and Morningstar Rating, which we distribute through licensed data feeds. We also offer a wide range of other data sets, including information on investment performance, risk analytics, full historical portfolio holdings, operations data (such as managed investments’ fees and expenses), cash flows, financial statement data, consolidated industry statistics, and investment ownership.
Clients license Morningstar Data to build transparent products and services that investors, from those just starting out to sophisticated and high net worth individuals, can understand and use to reach their investing goals. Morningstar Data is used to serve retail investors and their intermediaries, supporting a variety of investor communications, including websites, print publications, and marketing fact sheets, as well as for internal research and product development. Demand for Morningstar Data has increased as clients build digital solutions, prepare for regulatory requirements, and incorporate automation, artificial intelligence (AI), machine learning, and other forms of data analytics into their workflows. We’re committed to covering our clients’ whole portfolios and offering the data they need to make informed investment decisions.
Our goal is to offer clients data that is available quickly and in the format most appropriate for their workflows. Our data feeds enable our clients to discover the data that they need, and to schedule delivery in S3, FTP, CSV, XML, JSON, Text, and TSV output formats. We provide access to Morningstar Data utilizing an application programming interface (API) format to download and process large data files. The Morningstar Data team applies emerging methods in AI to regression, classification, deep learning, natural language processing, and optical character recognition to extract data from structured and unstructured content. The Morningstar Data team uses a "human in the loop" approach where machine inferences are presented to a data analyst for validation. Validated data is published in Morningstar products and used to retrain and continuously improve the Morningstar Data team's machine learning models. This approach enables Morningstar to produce data faster without compromising the quality of data that our clients use in making sound investment decisions.
Pricing is based on the number of investment vehicles, the amount of information provided for each security, the frequency of updates, the method of delivery, the size of the licensing firm, the level of distribution, and the intended use by the client, otherwise known as the “use-case.”
In 2023, Morningstar Data’s largest markets were North America and Europe.
Our main global competitors for mutual fund data include FE fundinfo and LSEG (Refinitiv). We also compete against smaller players that focus on local or regional information.
For market and equity data, we primarily compete with Bloomberg, FactSet, ICE Data Services, LSEG (Refinitiv), and S&P Global.
We estimate that the annual revenue renewal rate for Morningstar Data was approximately 104% in both 2023 and 2022.
Morningstar Direct is an investment-analysis and reporting platform that delivers rich data and analytics across asset classes and streamlines the creation and distribution of collateral to client-facing groups and internal teams. Built on Morningstar's global database of registered and non-registered securities and data from third-party providers, the platform helps equity and multi-asset strategy asset managers with market research, product positioning, competitive analysis, and distribution strategies. Wealth managers predominately use the tool to assist with manager research, fund selection, and the construction, monitoring, and distribution of model portfolios.
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In 2023, we laid the groundwork for the future of Morningstar Direct with several important releases. Direct Lens is a new experience inside Morningstar Direct that unifies our portfolio capabilities in a clear and intuitive interface, so users spend less time searching for the right tools and more time analyzing data. Self-service data feeds in Morningstar Direct give users a new way to get the data they want, when they need it, in the format they need. And the Morningstar Data Python package gives data scientists, data strategists, and quantitative analysts access to our data in favorite coding environments, so they can combine our data with proprietary or third-party data to explore new frontiers of data science. During the year, we also expanded the datapoints, calculations, and portfolio-level data in Morningstar Direct, enriching our data coverage across fixed income, ETFs, ESG, model portfolios, and alternatives to reflect investors' more complex and dynamic strategies.
Morningstar Direct is a desktop application that is installed locally on users’ computers. The Morningstar Direct desktop application connects over the internet to databases and application servers hosted primarily in Morningstar data centers, with some use of cloud (AWS) infrastructure. A large portion of Morningstar Direct’s features and functionality are delivered using modern web components and frameworks delivered within the legacy application.
Pricing for Morningstar Direct is based on the number of licenses purchased. We have simplified our licensing model to eliminate charges for add-on features to maximize our customer experience and allow users to extract more value from our products.
Morningstar Direct's primary markets are North America and Europe.
Morningstar Direct's primary competitors are Bloomberg, eVestment Alliance, FactSet Research System’s Cognity and SPAR, Refinitiv’s Eikon, Strategic Insight’s Simfund, and Zephyr.
We estimate that our annual revenue renewal rate for Morningstar Direct in 2023 was approximately 101% versus 99% in 2022.
Morningstar Advisor Workstation is a connected suite of tools spanning proposal creation, investment research, investment planning, and more designed to help our clients provide great advice to their clients. It is powered by Morningstar’s data, research, investor profiling tools, and robust portfolio analytics.
The software is typically sold through an enterprise contract and is primarily for retail advisors because of its strong ties and integration with home-office applications and processes and a library of Financial Industry Regulatory Authority (FINRA) reviewed reports that meet compliance needs. It allows advisors to build and maintain a client portfolio database that can be fully connected with the home-office firm's back-office technology and resources. This helps advisors present and illustrate their portfolio investment strategies, show the value of their advice, and meet existing and emerging regulatory requirements, all at scale.
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In 2023, we continued to enhance Morningstar Advisor Workstation. We launched the Investment Planning Experience, a new workflow which helps advisors meet demand for more personalized advice for investors. We also introduced Enterprise Analytics, which offers firms deeper visibility and insights into firm wide advisor activity, including better visibility into compliance risk from proposal generation. The compliance dashboard supports firm monitoring activities by sharing insights into how proposals align to firm compliance policies for key regulations such as Regulation Best Interest in the U.S. and the Client Focused Reforms in Canada.
We also continued to build out the App Hub ecosystem, a two-sided digital marketplace initially introduced in 2022 where clients can access third-party applications that connect into the platform. Enhancements to the ecosystem included making several new app providers available to advisors, including Asset-Map and iCapital. With access to a growing marketplace of advisor-tech and advisor-services applications, our clients can build on their subscription of Morningstar Advisor Workstation with additional tools designed to help them create better and differentiated advice.
Pricing for Morningstar Advisor Workstation for our enterprise clients varies based on the number of users, the number of research databases licensed, and level of functionality deployed. We charge fixed annual fees per licensed user for a base configuration of Advisor Workstation, but pricing varies significantly based on the scope of the license. We also provide a three-tiered pricing model for individual subscribers who are not affiliated with an active enterprise client.
Morningstar Advisor Workstation is offered in the U.S. and Canada.
Competitors for Morningstar Advisor Workstation include Broadridge, CapIntel, Orion, Riskalyze, and YCharts. Occasionally, broker/dealers also decide to build their own internal tools and attempt to bring their advisors’ practice management tools in-house.
We estimate that our annual revenue renewal rate for Advisor Workstation for 2023 was approximately 93% versus 89% in 2022.
PitchBook
PitchBook provides investors with access to a broad collection of data and research covering the private capital markets, including venture capital, private equity, private credit and bank loans, and merger and acquisition (M&A) activities. Investors can also access Morningstar's data and research on public equities. The PitchBook segment is primarily comprised of the PitchBook Platform, but also includes direct data (which is also included in the PitchBook product area as reported in 2023), as well as buyside equity data and LCD.
The PitchBook Platform is an all-in-one web-hosted solution for investment and research professionals, including venture capital and private equity firms, corporate development teams, investment banks, limited partners, lenders, law firms, and accounting firms. Clients rely on PitchBook for a central, easy-to-use platform that provides access to the broadest collection of data and research covering the private capital markets as well as Morningstar's data and research on public equities. In addition to the PitchBook Platform, PitchBook also offers a mobile application, customer relationship management (CRM) integrations, Excel and PowerPoint plug-ins, data feeds, and flexible, à la carte data solutions that allow clients to access a variety of data points on demand.
To accommodate our clients' diverse needs, the platform offers data and analytical tools including company profiles for both private and public companies, advanced search functionality, and other features that help to inform discovery and research, and optimize workflow by surfacing relevant information and insights. Our clients source deals, raise capital, build buyer lists, benchmark funds, and network with the PitchBook Platform.
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The 2022 acquisition of LCD added leveraged loan and high-yield bond data, news, and analysis to PitchBook’s capabilities. During 2023, PitchBook substantially completed the integration of LCD’s core data offering and LCD research and news onto the PitchBook Platform, adding significantly to PitchBook’s existing debt transaction, issuer, and borrower coverage and positioning it as a one-stop shop for private finance transaction data, news, and research. PitchBook’s integration of LCD data introduced 53,000 debt financing rounds, 92,000 loan and bond facilities underneath those financing rounds, and 15,000 issuers, in addition to PitchBook’s existing database of more than 400,000 private credit transactions. During 2023, the PitchBook Platform’s private credit coverage was expanded to include data on an additional 9,800 credit events, 2,200 unique loan transactions and 330 unique collateralized loan obligations. We also launched the Credit Pitch newsletter, which had a subscriber base of more than 240,000 as of December 2023.
In 2023, PitchBook continued to expand the reach of its public and private equity data and introduced new capabilities to inform investor strategies and provide context on market shifts and the expansion and contraction of verticals. Key enhancements included the introduction of a new clinical trials dataset to evaluate biotech and pharma companies, and the VC Exit Predictor, a proprietary tool and scoring methodology to predict exit outcomes for VC-backed companies. At the same time, PitchBook continued to enhance its core datasets across global venture capital, private equity, and M&A, with a focus on the expanding number of companies, deals and funds under coverage in the Middle East, Africa, Latin America and Asia-Pacific regions as it added approximately 80,000 deals in these regions. Finally, to support deal execution and valuation workflows, PitchBook enhanced its public equity datasets and capabilities with the addition of more detailed industry metrics and improved timeliness and quality of information on public company profiles.
Additionally, PitchBook invested in new capabilities and data sets to help limited partners (LPs) make better allocation decisions using our comprehensive and transparent fund data. These include a new benchmark experience to streamline performance benchmarking workflows and the introduction of the Manager Scoring tool, a new methodology that helps limited partners discover and evaluate top performing private fund managers.
Pricing for the PitchBook Platform is based on the number of seats, with standard base license fees per user and customized prices for large enterprises, boutiques, and startup firms.
In 2023, PitchBook’s largest markets were North America and Europe.
PitchBook's main competitors are CB Insights, Preqin, and S&P Global Market Intelligence as well as certain smaller, niche competitors.
In 2023, we estimate that our annual revenue renewal rate for the PitchBook Platform was approximately 112% versus 121% in 2022.
PitchBook had 107,840 licensed users worldwide as of December 31, 2023.
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Morningstar Wealth
Morningstar Wealth’s mission is to empower both advisors and investors to succeed. Morningstar Wealth brings together Investment Management, which includes our model portfolios and wealth platforms; practice and portfolio management software for registered investment advisers (RIAs) (Morningstar Office); data aggregation and enrichment capabilities (ByAllAccounts); and our individual investor platform (Morningstar.com). Morningstar Wealth products are designed to streamline workflows, and help advisors deliver scalable and customized advice, with the ultimate goal of helping clients achieve their long-term financial goals. As of December 31, 2023, Morningstar Wealth assets under management and advisement (AUMA) totaled $55.5 billion.
Investment Management’s flagship offering is Morningstar® Managed Portfolios, an advisor service consisting of model portfolios designed for fee-based independent financial advisors. Our core markets are the U.S., U.K., South Africa, and Australia. We target like-minded advisors who hire us to manage a substantial portion of their client’s assets in alignment with our principles of putting investors first, keeping costs low, and investing for the long-term. We build our multi-asset strategies using mutual funds, ETFs, and individual securities, and tailor them to meet specific investment time horizons, risk levels, and projected outcomes. In 2023, net flows exceeded $2.8 billion across our Managed Portfolios.
Morningstar Managed Portfolios are available through two core distribution channels: the Morningstar Wealth Platforms, which offer fee-based discretionary asset management services, also known as a turnkey asset management program (TAMP) in the U.S.; or as strategist models on third-party managed account platforms. We charge asset-based program fees for Managed Portfolios, which are typically based on the distribution channel (i.e., TAMP versus strategist models) and the products contained within the portfolios. We offer the Morningstar Wealth Platforms in the U.S. and in Europe, Middle East, and Africa (EMEA). We serve as a fund and model provider in our other international markets.
Our U.S. and EMEA wealth platforms are end-to-end digital investing experiences, designed to meet the unique needs of the local region and offering access to our model portfolios. Advisors working with our U.S. wealth platform also have access to a curated selection of third-party portfolios that have undergone a rigorous selection process, as well as our direct indexing capabilities, which allow advisors to personalize index portfolios to address their clients’ individual preferences and tax management needs. Our proprietary wealth platforms offer functionality such as risk assessments, proposals, digital account opening and ongoing management, client reporting, customer support, marketing services, and back-office features, such as trading and billing services. Using our wealth platform allows U.S.-based advisors share fiduciary responsibility with us.
In addition to Morningstar Managed Portfolios, other services we provide include institutional asset-management (e.g., act as a subadvisor) and asset-allocation services for asset managers, broker/dealers, and insurance providers. We offer these services through a variety of registered entities in Australia, Canada, the United Arab Emirates (UAE), France, Japan, South Africa, the U.K., and the U.S.
We base pricing for institutional asset-management and asset-allocation services on the scope of work, our degree of investment discretion, and the level of service required. For most of our contracts, we receive asset-based fees.
For Morningstar Managed Portfolios offered through our U.S. Morningstar Wealth Platform and the Morningstar Wealth Platform itself, our primary competitors are AssetMark, Envestnet, Orion/Brinker Capital, and SEI Investments Company. Our primary strategist offering competitors are BlackRock, Russell, and Vanguard in the U.S., and we face competition from Financial Express and Tatton in EMEA, and Elston, Iress, Lonsec, Russell, and Zenith in Australia. We also compete with in-house research teams at independent broker/dealers who build proprietary portfolios for use on brokerage firm platforms, as well other registered investment advisers that provide investment strategies or models on these platforms.
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Morningstar.com helps individual investors discover, evaluate, and monitor stocks, ETFs, and mutual funds; build and monitor portfolios; and monitor the markets. Revenue is generated from paid memberships for Morningstar Investor, Morningstar Premium, and internet advertising sales. Morningstar Investor is the successor to Morningstar Premium in the U.S. and Australia.
Our Morningstar Investor offering is focused on providing transparency into investment choices to enable investors to make informed decisions about their portfolios. Members have access to proprietary Morningstar research, ratings, data, and tools, including analyst reports, portfolio management tools (such as Portfolio X-Ray), and stock and fund screeners. We offer Investor and Premium memberships in Australia, Canada, Italy, the U.K., and the U.S.
Unlike many consumer-facing websites, Morningstar.com sells advertising space directly to advertisers. This approach allows us to build meaningful relationships with our advertisers and helps us protect the integrity of our brand.
In 2023, we continued to invest in the technology platform supporting Morningstar.com, with notable enhancements including data infrastructure and web performance upgrades. These allowed us to introduce new experiences such as our Asset Management Company pages and our revamped stock quote page with new portfolio exposure and customizable data point functionality. We also continued to develop our individual investor digital portfolio and research tools in Morningstar Investor, which are designed to make it easier for individuals to better understand what they own across their full portfolio, find new investment ideas, and make more informed investment decisions. We charge a monthly or annual subscription fee for Morningstar Investor and Morningstar Premium and an annual subscription fee for Morningstar Newsletters.
Morningstar.com primarily competes with trading platforms that concurrently offer research and investing advice, such as Fidelity, Schwab, and TD Ameritrade. Research sites, such as Seeking Alpha, The Motley Fool, and Zacks Investment Research, also compete with us for paid membership. In addition, free or “freemium” websites, such as Dow Jones/Marketwatch and Yahoo Finance, are also competitors for some customers. Kiplinger, TheStreet.com, and The Wall Street Journal all compete for the advertising dollars of entities wishing to reach an engaged audience of investors.
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As of December 31, 2023, Morningstar.com had more than 100,000 paid Morningstar Investor members in the U.S. plus an additional roughly 12,500 Premium and Morningstar Investor members across other global markets.
Morningstar Credit
Morningstar Credit provides investors with credit ratings, research, data, and credit analytics solutions that we believe contribute to the transparency of international and domestic credit markets. Morningstar Credit includes Morningstar DBRS and Morningstar Credit data and credit analytics.
Morningstar DBRS is the fourth largest credit rating agency in the world, offering a wide range of credit rating services and products. Morningstar DBRS generates its revenue from providing independent credit ratings on financial institutions, corporates, and sovereigns, as well as on securitizations and other structured finance instruments, such as asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and collateralized loan obligations (CLO). The credit analysis and the assignment of credit ratings can take place on issuance of new bonds or on a continuous basis for existing credit exposures. The fees to the issuer are based on the type of issuance, the size of the transaction, and the complexity of the analysis.
Credit ratings are forward-looking opinions on credit risk that reflect the creditworthiness of a company or fixed-income security. They are determined within the framework of a ratings committee that represents a collective assessment of Morningstar DBRS’s opinion rather than the opinion of an individual analyst. These credit ratings are based on information that incorporates both global and local considerations and the use of approved methodologies and are determined in compliance with policies and procedures designed to avoid or manage conflicts of interest. Morningstar DBRS’s credit rating methodologies are publicly available and support the objectivity and integrity of the credit rating process. Morningstar DBRS also offers a micro-website dedicated to ESG factors deemed relevant to credit ratings analysis.
In addition to ratings and research opinions, Morningstar DBRS also offers data products derived from its ratings activities and analytical tools. These include ratings data feeds that can be integrated into companies’ internal databases, web-based research, and analytical tools.
In 2023, Morningstar DBRS’s largest markets by revenue were the U.S., followed by Canada and EMEA.
Morningstar DBRS competes with several other firms, including Fitch, Kroll Bond Ratings, Moody’s, and S&P Global Ratings.
For 2023, we estimate that transaction-based fees comprised 50% of Morningstar DBRS's revenue; the remainder can be classified as transaction-related, or revenue generated by annual fees tied to surveillance, research, and other services.
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Morningstar Retirement
Morningstar Retirement offers products designed to help individuals reach their retirement goals. Its offerings include managed retirement accounts (MRA), fiduciary services, Morningstar Lifetime Allocation funds, and custom models. As of December 31, 2023, Morningstar Retirement AUMA totaled $230.4 billion.
Delivered primarily through the Morningstar Retirement Manager platform, our MRA program helps retirement plan participants define, track, and achieve their retirement goals. As part of this service, we deliver personalized recommendations for a target retirement income goal, a recommended contribution rate to help achieve that goal, a portfolio mix based on our Total Wealth methodology, and specific investment recommendations. We then manage the participant’s investment portfolio for them, assuming full discretionary control. We also offer advisor managed accounts, a program that allows advisor firms to specify and assume fiduciary responsibility for the underlying portfolios that are used within MRA. We do not hold assets in custody for the MRA we provide.
Within the managed accounts market, there are three large players (MRA, Edelman/Financial Engines, and Fidelity) and several smaller players, which are a combination of legacy and newer players. Technology-based companies like Pontera are also creating competing services to our MRA by developing a back door into an individual’s retirement account that wealth managers can use to manage their clients’ retirement assets in real time. In our fiduciary services offering, we help plan sponsors build out and manage an appropriate investment lineup for their participants while helping to mitigate their fiduciary risk. Morningstar Plan Advantage is an extension of our fiduciary services that includes a technology platform that is designed to help advisors at broker/dealer firms to more easily offer fiduciary protection, provider pricing, and investment reporting services to their plan sponsor clients. Our main competitors in fiduciary services are Mesirow and Wilshire Associates, but we are starting to see growing competition from smaller players, such as LeafHouse Financial. Broker/dealers are also looking to introduce their own fiduciary services distributed through their advisors.
With our custom models, we offer two different services. We work with retirement plan record-keepers to design scalable solutions for their investment lineups, including target maturity models and risk-based models. We also provide custom model services direct to large plan sponsors, creating target date funds that are customized around a plan’s participant demographics and investment menus. For custom models, we often compete with retirement plan consultants. We also serve as a non-discretionary subadvisor and index provider for the Morningstar Lifetime Allocation Funds, a series of target-date collective investment trusts (CITs) offered by Benefit Trust to retirement plan sponsors. For the Lifetime Allocation Funds, we compete with other providers of target-date funds.
In 2023, we added around 250 plans and 5,100 participants across the 18 RIAs and one asset manager on our advisor managed accounts network. We also onboarded one of the nation’s largest retirement plans onto managed accounts, developed a new IRA managed accounts offering, and expanded our Morningstar Plan Advantage platform with our two existing large broker dealer clients.
Pricing for Morningstar Retirement is generally asset-based and depends on several factors, including the level of services offered (including whether the services involve acting as a fiduciary under the Employee Retirement Income Security Act, or ERISA), the number of participants, the level of systems integration required, total assets under management or advisement, and the availability of competing products.
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Corporate and All Other
Corporate and All Other includes unallocated corporate expenses as well as financial results from Morningstar Sustainalytics and Morningstar Indexes.
Morningstar Sustainalytics provides ESG data, research, analysis, and insights to institutional investors globally, covering equity, fixed income, and sovereign asset classes. Our flagship ESG Risk Rating allows investors to assess financially material ESG risks that could affect the long-term performance of their investments. Morningstar Sustainalytics also serves corporate issuers and banking institutions through its corporate solutions products and is
a leading provider of green bond Second Party Opinions.
In addition to our risk management products, Morningstar Sustainalytics provides a range of sustainable-investing solutions for investors and financial professionals. We offer products such as our European Union Taxonomy solution, which are designed to enable investors to respond to emerging regulation surrounding sustainability reporting. Our data allows values-based investors to limit their exposure to controversial areas by applying exclusions to personalize their portfolios. Our active ownership data allows investors to understand if their sustainability funds are voting assets under management towards sustainability issues and whether a non-ESG fund is advancing other resolutions.
We’ve also expanded our data coverage and ratings to address specific sustainability themes. In 2023, we launched a Low-Carbon Transition Rating (LCTR) which provides a forward-looking, science-based evaluation of a company’s alignment with a net-zero pathway. The rating examines a firm's current management practices and answers the question: to what degree would the world warm if all companies behaved like the company examined?
In 2023, Morningstar announced a new strategic structure that more tightly connects the index capabilities of Morningstar Indexes with the ESG data, ratings, and research of Morningstar Sustainalytics.
Morningstar Sustainalytics operates on a subscription-based pricing model for its ESG research products, which supports a recurring revenue model. The corporate solutions unit deploys a model that combines one-time revenue with subscription-based recurring licensing revenue.
In 2023, Morningstar Sustainalytics' largest markets were EMEA and North America.
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Major competitors for Morningstar Sustainalytics include FTSE Russell, Moody's, MSCI, and S&P Global. While the traditional ESG research market continues to consolidate, we expect that the market will continue to evolve as new entrants emerge and investors acquire ESG data from new distributors (for example, directly from stock exchanges). Large asset managers like BlackRock, State Street, UBS, and JP Morgan are also investing heavily to build in-house ESG capabilities and sustainable investing products. New technologies, specifically those that employ AI, are facilitating these trends by accelerating the sourcing and use of unstructured ESG data.
We estimate that our annual revenue renewal rate for Morningstar Sustainalytics' license-based products was approximately 97% in 2023 versus 100% in 2022.
Morningstar Indexes offers a broad range of market indexes that can be used as performance benchmarks and as the basis for investment products and other portfolio strategies for a wide range of retail and institutional investor clients. Drawing on Morningstar's intellectual property, our global family of indexes tracks major global regions, strategies, and asset classes, including equity, fixed income, and multi-asset as well as private markets and sustainability.
We believe that investors and financial service providers today are looking for better value from their index provider, with demand for broad market indexes that are high quality but also inexpensive. We also believe that strategic beta indexes for investment strategies and market exposure, of growing importance to all investors, should be unique, research-driven and deliver better outcomes to investors. Morningstar is responding to this need by offering high-quality core beta benchmarks while delivering Morningstar research and insights through unique and differentiated strategic beta indexes.
In 2023, Morningstar Indexes completed a multi-year global project to bring index calculations in-house, significantly decreasing our reliance on outside vendors and bringing additional benefits to our clients and the business. We also introduced a number of new product innovations including the launch of global single factors indexes working with the Morningstar quantitative research team, the Next Gen AI Index in collaboration with Morningstar Equity Research, the Global Unicorn Industry Vertical Indexes working with PitchBook and Sustainable Activities Involvement Indexes with Morningstar Sustainalytics. Morningstar Indexes also broadened channels of distribution in 2023, with major advances in index licensing for direct indexing in the U.S. and for structured products in Europe. Further, in June 2023, Morningstar announced a new strategic structure that more tightly connects the index capabilities of Morningstar Indexes with the ESG data, ratings, and research of Morningstar Sustainalytics.
We license Morningstar Indexes to numerous institutions to use as the basis for ETFs, exchange-traded notes, mutual funds, derivatives and separately managed accounts. Firms license Morningstar Indexes for product creation (where we typically receive the greater of a minimum fee or basis points tied to assets under management) and data licensing (where we typically receive annual licensing fees). In both cases, pricing varies based on the level of distribution, the type of user, and the specific indexes licensed. In addition, Morningstar Indexes offers index calculation and administration services through its growing Index Services business.
In 2023, Morningstar Indexes’ largest markets were North America and EMEA.
Major competitors for Morningstar Indexes include Bloomberg Indices, FTSE Russell, MSCI, and S&P Dow Jones Indices (offered through S&P Global).
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Our Strategy
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Our strategy is to deliver insights and experiences that make us essential to investor workflow. Proprietary data sets, meaningful analytics, independent research, and effective investment strategies are at the core of the powerful digital solutions that investors across our client segments rely on. We have a keen focus on innovation across data, research, product, and delivery so that we can effectively cater to the evolving needs and expectations of investors globally.
We execute our strategy through four connected elements: our values, our work, our clients, and our brand. The interaction between these four elements has enabled Morningstar to establish a position in the industry that is differentiated from our competition. We believe that our intangible assets, including the strength of our brand and our unique intellectual property, are difficult for competitors to replicate. Additionally, we strive to provide our customers with demonstrable value from our solutions making them reluctant to undertake the cost of switching to other providers.
We are currently focused on the following four strategic priorities:
Deliver differentiated insights across asset classes to public and private market investors
Shifting investor needs and expectations, innovative investment approaches and technologies, and a changing political and regulatory environment continue to drive the evolution of the financial services industry. We remain committed to empowering the modern investor with new data, research, and analytics. This includes:
•Expanding our data, research, and analytics to deliver unique, personalized, and impactful insights to investors across asset classes.
•Optimizing our advisor platform and service position by driving innovation and delivering exceptional investment solutions to advisors, facilitating great outcomes for the clients they serve around the world.
•Providing regulatory and compliance solutions for our wealth, buy-side, and asset management clients.
•Pursuing actionable information and developing workflow tools to serve core use cases of identifying private market investment opportunities, raising capital, valuing companies and investments, and buying/selling a company.
Leverage advances in AI to drive innovation across internal and external products and services
Morningstar has always been at the forefront of technology, and we believe that AI is a significant technology that will redefine the investment landscape. We use the Intelligence Engine – the core for all Morningstar’s AI developments – across our teams to get better and faster at our work, by speeding up our data collection processes, detecting data errors and system outages, increasing our support team's responsiveness, and improving our client interactions throughout the entire buying journey. This includes:
•Combining the breadth of Morningstar’s data, research, and analytical capabilities with latest advances in AI to provide better, faster, and targeted insights to investors.
•Utilizing AI to improve the quality and efficiency of data collection, synthesis, and dissemination processes.
•Using AI as a tool to improve business productivity and enable team members to focus on more high-value work.
We seek to apply AI the Morningstar way—thoughtfully to provide investors the benefits of AI without compromising the integrity and privacy of their data. The Intelligence Engine is designed to advance our mission and support good investor outcomes by taking an approach that is ethical, secure, trustworthy, transparent, and accountable.
Drive operational excellence and scalability to support growth targets
Morningstar has grown significantly in the last few years, and as we have continued to focus on growth in 2023 and beyond, we are emphasizing execution and scalability in our operations, processes, and technology. This includes:
•Creating a secure, robust, and scalable infrastructure that leverages advanced technology in our data, research, and product quality and delivery efforts.
•Scaling the demand generation function across Morningstar and driving transformation in global sales, customer success, and customer support functions to improve sales effectiveness.
•Scaling corporate systems to create more integrated platforms that enable growth of business areas while reducing legacy system fragmentation.
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Build an inclusive culture that drives exceptional talent engagement and development
Morningstar’s people and culture strategy is centered on providing a focused and differentiated approach to human capital driven by business needs. We are committed to cultivating a culture that develops talent and drives innovation. This includes:
•Strengthening the organization by investing in the people we have today and boosting resilience in our teams by building the bench of talent for the future. To drive a high-performance culture, we are focused on building the next generation of leaders at Morningstar with programs focused on our top performers, supporting and developing our managers, and modernizing our performance and talent management processes.
•Driving operational scale by continued enhancements to our integrated talent strategy focused on workforce, location, talent development, and early career programs; automating processes as appropriate; and leveraging our internal communications capabilities to meet the needs of our global employee footprint.
•Monitoring organizational well-being, including globally operationalizing workforce metrics to detect and mitigate structural barriers to inclusion and equity.
Our People and Culture
At Morningstar, our people are our most important asset. We are committed to fostering an environment where the people who power our mission know their ideas are welcome, their voices are heard, and their contributions are rewarded.
Our human capital management efforts are managed by the chief people officer and implemented with support from leaders across the company, with oversight from our chief executive officer (CEO) and board of directors. The compensation committee of our board of directors approves incentive plan design and performance goals and reviews emerging compensation policies, practices, and potential risks. In addition, human capital management efforts are implemented by leaders across the company.
As of December 31, 2023, we had 11,334 permanent, full-time employees around the world. Approximately 40% of our employees work in India, 30% in the U.S., 11% in Continental Europe, 8% in Canada, 7% in the United Kingdom (U.K.), and the remainder in Australia, Asia (ex-India), and other regions.
Diversity, Equity, and Inclusion
We believe that diverse teams make better decisions and that our colleagues' diverse backgrounds, beliefs, and experiences make Morningstar a stronger firm. As a global employer, our goal is to build an inclusive environment that encourages open dialogue, sparks creativity, and fuels innovation that may lead to better business outcomes.
As of December 31, 2023, approximately 40% of our employees are female. As of the same date, 50% of our board of directors are female. In the U.S., our employee population identifies as approximately 65% White, 22% Asian, 5% Hispanic, 5% Black, and 3% Mixed Race and Other.
Morningstar’s adjusted pay gap provides an assessment of equal pay for equal work. It examines a group of employees performing substantially similar work and highlights individuals with lower pay relative to their measured peer group. In our latest adjusted pay gap analysis, we found that, overall, women are paid 98.3% of what men are paid, and U.S. underrepresented minorities are paid 98.7% of what the U.S. non-underrepresented minorities are paid. Employees who were identified through this examination received a pay increase, separate from their ordinary course annual compensation consideration, as part of our October 1, 2023 pay cycle.
For additional breakdowns on our diverse representation by organizational level and functional areas, as well as more details on Morningstar’s pay equity program, see Morningstar’s 2023 Corporate Sustainability Report (expected to be published in spring 2024). To comply with local regulations, Morningstar also publishes a U.K. Pay Gap report available at gender-pay-gap.service.gap.uk.
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Employee Engagement
Our organization’s "people analytics” team actively monitors and shares metrics related to the employee experience. These key performance indicators include employee satisfaction, intent to stay, discretionary effort, and enablement. We ask the same questions of our employee base routinely to best understand trends over time. We also evaluate perceptions of managers, psychological safety, and overall well-being via methods such as surveys, exit interviews, and focus groups.
Based on our average measurement across the year, Morningstar’s overall engagement score declined to 69% compared to 80% in 2022. In 2023, we applied workforce reductions in some business units and exercised cost containment measures which impacted our overall scores. Our people and culture team in partnership with our executive leadership will continue to monitor and understand employee sentiment and respond with empathy to support employees. Morningstar’s global turnover increased to 22% in 2023 from 19% in 2022, however, this increase was driven by involuntary turnover largely due to the significant reduction and shift of our China operations and targeted reorganizations in certain areas of the business. Involuntary turnover increased to 10% in 2023 from 3% in 2022. By contrast, voluntary turnover dropped from 16% in 2022 to 12% in 2023.
Morningstar’s efforts to reward and support our colleagues reflect our belief that people are central to our success. We offer a variety of benefits through a total rewards package that supports the financial, physical, emotional, and social well-being of our colleagues. In 2023, our benefits expansion efforts focused on expanded digital health capabilities for employees globally and enhancing mental health support in the U.S.
Professional Growth
Morningstar offers a variety of educational and career development programs to ensure ongoing growth opportunities for all colleagues. Our goal is to provide a meaningful set of development options and experiences for colleagues at all levels, in all relevant job fields, and in all locations across the company. Notably, we offer our employees annual educational stipends to spend on their choice of professional development resources, while also providing financial support for continuing education and the pursuit of professional certifications.
We also offer programs for employee learning and growth. The Morningstar Development Program is the primary entry point to Morningstar for recent college graduates. Through this program, we place new hires into many different entry roles and offer the flexibility to explore and learn through guided placements into subsequent roles.
The program in its original design is currently active in the U.S., Canada, the U.K., and Spain. A modified version of the program has been piloted in India for early entry talent. For those further along in their career, Morningstar provides a learning journey for leaders and managers. Our Advancing Leaders Program curates learning modules designed around leadership competencies that we look to develop in existing and aspiring leaders throughout the organization.
A detailed list of our global benefits offerings can be found in Morningstar’s 2023 Corporate Sustainability Report (expected to be published in spring 2024).
Major Customer Groups
Given our strategy and core capabilities discussed above, we focus on seven primary customer groups:
•Advisors and wealth managers (including independent financial advisors and those affiliated with Registered Investment Advisors (RIAs), broker/dealers or other intermediaries)
•Asset managers (including fund companies, insurance companies, and other companies that build and manage portfolios of securities for their clients)
•Institutional asset owners and consultants
•Fixed-income security issuers and arrangers
•Private market investors
•Retirement (including retirement plan providers, advisors, and sponsors)
•Individual investors
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Advisors and wealth managers
Financial advisors are professionals who offer guidance on different aspects of personal finance, aiding individuals and businesses in making more informed investment decisions to reach their financial goals. They can work independently or within financial services firms and often possess certifications or licenses like Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Series 7, based on the services they provide and the regulatory standards in their area.
This customer group typically includes independent advisors at RIA firms, advisors affiliated with independent broker/dealers, dually registered advisors (who have the ability to offer brokerage services and investment advisory services), and advisors who are employees of a broker/dealer. These broker/dealers include wirehouses, regional broker/dealers, and banks, which together with RIA firms help comprise the wealth manager component of this customer group.
The advisor landscape is broad in both the U.S. and in other parts of the world where we focus. Our largest market is the U.S., where there were more than 327,000 financial advisors in 2022 according to recent data from the U.S. Bureau of Labor Statistics. We believe our deep understanding of individual investors’ needs allows us to work with advisors to help them make more efficient use of their time and deliver better investment outcomes for their clients.
Our advisor solutions also draw on Morningstar’s proprietary investment research methodologies and research insights allowing advisors to provide better recommendations for their clients. We sell our advisor-related solutions directly to independent financial advisors and through enterprise licenses, which allow financial advisors associated with the licensing firm to use our products. We also sell certain solutions directly to wealth managers. Our main products for financial advisors include products in the Morningstar Data and Analytics, Morningstar Wealth, and Morningstar Retirement segments including Morningstar Advisor Workstation, Morningstar Office, Morningstar Managed Portfolios, and Advisor Managed Accounts. In addition, our main products for wealth managers include Morningstar Data and Morningstar Direct in the Morningstar Data and Analytics segment.
Asset management firms
Asset management firms manufacture financial products and manage and distribute investment portfolios. This customer group includes individuals involved in sales, marketing, product development, business intelligence, and distribution, as well as investment management (often referred to as the “buy side”), which includes portfolio management and research.
Our asset management offerings help companies connect with their clients because of Morningstar’s strong brand presence with both financial advisors and individual investors. We offer a global reach and have earned investors’ trust with our independent approach, investor-centric mission, and thought leadership.
We serve asset managers through our Morningstar Data and Analytics and Morningstar Credit segments. The main products we offer for asset management firms include Morningstar Direct, Morningstar Data, and Morningstar Indexes. For the buy side, the main products include Morningstar Research, Morningstar DBRS, Morningstar Data, Morningstar Direct, and Morningstar Sustainalytics.
Institutional asset owners and investment consultants
Institutional asset owners operate in a fiduciary capacity on behalf of their beneficiaries, overseeing large pools of capital, which according to WTW 2023 Global Pension Study, in aggregate exceed $100 trillion in assets under management across public pension funds, sovereign wealth funds, endowments, foundations, corporate pensions, and insurance general accounts.
Investment consultants serve these organizations in an advisory capacity, aiding in the development of investment policy, conducting manager due diligence, risk management and performance reporting. We offer a range of solutions to this diverse set of sponsoring entities, investors and advisors across multiple geographies, including through the Morningstar Data and Analytics and PitchBook segments. Our primary products for this customer group include Morningstar Direct (in Morningstar Data and Analytics), Morningstar Indexes, Morningstar Sustainalytics, and PitchBook.
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Private market participants
PitchBook covers the full lifecycle of venture capital, private equity, private credit, and M&A activities, including the limited partners, investment funds, lenders, and service providers involved. We serve this customer group through our PitchBook segment. Our main product for this customer group is the PitchBook Platform, an all-in-one research and analysis web-hosted solution that gives clients the ability to access data, discover new connections, and conduct research on potential investment opportunities. An Excel plug-in and mobile capabilities are included with the platform license, and Morningstar public equity research is also delivered through the platform. PitchBook also makes our data available to clients in more flexible formats such as Application Programming Interfaces (APIs) and feeds.
As of December 31, 2023, PitchBook served over 10,600 clients, including investment and research firms, venture capital and private equity firms, investment banks, limited partners, lenders, law firms, and accounting firms. We also served corporate development teams at firms across industry sectors.
Fixed income security issuers, arrangers, and investors
We serve fixed income security issuers, arrangers, and investors through our Morningstar Credit segment. Morningstar DBRS typically issues credit ratings in response to requests from issuers, intermediaries, or investors. Morningstar DBRS credit ratings are requested for corporate short and long-term fixed income obligations, sovereign debt, single project financings and structured finance programs, including securitization of receivables, such as auto loans, credit cards, residential real estate loans and commercial real estate loans. In addition, claims-paying-ability credit ratings are issued for life, property/casualty, financial guaranty, title, and mortgage insurance companies.
We estimate that the global ratings market totaled $10 billion as of year-end 2021, representing a 6.3% compound annual growth rate over the prior decade. In 2022, global issuance fell sharply due to uncertainty related to the macroeconomic environment and the future path of interest rates. We estimate that the global ratings market totaled roughly $7.7 billion as of year-end 2022 and $8.2 billion as of year-end 2023 driving a decline in the 10-year compound annual growth rate to 2.1%. As the macroeconomic environment stabilizes, we expect a return to higher long-term growth rates, supported by various secular trends.
Credit markets continue to evolve with companies using structured products as a key avenue for raising capital. Overall demand for structured products by institutional investors, including banks in the U.S. and Europe, remains high.
As of December 31, 2023, we provided ratings for more than 4,000 issuers of debt.
Retirement market participants
In the U.S., 401(k) and other types of defined-contribution (DC) retirement plans are the dominant retirement savings vehicle offered by employers. According to the Investment Company Institute, there were $9.9 trillion in assets in DC plans at end of the third quarter of 2023, compared to $3.1 trillion in private-sector defined benefit (DB) plans and $8.0 trillion in government DB plans. Total retirement assets across all markets totaled $35.7 trillion at the end of that same period.
We serve this market through our Morningstar Retirement segment. Our services are designed to help improve the DC retirement system by offering highly personalized savings and investment advice at the employee level, scalable investment and risk mitigation services at the plan and advisor level, and industry research at the policy and institutional level. Currently, our focus is the U.S. market, because it continues to demonstrate healthy growth, and because many of our services are not easily adapted to foreign markets due to significant differences in regulatory frameworks that govern retirement saving and investing.
Our core retirement products (managed retirement accounts, advisor managed accounts, Morningstar Plan Advantage, and fiduciary services, and custom models) primarily reach individual investors through employers (plan sponsors) that offer DC plans for their employees. As of December 31, 2023, we served 94 retirement service providers, broker dealers, asset managers, plan sponsors, and RIAs, representing about 319,200 retirement plans.
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Recordkeepers and advisors are the two main distribution channels for our services, while asset managers are an emerging channel. We generally service these channels using one of three delivery platforms: managed accounts, advisor managed accounts, and Morningstar Plan Advantage. The former is more geared toward recordkeepers, while our advisor managed accounts enables advisors and asset managers to incorporate their firm’s investment allocation philosophies and branding into this participant advice service. Morningstar Plan Advantage is a practice-management and compliance platform that is powered by our network of data connections with record-keepers that helps retirement plan advisors manage and grow their book of business.
Individual investors
We offer tools and content for individual investors who invest to build wealth and save for other goals, such as retirement or college tuition. A Gallup survey released in 2023 found that approximately 61% of individuals in the U.S. invest in the stock market either directly, through mutual funds, or self-directed retirement plans. We design products for individual investors who are actively involved in the investing process and want to take charge of their own investment decisions. We also reach individuals who want to learn more about investing or want to validate the advice they receive from brokers or financial advisors.
We serve this market through our Morningstar Wealth segment. We offer three products for individual investors. Our largest based on engagement is our investing media site Morningstar.com, which offers data, editorial and research content available for free to registered customers and visitors. Our second product is Morningstar Investor (Morningstar Premium outside of the U.S. and Australia), which provides access to Morningstar’s research, advanced screening tools and portfolio management tools. The third product is a set of investment newsletters based on different investment types and investing strategies.
Revenue Types
We leverage our proprietary data and research to sell products and services across our portfolio that generate revenue in three primary ways:
License-based: The majority of our research, data, and proprietary platforms are accessed via subscription services that grant access on either a per user or enterprise-basis for a specified period of time. License-based revenue represented 74.4% of our 2023 consolidated revenue compared to 71.2% in 2022 and 66.6% in 2021.
Asset-based: We charge basis points and other fees for assets under management or advisement. Asset-based revenue represented 13.7% of our 2023 consolidated revenue compared to 14.4% in 2022 and 15.6% in 2021.
Transaction-based: Revenue is transactional, or one-time, in nature, compared with the recurring revenue streams represented by our licensed and asset-based products. Transaction-based revenue represented 11.9% of our 2023 consolidated revenue compared to 14.4% in 2022 and 17.8% in 2021.
Largest Customer
In 2023, our largest customer accounted for less than 3% of our consolidated revenue.
Acquisitions and Divestitures
Since our founding in 1984, we've supported our organic growth by introducing new products and services and expanding our existing offerings. From 2006 through 2023, we also completed 43 acquisitions to support our growth objectives. We had one asset acquisition in 2023 and had no divestitures in 2023.
For more information about our acquisitions, refer to Note 8 of the Notes to our Consolidated Financial Statements.
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International Operations
We conduct our business operations outside of the U.S. through wholly- or majority-owned subsidiaries located in each of the following 31 countries: Australia, Brazil, Canada, Cayman Islands, Chile, China, Cyprus, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Jersey, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, UAE, and the U.K. See Note 6 of the Notes to our Consolidated Financial Statements for additional information concerning revenue from customers and assets from our business operations outside the U.S.
Intellectual Property and Other Proprietary Rights
We treat our brand name and logo, product names, databases and related content, software, technology, know-how, and the like as proprietary. We seek to protect this intellectual property through a combination of: (i) trademark, copyright, patent and trade secrets laws; (ii) licensing and nondisclosure agreements; and (iii) other security and related technical measures designed to restrict unauthorized access and use. For example, we generally provide our intellectual property to third parties using standard licensing agreements, which define the extent and duration of any third-party usage rights and provide for our continued ownership in any intellectual property furnished.
Because of the value of our brand name and logo, we generally seek to register one or both as trademarks in the relevant international classes in any jurisdiction in which we have business offices or significant operations. We registered the Morningstar name and/or logo in approximately 50 jurisdictions, including the EU. In some jurisdictions, we may also choose to register one or more product names.
“Morningstar” and the Morningstar logo are both registered marks of Morningstar in the U.S. The table below includes some of the trademarks and service marks referenced in this Annual Report on Form 10-K (this Report):
Morningstar® Advisor WorkstationSM Morningstar® Plan AdvantageSM
Morningstar Analyst RatingTM Morningstar® Portfolio X-Ray®
Morningstar® ByAllAccounts® Morningstar RatingTM
Morningstar® Data Morningstar® Retirement ManagerSM
Morningstar DirectSM Morningstar Style BoxTM
Morningstar® Direct Web ServicesSM Morningstar Sustainability RatingTM
Morningstar® Indexes Morningstar.com®
Morningstar® Managed PortfoliosSM PitchBook®
Morningstar Market BarometerSM DBRS®
Morningstar Office CloudSM Sustainalytics®
In addition to trademark registrations, we hold several U.S. patents, either directly or through our wholly-owned subsidiary, Morningstar Investment Management LLC, and are applying for several additional patents in various jurisdictions around the world, including the U.S. Our existing patents include those for coordinate-based document processing/data entry, portfolio management analysis, lifetime asset allocation, and asset allocation with annuities.
License Agreements
We license our products and related intellectual property to our customers, generally for a fee. As a rule, we use our standard agreement forms, and we do not provide our products and services to customers or other users without having an agreement in place.
We maintain licensing agreements with most of our larger Morningstar operating companies around the world to allow them to access our intellectual property, including, without limitation, our products, trademarks, databases and content, technology, and know-how. We put these agreements in place to allow our operating companies to both market standard Morningstar products and services in their operating territories and to develop and sell territory-specific variants of those products under the Morningstar name in their specific territories.
In the ordinary course of our business, we obtain and use intellectual property from a variety of sources, including, without limitation, licensing it from third-party providers, developing it internally, and gathering it through publicly available sources (e.g., regulatory filings).
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Seasonality
We believe our business has a minimal amount of seasonality. We sell most of our products with subscription terms of at least one year and we recognize revenue ratably over the term of each subscription agreement. This tends to mitigate most of the seasonality in our business.
We believe market movements and general market conditions have more influence on our performance than seasonality. The revenue we earn from asset-based fees depends on the value of assets on which we provide advisory services, and the size of our asset base can increase or decrease along with trends in market performance. In addition, our credit ratings business is subject to market effects on the level of fixed income issuance.
Competitive Landscape
The economic and financial information industry includes a few large firms, as well as numerous smaller companies, including startup firms. Some of our main competitors include Bloomberg, Envestnet, FactSet, Fitch, LSEG (Refinitiv), Moody's, MSCI, S&P Global, and SEI Investments Company. Some of these companies have financial resources that are significantly greater than ours. We also compete with a variety of other companies of varying sizes in specific areas of our business. We discuss some of the key competitors in each area in the "Our Segments and Products" section of Part I, Item 1. Business of this Report.
We believe the most important competitive factors in our industry are brand and reputation, data accuracy and quality, technology, breadth of data coverage, quality of investment and credit research and analytics, design, product reliability, and value of the products and services provided.
Research and Development
A key aspect of our growth strategy is to expand our investment and credit research capabilities and enhance our existing products and services. We strive to adopt new technology that can improve our products and services. As a general practice, we manage our own websites and build our own software rather than relying on outside vendors. This allows us to control our technology development and better manage costs, enabling us to respond quickly to market changes and to meet customer needs efficiently.
Government Regulation
In addition to generally applicable laws and regulations, certain subsidiaries of Morningstar are subject to various laws and regulations specific to the lines of business and activities they engage in. These laws and regulations are primarily designed to protect investors and are most pervasive across all or most markets in which we operate in our credit rating, investment management, investment research, ESG research, ratings and data, and indexes businesses. Regulatory bodies or agencies that regulate our credit rating and investment adviser and research subsidiaries often have broad administrative powers, including the power to prohibit or restrict the subsidiary or persons connected with the subsidiary from carrying out business if it fails or they fail to comply with those laws and regulations or to impose censures, fines, or remedial undertakings as a result of noncompliance. The rules governing the regulation of these subsidiaries are very detailed and technical. Accordingly, the discussion below is general in nature, does not purport to be complete and is subject to change based on future legislative, enforcement, and examination activities. Additional legislation and regulations, including those not directly tied to currently-regulated activities (e.g., ESG ratings and research), or changes in the interpretation or enforcement of existing laws and rules may adversely affect our business and profitability.
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Morningstar Credit
United States
Morningstar DBRS’s U.S. credit rating entity, DBRS, Inc., is registered with the U.S. Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization (NRSRO) and is authorized to rate classes of credit ratings in structured finance instruments, corporate credit issuers, sovereign entities, insurance companies, and financial institutions. As an NRSRO, DBRS, Inc. is subject to certain requirements and regulations under the Securities Exchange Act of 1934, as amended (Exchange Act). These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest. As part of its NRSRO registration, DBRS, Inc. is subject to annual examination by the SEC. DBRS, Inc.’s affiliated rating agencies, DBRS Limited, DBRS Ratings Limited, and DBRS Ratings GmbH, are each also registered with the SEC as credit rating affiliates of DBRS, Inc.
Canada
Morningstar DBRS’s Canadian credit rating entity, DBRS Limited, is designated as a Designated Rating Organization (DRO) in Canada with the Ontario Securities Commission (OSC) as its principal regulator. DBRS Limited provides independent credit rating services in structured finance instruments, corporate credit issuers, governments, insurance companies, and financial institutions. As a DRO, DBRS Limited is subject to certain requirements and regulations under National Instrument 25-101. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest. As part of its DRO registration, DBRS Limited is subject to examination by the OSC. DBRS Limited’s affiliated rating agencies, DBRS, Inc., DBRS Ratings Limited, and DBRS Ratings GmbH, are each also designated as DRO affiliates in Canada.
United Kingdom
Morningstar DBRS’s credit rating entity located in the U.K., DBRS Ratings Limited, is registered with, and regulated, by the U.K. Financial Conduct Authority (FCA) as a credit rating agency. DBRS Ratings Limited provides independent credit rating services in sovereign and public finance, structured finance, and corporate finance, including financial institutions, corporate credit issuers, and insurance undertakings. As a registered credit rating agency, DBRS Ratings Limited is subject to certain requirements under the U.K. regulations governing credit rating agencies. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest.
European Union
Morningstar DBRS ́s credit rating entity in the European Union (EU), DBRS Ratings GmbH (located in Frankfurt, Germany), which together with its branches, DBRS Ratings GmbH Sucursal en España (located in Madrid, Spain) and DBRS Ratings GmbH, Branch India (located in Mumbai, India) is registered with, and regulated by the European Securities and Markets Authority (ESMA) as a credit rating agency. DBRS Ratings GmbH is registered to provide independent credit rating services in sovereign and public finance, structured finance, and corporate finance, including financial institutions, corporate credit issuers, and insurance undertakings. As a registered credit rating agency, DBRS Ratings GmbH is subject to certain requirements under Regulation (EC) No 1060/2009, as amended. These requirements primarily relate to record-keeping, reporting, governance, and conflicts of interest.
Investment Management and Investment Research
United States
Investment advisory and broker/dealer businesses are subject to extensive regulation in the U.S. at both the federal and state level, as well as by self-regulatory organizations. The SEC is responsible for enforcing the federal securities laws and oversees federally registered investment advisers and broker/dealers.
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Three of our subsidiaries, Morningstar Investment Management LLC (Morningstar Investment Management), Morningstar Investment Services LLC, and Morningstar Research Services LLC, are registered as investment advisers with the SEC under the Investment Advisers Act of 1940 (Advisers Act). As registered investment advisers, these companies are subject to the requirements and regulations of the Advisers Act, including certain fiduciary duties to clients. The fiduciary duties of a registered investment adviser to its clients include an obligation of good faith and full and fair disclosure of all facts material to the client’s engagement of the advisor, an obligation to provide investment advice suitable for the particular client, an obligation to have a reasonable, independent basis for investment recommendations, an obligation when directing client brokerage transactions to seek the best execution thereof, and an obligation to vote client proxies in the best interests of the client. Other requirements primarily relate to record-keeping and reporting, as well as general anti-fraud prohibitions. As registered investment advisers, these subsidiaries are subject to examination by the SEC, which may include on-site examinations.
Morningstar Funds Trust (the Trust) is registered with the SEC as an open-end management investment company under the Investment Company Act of 1940, as amended (Investment Company Act). Morningstar Investment Management serves as the sponsor and investment adviser of the Trust, and therefore is subject to the requirements of the Investment Company Act. These requirements relate primarily to record-keeping, reporting, standards of care, valuation, and distribution. As sponsor and investment adviser to the Trust, Morningstar Investment Management is subject to examinations by the SEC, which may include on-site examinations.
Connected with the Trust, Morningstar Investment Management is registered with the U.S. Commodity Futures Trading Commission as a commodity pool operator (CPO) and a member of the National Futures Association (NFA). As such, Morningstar Investment Management is subject to the requirements and regulations applicable to CPOs under the Commodity Exchange Act. These requirements primarily relate to record-keeping and reporting. As a CPO, Morningstar Investment Management is subject to examinations by the NFA and/or the U.S. Commodity Futures Trading Commission, which may include on-site examinations.
In cases where these subsidiaries provide investment advisory services to retirement plans and their participants, they may be acting as fiduciaries under ERISA. As fiduciaries under ERISA, they have duties of loyalty and prudence, as well as duties to diversify investments and to follow plan documents to comply with the applicable portions of ERISA.
Morningstar Investment Services LLC is a broker/dealer registered under the Exchange Act and a member of FINRA. The regulation of broker/dealers has, to a large extent, been delegated by the federal securities laws to self-regulatory organizations, including FINRA. Subject to approval by the SEC, FINRA adopts rules that govern its members. FINRA and the SEC conduct periodic examinations of the brokerage operations of Morningstar Investment Services.
Broker/dealers are subject to regulations that cover all aspects of their securities business, including sales practices, capital structure, record-keeping, and the registration and conduct of directors, officers, and employees. As a registered broker/dealer, Morningstar Investment Services LLC is subject to certain net capital requirements under the Exchange Act. These requirements are designed to regulate the financial soundness and liquidity of broker/dealers.
Australia
Morningstar Australasia Pty Limited and Morningstar Investment Management Australia Limited are subsidiaries that provide financial services that include investment management, asset allocation, portfolio construction and investment research services in Australia. They are each registered under an Australian Financial Services license and subject to oversight by the Australian Securities and Investments Commission (ASIC). The licenses require them to maintain positive net asset levels and minimum capital requirements, and to comply with the audit requirements of the ASIC. Morningstar Investment Management Australia Limited is additionally the Responsible Entity and the issuer of units in managed funds for superannuation funds, institutions, platform distributors, financial advisers, and individuals within the Australian market.
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United Kingdom
Both Morningstar Investment Management Europe Limited and Smart Investment Management Limited are authorized and regulated by the FCA to provide certain financial services. Those regulatory permissions allow Morningstar Investment Management Europe Limited and Smart Investment Management to advise, arrange, deal and manage investments across a range of investment instruments. Related services are delivered through managed portfolios, manager selection, segregated mandates and U.K. authorized fund offerings. As authorized firms, both Morningstar Investment Management Europe Limited and Smart Investment Management Limited are subject to the applicable requirements and regulations set out in the FCA Handbook of rules and guidance.
Morningstar Wealth Administration Limited and Morningstar Wealth Retirement Services Limited are authorized and regulated by the FCA to provide certain financial services. Those regulatory permissions allow Morningstar Wealth Administration Limited to arrange, deal, manage, safeguard and administer a range of investment instruments and for Morningstar Wealth Retirement Services Limited to arrange, deal and operate a personal pension scheme. Related services are delivered through an investment platform. As authorized firms, both Morningstar Wealth Administration Limited and Morningstar Wealth Retirement Services Limited are subject to the applicable requirements and regulations set out in the FCA Handbook of rules and guidance.
European Union
Morningstar Investment Consulting France SAS is authorized by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) as a Markets in Financial Instruments Directive (MiFID) investment firm. Under this authorization and commensurate with the passporting arrangements established, Morningstar Investment Consulting France SAS is permitted to provide investment advice pertaining to shares, debt securities and units, or shares, of collective investment undertakings to financial institutions based in the EU.
United Arab Emirates
Morningstar Wealth Administration Limited operates a branch office in Dubai, pursuant to the applicable requirements and regulations defined in the Dubai Financial Services Authority Rulebook. The office is located in the Dubai International Financial Centre.
Channel Islands
Morningstar Wealth International Limited is authorized and regulated by the Jersey Financial Services Commission to provide certain financial services. Those regulatory permissions allow Morningstar Wealth International Limited to deal in investments, delivering the related services through an investment platform. As a regulated firm, Morningstar Wealth International Limited is subject to the applicable requirements and regulations set out in the Jersey Financial Services Commission Handbooks and Codes of Practice.
South Africa
Morningstar Investment Management South Africa (Pty) Ltd is an authorized financial services provider, authorized and regulated by the South African Financial Sector Conduct Authority to provide certain financial services. Specifically, Morningstar Investment Management South Africa (Pty) Ltd is permitted to undertake activity under both Category I (advisory) and Category II (discretionary) licenses. The related advisory and discretionary activities are delivered pursuant to the associated product approvals, granted by the Financial Sector Conduct Authority.
Other Regions
We have a variety of other entities (including in Canada, Hong Kong, India, Japan, and Singapore) that are registered with their respective regulatory bodies; however, the amount of regulated business activity conducted by these entities remains relatively small to date.
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Morningstar Sustainalytics
Morningstar Sustainalytics delivers ESG research, ratings and data aimed at enabling investors around the world to identify, understand, and manage ESG-driven risks and opportunities. In 2022, via its subsidiary GES International AB, Morningstar Sustainalytics notified the Swedish Finansinspektionen under Section 3 of the Act on Proxy Advisors of its business activity as a proxy advisor in Sweden. Morningstar Sustainalytics UK Ltd. was added to the FCA’s list of Proxy Advisors in early 2022. These regulations require disclosure of information regarding the methodologies applied in the preparation of voting recommendations and certain governance information such as a code of conduct and policies on managing conflicts of interest. Other Morningstar Sustainalytics products including Second Party Opinions on green and sustainability linked bond, and the provision of ESG ratings and data have been the subject of proposed legislation or codes of conduct. We continue to monitor these developments closely and will assess what modifications will be needed to Morningstar Sustainalytics' business model, operational processes, and corporate organization in the event regulation is enacted.
Morningstar Indexes
Morningstar’s affiliates, Morningstar Indexes Limited and Morningstar Indexes GmbH are registered with, and regulated by the FCA and the German Federal Financial Supervisory Authority (BaFin) and are authorized to act as a U.K. and EU benchmark administrator, respectively. While this authorization allows us to provide U.S. benchmarks in the U.K. and EU, the benchmark administrator designation also has additional compliance responsibilities and costs. These compliance responsibilities include specified governance and oversight arrangements, outsourcing limitations, specified items in a code of conduct, key information disclosures, and required systems and controls governing data, complaints and record-keeping. In the U.K., Morningstar Indexes Limited is also subject to applicable requirements and regulations under the Senior Managers Regime, as defined in the FCA Handbook of rules and guidance. Supplemental regulations under the EU Benchmark Administration contain further operational and administrative requirements and work is underway to evaluate an optimal long-term structure to provision Morningstar’s index services across the region.
Information about our Executive Officers
We have four executive officers. The table below summarizes information about each of these officers.
Name Age Position
Joe Mansueto 67 Executive Chairman and Chairman of the Board
Kunal Kapoor 48 Chief Executive Officer
Jason Dubinsky 50 Chief Financial Officer
Danny Dunn 48 Chief Revenue Officer
Joe Mansueto
Joe Mansueto founded Morningstar in 1984 and became executive chairman in 2017. He has served as chairman of the board of directors from the company’s inception, and as chief executive officer from 1984 to 1996 and again from 2000 to 2016.
Under Mansueto’s leadership, Morningstar has been named twice to Fortune magazine’s “100 Best Companies to Work For” list, in 2011 and 2012. The Chicago Tribune recognized Morningstar as one of the top 100 workplaces in the Chicago area in 2010, 2011, and 2012, and Crain’s Chicago Business listed Morningstar in its Fast Fifty feature in 2007, 2008, 2009, and 2011. Morningstar won the 2010 AIGA Chicago Chapter Corporate Design Leadership Award, which recognizes forward-thinking organizations that have advanced design by promoting it as a meaningful business policy.
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In December 2016, InvestmentNews named Mansueto to its list of 20 Icons & Innovators. MutualFundWire.com recognized Mansueto as one of the 10 most influential individuals in the mutual fund industry in 2015, and he was the recipient of PLANSPONSOR’s Lifetime Achievement Award in 2013. In 2010, Mansueto received the Tiburon CEO Summit award, MutualFundWire.com named him ninth on its list of the 100 Most Influential People of the year, and Chicago magazine listed Mansueto among its top 40 Chicago pioneers over the past four decades. In 2007, SmartMoney magazine recognized him in the “SmartMoney Power 30,” its annual list of the 30 most powerful forces in business and finance. He received the Distinguished Entrepreneurial Alumnus Award from the University of Chicago Booth School of Business in 2000.
Before founding Morningstar, Mansueto was a securities analyst at Harris Associates. He holds a bachelor’s degree in business administration from the University of Chicago and a master’s degree in business administration from the University of Chicago Booth School of Business. Mansueto is also the owner and chairman of Chicago Fire FC, an American professional soccer franchise, as well as a significant investor in several media companies, real estate properties and other ventures.
Kunal Kapoor
Kunal Kapoor, CFA, is chief executive officer of Morningstar. Before assuming his current role in 2017, he served as president, responsible for product development and innovation, sales and marketing, and driving strategic prioritization across the firm.
Since joining Morningstar in 1997 as a data analyst, Kapoor has held a variety of roles at the firm, including leadership positions in research and innovation. He served as director of mutual fund research and was part of the team that launched Morningstar Investment Services, Inc., before moving on to other roles including director of business strategy for international operations, and later, president and chief investment officer of Morningstar Investment Services. During his tenure, he also led Morningstar.com® and the firm’s data business as well as its global products and client solutions group.
Kapoor holds a bachelor’s degree in economics and environmental policy from Monmouth College and a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation, is a member of the CFA Society of Chicago, and served on the board of PitchBook, prior to its acquisition by Morningstar in late 2016. Kapoor is also a member of the board of directors of Wealth Enhancement Group, a privately-owned independent wealth management firm, a member of the Council on Chicago Booth and serves on the boards of several Chicago non-profit organizations. In 2010, Crain’s Chicago Business named him to its annual 40 Under 40 class, a list that includes professionals from a variety of industries who are contributing to Chicago’s business, civic, and philanthropic landscape.
Jason Dubinsky
Jason Dubinsky is chief financial officer of Morningstar, responsible for controllership, tax, internal audit, financial planning and analysis, procurement, treasury, real estate and facilities, and investor relations.
Before joining Morningstar in 2017, Dubinsky served as senior vice president and chief financial officer of planning and central operations for Walgreens Boots Alliance, Inc. where he was responsible for accounting and shared service functions for Walgreens’ U.S. operations and led the FP&A function for the global business. Prior to this merger, he was Walgreens' vice president of finance and treasurer with responsibility for business unit finance, treasury operations, risk management, and investor relations. Before joining Walgreens in 2009, he served as vice president of investment banking at Goldman Sachs and Lehman Brothers, where he led mergers and acquisitions and corporate finance activity for clients across various industries.
Dubinsky holds a bachelor’s degree in business administration from the University of Michigan and a master’s degree in business administration from New York University’s Stern School of Business.
Daniel (Danny) Dunn
Danny Dunn is chief revenue officer for Morningstar. He is responsible for the firm’s global revenue and client-facing functions including global marketing, sales, client solutions, customer success, field operations, services and support.
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Before joining Morningstar in 2016, Dunn was vice president of IBM’s Midwest enterprise unit. He was responsible for marketing, strategy, sales, channels, and customer service for the complete IBM portfolio, including Cloud, Software, Services, Systems, and IBM Credit, LLC in the region. Prior to that, he was the Chicago territory director for IBM and held numerous other sales leadership roles. Before joining IBM in 2007, he led sales, account management and client service at Neology, a software and technology services subsidiary of SmithBucklin Corporation.
Dunn holds a bachelor’s degree from the University of Vermont and a master’s degree in business administration, with concentrations in marketing, strategy, and managerial economics, from the Kellogg School of Management at Northwestern University.
Company Information
Morningstar, Inc. was incorporated in Illinois on May 16, 1984. Our corporate headquarters is located at 22 West Washington Street, Chicago, Illinois, 60602.
We maintain a corporate website at http://www.morningstar.com/company. Shareholders and other interested parties may access our investor relations website at http://shareholders.morningstar.com, which we useas a primary channel for disclosing key information to our investors, some of which may contain material and previously non-public information.Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to any of these documents are available free of charge on this site as soon as reasonably practicable after the reports are filed with or furnished to the SEC. We also post quarterly press releases on our financial results and other documents containing additional information related to Morningstar on this site. We provide this website and the information contained in or connected to it for informational purposes only. That information is not part of this Report.
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Item 1A. Risk Factors
Risk Factor Summary
Below is a summary of the principal risk factors that could impact our business, financial condition, or operating results. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found after this summary, and should be carefully considered.
•Risks Related to Our Business and Industry
◦Failing to maintain and protect our brand, independence, and reputation may harm our business
◦Failing to create innovative, proprietary and insightful product and service offerings or anticipate our clients’ changing needs may negatively affect our competitive position and business results
◦Prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy may impact our results
•Risks Related to Our Information Technology and Security
◦We could face significant reputational and financial consequences relating to cybersecurity and the protection of confidential information, including personal information about individuals
◦The AI technologies we are incorporating into certain of our products and processes may present business, legal and reputational risks
◦Our business, products and facilities are at risk of a number of material disruptive events, which our operational risk management and business continuity programs and insurance coverage may not be adequate to address
◦We could face liability for failing to adequately protect or properly use the information and data we collect, store, use, create, and distribute or the reports and other documents we publish or that are produced by our software products
◦Failure to protect our intellectual property rights, or claims of intellectual property infringement against us, could harm our brand, our financial performance and our ability to compete effectively
•Risks Related to Legal and Regulatory Matters
◦Compliance failures, regulatory action, or changes in laws applicable to our credit ratings operations, investment advisory, ESG and index businesses could adversely affect our business
◦Errors in our automated advisory tools may subject us to liability for any losses that result
•Risks Related to Our Operations
◦Our future success depends on our ability to recruit, develop, and retain qualified employees
◦Our business is complex and has experienced significant growth in recent years which could strain our resources and infrastructure, and if we are unable to effectively scale our operations and increase productivity, we may not be able to successfully implement our business plan
◦Our acquisitions and investments in companies or technologies may not realize the expected business or financial benefits and acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the market value of our common stock
◦The goodwill of our business and other intangible assets from our acquisitions could be impaired as a result of business conditions in the future, requiring us to record substantial impairments that would impact our operating income
◦Today’s fragmented geopolitical, regulatory, and cultural world could adversely affect our ability to expand our product and service offerings
◦As a global taxpayer, we face challenges due to increasing complexities in accounting for taxes (e.g., base erosion, minimum taxes, and tax transparency), which are high priorities in jurisdictions in which we operate and could materially affect our tax obligations and effective tax rate
◦Our revenues, expenses, assets and liabilities are subject to fluctuations in foreign currency exchange rate
◦Our indebtedness could adversely affect our cash flow and financial flexibility. Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly
•Risks Related to Ownership of Our Common Stock
◦The concentrated ownership position of Joe Mansueto could adversely affect our other shareholders
◦Fluctuations in our operating results may negatively affect our stock price
◦The future sale of shares of our common stock may negatively affect our stock price
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Risk Factors
You should carefully consider the risks and uncertainties described below and all of the other information included in this Report when deciding whether to invest in our common stock or otherwise evaluating our business. If any of the following risks or uncertainties materialize, our business, financial condition, or operating results could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Our operations could also be affected by other risks and uncertainties that are not presently known to us or that we currently consider to be immaterial to our operations.
Risks Related to Our Business and Industry
Failing to maintain and protect our brand, independence, and reputation may harm our business. Our reputation and business may also be harmed by allegations made about possible conflicts of interest, by other negative publicity or media reports, or by adverse outcomes in regulatory proceedings.
We believe that the reputation of our company and our brand generally, as well as the perception of our research and ratings products and services, is based on the trust that users of our products and services have in our commitment to our mission of empowering investor success, our independence of editorial judgment, our insistence on methodological rigor, and our transparency concerning our processes. Any failure to uphold these commitments and standards and real or perceived failure of our customers to have consistently positive experience with us could damage our reputation. Our reputation may also be harmed if any errors are found in our products or services.
Our ESG offerings has, and may in the future, put Morningstar in the public debate over a variety of issues surrounding climate, environment, social concerns, and corporate governance. Our position as an independent provider of investor choice may cause proponents of certain causes to question the adequacy, completeness and objectivity of our methodologies and models and of the data underlying them; the timing and nature of changes in our ratings or assessments and in other products, such as indexes, built on these ratings and assessments; the independence of our ratings determinations and editorial decisions and the influence of third parties, including governments and large institutional investors or asset owners, on such determinations or decisions; and our role in and influence upon various investment processes. Our position as a leading source of ESG research and opinions may also cause proponents of various causes to demand that we publicly take stands on a variety of controversial topics perceived by them as relevant to investor success or the evolving expectations of businesses; however, we may believe we are unsuited or unprepared to address some or all of these topics. New research and ratings offerings face a challenge to create objective, understandable methodologies in a rapidly developing field currently without widely accepted standards and for which regulatory oversight is emerging. Our methodologies generally are susceptible to potential claims of imprecision, empirical or methodological error, bias and puffery. We evaluate the potential impact of ESG factors on other companies and risk a claim of hypocrisy if we take or fail to take actions at the company level that are or seem inconsistent with our own sustainability and corporate responsibility policies and practices, including publicly disclosed ESG and climate-related targets and goals. Our failure to successfully navigate these issues as they arise from time to time may have an adverse effect on our reputation and our business.
As our business has evolved, we have entered lines of business and business arrangements that may give rise to allegations of conflicts of interest or perceived failures of our independence. We provide ratings, analyst research, and investment recommendations on mutual funds, ETFs and other investment products offered by our institutional clients. While we don’t charge asset management firms for their products to be rated, we do charge licensing fees for the use of our ratings. We also provide investment advisory and investment management services, including through our own series of mutual funds, which expose us to the claim that we are acting as both a referee and a player in the investment management industry. In our credit ratings business and Morningstar Sustainalytics’ Sustainable Finance Solutions products we are participants in an issuer-pay business model under which we receive payments from issuers for our ratings rather than from the investors who consume such ratings. These payments may create the perception that our ratings and research in these areas are not independently determined.
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The expansion of our business over time, including through acquisitions, has resulted in greater exposure to governmental regulation across our product lines and risks that acquired businesses may harbor business practices that could harm our brand. In some cases, such as with respect to our credit ratings business, interactions with regulators are extensive and continuous, raising the risk of enforcement investigations and proceedings. To the extent any of those investigations or proceedings result in a finding of misconduct or noncompliance, they could pose a significant reputational risk to us and negatively impact our business. Regardless of source, allegations of improper conduct, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity or media reports about Morningstar and its relationships with third parties, whether valid or not, may harm our reputation and damage our business.
Our reputation may also be harmed by factors outside of our control, such as news reports about our clients, consultants, or suppliers, adverse publicity about certain types of investment and ratings products generally. We may also suffer brand dilution as our brand becomes associated with an ever more diverse variety of products and services that may align less well with our corporate mission. In addition, any failures by us to continue to instill effectively in our employees the non-negotiable expectation of independence and integrity may devalue our reputation over time and negatively affect both hiring and retention efforts.
Failing to create innovative, proprietary and insightful product and service offerings, keep pace with new investor requirements and technology developments, and trends, or anticipate our clients’ changing needs may negatively affect our competitive position and business results.
We believe innovation in financial information services and investable products available to investors and the various advisers and other intermediaries who serve them continues to accelerate. Developments in technology are fundamentally changing the ways investors, financial intermediaries, and other market participants access data and content, allowing for greater personalization of products customized to individual investor profiles and interests, such as direct indexing and sustainability goals-based investing. These developments can render our existing products less competitive, obsolete or unmarketable. As a result, our future success will continue to depend upon our ability to identify and develop new products and enhancements that address the future needs of our current and target markets and to deliver them in ways that support our customers’ investing needs and business models and on our ability to keep pace with the competitive landscape for our products.
Our core competencies are around data and research, technology, and design. Morningstar deploys each of these to create unique intellectual property, products, and solutions that clearly convey complex investment information to various investors, including individuals, financial advisors, asset managers, retirement plan providers and sponsors, institutional investors in the private capital markets, and participants in the fixed income markets. Our customers have access to a wide selection of investment data, fundamental equity research, manager research, credit ratings, private capital markets research, and ESG data and research, directly on Morningstar’s proprietary desktop or web-based software platforms, or through subscriptions, data feeds, and third-party distributors. Our financial technology solutions also allow advisors to serve investors at all stages of the investing process. Morningstar’s managed portfolio offerings help advisors outsource investment selection and asset allocation through proprietary portfolio strategies based on Morningstar’s valuation-driven, fundamentals-based approach to investing. Applying its expertise in asset allocation, investment selection, and portfolio construction, our global investment team creates long-term investment strategies built on Morningstar’s data and ratings. We also help retirement plan sponsors build high-quality savings programs for employees and advise participants in retirement plans on saving for retirement and choosing plan investments. We believe the breadth and depth of our current service offerings set us apart from our competitors, which we believe is a significant competitive advantage.
If we fail to continuously innovate and develop new datasets, research, methodologies, content or software to meet the needs of our customers, or fail to successfully communicate such innovations and developments in our offerings to our customers, our competitive position and business results may suffer. In addition, our reputation could be harmed if we are perceived as not moving quickly enough to meet the changing needs of investors or their financial advisors and may sacrifice new business opportunities or renewals from existing customers. These changing needs include a greater expectation that advice be delivered with a high degree of personalization. Investors are also increasingly focused on the security of data we collect from them, as well as the sharing of their data with third parties. Increased interest in alternative asset classes has also created a need for applicable datasets and analytical expertise. Our competitive position and business results may suffer if other companies have greater breadth of product offerings or are able to successfully and more quickly introduce innovative, proprietary research tools and software, including through the application of AI, that gain attention from our clients.
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In addition, the value of our products and services may be negatively affected by the increasing amount of information and tools that are available for free, or at low cost, through Internet sources or other low-cost delivery systems, and by the ability of machine learning and other AI systems to process and organize large data sets. The impact of costs-cutting pressures across the industries we serve could lower demand for our products. Also, clients within the financial services industry that strive to reduce their operating costs may seek to reduce their spending on our products and services or may build in-house capability to provide the technology or investment advisory services they would otherwise purchase from us. Although we believe our products and services contain value-added features and functionality that deeply embed them in our customers’ workflows, these developments may over time reduce the demand for, or customers’ willingness to pay for, certain of our products and services.
We must make long-term investments and commit significant resources often before knowing whether those investments will result in products or services that satisfy our clients’ needs or generate revenues sufficient to justify the investments. Our software development process is based on frequently rolling out new features so that we can quickly incorporate user feedback. However, at times adoption of new features or enhanced versions is slowed by the significant client investment required for more advanced use cases. In addition, from time to time, we also incur costs to transition clients to new or enhanced products, systems, or services, as well as additional operating expenses supporting multiple platforms for extended periods of time if clients decline to migrate to the new or enhanced products, systems or services. Such transitions can involve material execution risks and challenges and we cannot guarantee that we will successfully adapt our product offerings to meet evolving customer needs or that the transition to such new offerings will be seamless. If we are unable to manage these investments and transitions successfully, our business, financial condition, and results of operations could be materially and adversely affected.
As our financial intermediary customers further automate their business processes, their need for our products may change and the technological flexibility and interoperability of our systems may become more important. For example, the COVID-19 pandemic and the increase in remote and hybrid work environments has accelerated advisor and client demand for digital, friction-free technology and experiences with our turnkey asset management platform, shining a light on dated, legacy operational workflows. In addition, there has been an increasing focus on technology not merely supplying additional tools for users, but also offering solutions to specific client problems, such as those we are seeking to address for wealth advisors through bringing together our multiple wealth management capacities around asset management, data aggregation and client portfolio management software. We have a myriad of potential technology investments across our product lines and need to prioritize scarce technology development resources to focus on products that best anticipate the needs and priorities of our customers. In addition, only a limited number of employees have expertise in the software used for certain of our products. The loss of any such employees could negatively impact our development process.
Our technology is also heavily dependent on the quality and comprehensiveness of our data and our ability to successfully build analytics, research, and other intellectual property around that data. For example, in order to provide the personalized holistic advice that clients value, we need to collect, organize, and protect large, non-homogenous datasets and synthesize and effectively analyze the insights offered by this data. We are investing significant resources in consolidating our various data assets and improving their usability and deliverability across our platform of products. Our competitive position and business results may suffer if we fail to realize the value and potential of our data assets.
Additionally, our ability to continue to innovate and develop new products is reliant on the products of other vendors, including data, software and services vendors. Some of our products and offerings are dependent upon obtaining updates from data vendors as well as dependent on continuing access to current and historical data. Furthermore, many of our vendors are also competitors, and our ability to continue to provide our products and develop new products could be impacted if the vendors terminate our agreements with them or decide to change the terms or restrict use of the data and products, which could materially harm our business.
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Prolonged volatility or downturns affecting the financial sector, global financial markets, and the global economy may impact our financial results.
Our business results are partly driven by factors outside of our control, including general economic and financial market trends which may be impacted by changes in interest rates, availability of credit, inflation rates, changes in laws, trade barriers, commodity prices, currency exchange rates and controls, and national and international geopolitical circumstances and uncertainties. Prolonged economic and financial downturns, sustained volatility in the financial markets, interest and inflation rate fluctuations and periods of stagflation, and a lack of investor confidence can reduce investor interest and investment activity and decrease demand for our software, data, analyst ratings, and research products and flows of funds into our investment management products. We cannot predict the occurrence, timing or duration of any economic downturn, generally or in the markets in which our businesses operate. Fluctuations in interest rates and rate uncertainty brought on by central bank decisions that reduce credit issuance has, and may continue to, put negative pressure on our credit ratings business. Continued unfavorable trends in the market environment in which we operate could cause a corresponding negative effect on our business results. As a result, we may experience lower revenue, operating income, and other financial results in the event of a sustained market downturn.
For our licensed-based businesses, many of our customers are asset-management and financial advisory firms and other financial-services companies, which are also subject to external trends. The ascendance of passive investment strategies may affect both the profitability of asset managers, on whose success we in part depend, and the perceived value of our research regarding such strategies. A sustained global recession or other financial downturn or crisis would likely lead to material spending cutbacks among many of the companies to which we sell and longer sales cycles. Consolidation in the financial services sector reduces the number of potential clients for our products and services. Further, clients may discontinue their use of our products and services should they fail and/or merge with or become acquired by other entities that are not our clients or that use fewer of our products and services. These trends could impact demand for our products and services or change the financial services landscape in which we operate.
Many companies in the financial services industry have also been subject to sustained pressure to reduce fees. As a result, many of these firms have sought to reduce their operating costs by working with fewer service providers and/or negotiating lower fees for services they purchase. Our PitchBook business is also subject to cyclical trends specific to the private capital markets. Many of PitchBook’s clients are investment banks and other participants in the capital and M&A markets, which are subject to periodic business downturns driven by changes in such markets. During these downturns, they often seek to reduce spending on third-party services, as well as the number of employees, which would directly and adversely affect the number of prospective users for the PitchBook platform.
The amount of asset-based revenue we earn primarily depends on the value of assets on which we provide advisory services, and the size of our asset base can increase or decrease based on market performance. Our revenue from asset-based fees has been, and may in the future be, adversely affected by market declines. Asset levels can also be affected if inflows into the portfolios for which we provide investment advisory services drop or if these portfolios experience redemptions. A drop in inflows or an increase in redemptions can result from a variety of factors, including overall market conditions or uncompetitive investment performance. If the level of assets on which we provide investment advisory or investment management services goes down, we would expect our fee-based revenue to show a corresponding decline. The industrywide trend toward lower asset-based fees may also impact our fee-based revenue. A shift by investors to non-traditional asset classes such as cryptocurrencies, private debt, real estate, structured products, and collectibles may affect our assets under management if we are unable to incorporate them into our investment strategies or if they fail to perform in the manner that our research anticipates.
Our credit ratings business, as well as Morningstar Sustainalytics’ Second Party Opinion business, have been, and may continue to be, impacted by volatility in U.S. and international financial markets due to their dependence on the number and dollar volume of debt securities issued in the capital markets. In particular, recently our credit ratings business has, and may continue to be, impacted by reduced issuance of commercial mortgage-backed securities in the United States. Market disruptions, rising interest rates, widening credit spreads and economic slowdowns historically have impacted the volume of debt securities issued in global capital markets and the demand for credit ratings and ESG-related ratings and opinions. Demand for credit ratings can also be negatively affected by negative publicity about the credit ratings business, regulatory and political developments, growth in the use of alternative sources of credit, and defaults by significant issuers. Our ability to reduce costs in the event of such adverse developments can be negatively impacted by, among other things, our obligations to monitor and maintain outstanding ratings. Declines or other changes in the markets for debt securities may materially and adversely affect our business, operating results, and financial condition.
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Risks Related to Our Information Technology and Security
We could face significant reputational and financial consequences relating to cybersecurity and the protection of confidential information, including personal information about individuals.
Our business requires that we securely collect, process, store, and transmit confidential information, including personal information, relating to our operations, customers, employees, and other third parties. We continuously invest in systems, processes, controls, and other security measures designed to guard against the risk of improper access to or release of such information. However, these measures do not guarantee absolute security, and improper access to or release of confidential information may still occur through employee error or malfeasance, system error, other inadvertent release, failure to properly purge and protect data, failure to apply consistent security measures throughout our business or cyberattack.
We may be targeted by malicious individuals or groups (including those sponsored by nation-states or terrorist organizations) seeking to attack our products and services or penetrate our network infrastructure to gain access to intellectual property, confidential or personal information, or to facilitate distributed denial of service attacks. While we have dedicated resources responsible for cybersecurity and have implemented systems and processes intended to help identify cyberattacks and protect and remediate security issues in our software and network infrastructure, these attacks have become increasingly frequent, sophisticated, and difficult to detect. Even in cases where an attack is ultimately detected, based on industry data, incidents may go undetected for several months. Our measures may not be adequate or designed to prevent all eventualities or all types or sources of attacks, and we may be vulnerable to circumvention of security systems, denial of service attacks or other cyberattacks, hacking including “hacktivism”, “phishing” or other social engineering attacks, computer viruses, ransomware or malware, employee or insider error, employee or vendor malfeasance, physical breaches or other malicious actions. We offer a hybrid work environment, which provides employees with the flexibility to work remotely (and use personal devices) which introduces unique risk management challenges.
We may also be impacted by a cyberattack targeting one of our vendors or within our technology supply chain or infrastructure, including cloud providers. Our information technology systems interact with those of customers, vendors, and service providers and collect an increasing amount of confidential data as we expand our product and service offerings. As a result, inadequacies of third party security technologies and practices introduce additional monitoring risk and cost and may only be detected after a security breach has occurred. Additionally, as we continue to offer a hybrid work environment which provides employees with the flexibility to work from remote locations we continue to rely on video conferencing, web conferencing and cloud services in order to operate magnifying the importance of the integrity of our remote access security measures and which may expose us to additional cyber risks.
We are subject to regulatory expectations for the oversight of users, vendors and service providers, which further increase our compliance obligations. In addition, the proliferation of personal information privacy regimes across the globe have made scalable and comprehensive compliance practices ever more complex and costly to implement.
Any failure to safeguard confidential information or any material cybersecurity failures or incidents in our systems (or the systems of a customer, vendor, or service provider which stores or processes confidential information for which we are responsible, including cloud providers) could cause us to experience reputational harm, loss of customers, regulatory actions, sanctions or other statutory penalties, litigation, or financial losses and increased expenses related to addressing or mitigating the risks associated with any such material failures or incidents.
In addition to the risks above, we may also be subject to specific obligations relating to personal information and personal financial information. Our products and websites in certain cases collect, store, process, and transmit personal information about an individual, including financial information such as portfolio holdings, account numbers, and credit card information. Our business also operates across national borders and routinely moves personal information from one jurisdiction to another. Regulators and political leaders in various countries are increasingly interested in restricting cross-border data transfers that they perceive as problematic. We and our customers are often subject to federal, state, and foreign laws relating to privacy, cybersecurity, and data protection. The scope of applicable laws may be uncertain and required practices may be inconsistent with laws of other jurisdictions.
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Consequently, our business is subject to a variety of continuously evolving and possibly conflicting regulations and customer requirements. Our compliance with these changing and increasingly burdensome regulations and requirements may cause us to incur substantial costs or require us to change our business practices which may impact financial results. If we fail to comply with these regulations or requirements, we may be exposed to litigation expenses and possible significant liability, fees, or fines. For example, in the EU, noncompliance with the General Data Protection Regulation (GDPR) requirements could result in penalties of up to the greater of €20 million or 4% of worldwide revenues.
One of Morningstar’s core strengths is the ability to collect data and enrich it with data from another part of the business to provide valuable information and insights to investors. As data is accessible across our products, consistent data privacy practices and disclosure becomes more important and challenging. Failure to comply with our public statements or to adequately disclose our privacy or data protection practices could result in costly investigations by governmental authorities, litigation, and fines as well as reputational damage and customer loss.
We also from time to time acquire other companies that collect and process personal information. While we perform extensive due diligence on the technology systems and practices of these companies, there can be no assurance that such companies have not suffered data breaches or system intrusions prior to or continuing after our acquisition for which we may be liable. Acquired businesses may not have invested as heavily in such security measures or data privacy controls, and they introduce additional cybersecurity and data privacy risk as their systems are integrated with ours. Even after an acquisition is completed, time is required to integrate the acquired business' technology and processes, which may result in an increased risk of security incidents until the integration for the new business is completed.
While we maintain insurance coverage that is intended to address certain aspects of cybersecurity and data protection risks, such coverage may not be sufficient to cover all or the majority of the costs, losses, or types of claims. Our insurance coverage would not extend to any reputational damage, loss of customers, or required improvements to our systems.
The AI technologies we are incorporating into certain of our products and processes may present business, legal, and reputational risks.
We use, and may continue to expand our use of, machine learning and AI technologies into certain of our products and processes. If other firms incorporate AI technologies into their products and offerings more effectively than we do, or if we otherwise fail to keep pace with rapidly evolving AI technological developments, our competitive position and business results may suffer. At the same time, use of AI has recently become the source of significant media attention and political debate. The introduction of AI technologies, particularly generative AI, into new or existing offerings may result in new or expanded risks and liabilities, including due to enhanced governmental or regulatory scrutiny, litigation, compliance issues, ethical concerns, confidentiality or security risks, as well as other factors that could adversely affect our business, reputation, and financial results. For example, AI technologies can lead to unintended consequences, including generating content that appears correct but is factually inaccurate, misleading or otherwise flawed, or that results in unintended biases and discriminatory outcomes, which could harm our reputation and business and expose us to liability. We may also not identify inaccurate information, which may expose us to liability. Laws, regulations or industry standards that develop in response to the use of AI may be burdensome or may significantly restrict the deployment of AI, particularly generative AI technologies, in our products or processes.
We use AI technologies from third parties, which may include open-source software. If we are unable to maintain rights to use these AI technologies on commercially reasonable terms, we may be forced to acquire or develop alternate AI technologies, which may limit or delay our ability to provide competitive offerings and may increase our costs. These AI technologies also may incorporate data from third-party sources, which may expose us to risks associated with data rights and protection, and may also lead to the unintended consequences of using AI discussed above. The intellectual property ownership and license rights surrounding AI technologies as well as data protection laws related to the use and development of AI are currently not fully addressed by courts or regulators. The use or adoption of AI technologies into our products may result in exposure to claims by third parties of copyright infringement or other intellectual property misappropriation, which may require us to pay compensation or license fees to third parties. The evolving legal, regulatory and compliance framework for AI technologies may also impact our ability to protect our own data and intellectual property against infringement.
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Our business, products and facilities are at risk of a number of material disruptive events, including an outage of our database, technology-based products and services or network facilities, which our operational risk management and business continuity programs and insurance coverage may not be adequate to address.
Our business and several of our major products are dependent on our ability to provide data, software applications, and other products and services on a current and time-sensitive basis. We rely extensively on our computer systems, database storage facilities, and other network infrastructure, which are located across multiple facilities in the U.S. and globally. Our computer systems, database and network facilities may be vulnerable to external attacks that misappropriate our data, corrupt our databases, or limit access to our information systems. Further, our operations and those of our vendors and customers are at risk of disruptions from numerous factors, including pandemic, violent incident, natural disaster, power loss, terrorist attack, telecommunications and Internet failures, civil unrest, cybersecurity attacks and breaches, and other events beyond our reasonable control. Our exposure to these types of disruptions may be more acute in circumstances where our business activities expose us to potential controversy and opposition, including various ESG-related matters. We are also subject to potential shortcomings in our own business resilience practices, such as failures to fully understand dependencies between different business processes across the locations in which they are performed, inadequate vendor risk assessment and management processes and critical vendor dependencies, concentration of certain critical activities in areas of geopolitical risk, concentration of certain skills and know-how with small groups of key employees, and possibly ineffective recovery strategies in the event of a disruption. As we have grown in recent years through acquisitions and continue to do so in the future, the newly acquired businesses may not have invested in technological infrastructure and disaster recovery to the same extent as we have. As their systems are integrated into ours, a vulnerability could be introduced, which could impact our platforms across the company.
We engage third party vendors in several locations, including Colombia, India, and Ukraine, which provide contract labor in support of our operations. If a pandemic, war, natural disaster, violent incident, or another dangerous emergency significantly impacted the safety or communication connectivity of people living in and around these locations and/or at our significant office locations including but not limited to our corporate headquarters in Chicago, Illinois and our data collection, technology, and operational center in Mumbai, India, we might not be able to continue business operations at an acceptable level that would meet all our legal and contractual commitments. Each of these locations has experienced or may in the future experience various types of geopolitical risks and changes in laws and regulations relating to data privacy, security, protection of intellectual property rights, and acceptable telecommunication infrastructure which create uncertainty regarding our long-term operations there. Any extended disruptions to our operations in these locations would make it difficult for us to meet our operating goals.
We do have a long-standing relationship with a third-party vendor in Ukraine which provides contract labor in support of development efforts at PitchBook. Our team has provided financial help and other assistance to these individuals and to date, we have been able to maintain the operations conducted by our contractors in Ukraine at an acceptable level. Through advanced preparation and business continuity planning, there has been limited disruption to the operations of PitchBook or our clients’ access to the platform. However, the situation remains volatile and our team continues to monitor new developments to guard against negative impacts to our operations.
We have shifted the storage of a majority of our data and delivery of several of our products and services to cloud-based delivery systems. We rely on cloud providers and other vendors to maintain, service, and improve our technological infrastructure, which underpins and protects our data, research, and other products and services. Some of these providers have recently experienced widely reported service disruptions that affected numerous customers including ourselves. To defend against these threats, we have implemented a series of controls focusing on both prevention and detection, including firewalls, intrusion detection systems, automated scanning and testing, server hardening, antivirus software, training, and patch management. We make significant investments in servers, storage, and other network infrastructure to prevent incidents of network failure and downtime, but we cannot guarantee that these efforts will work as planned. If disruptions, failures, or slowdowns of these electronic delivery systems or the Internet occur, our ability to distribute our products and services effectively and to serve our customers could be negatively impacted. In addition, the daily activities and productivity of our work force is now closely tied to key vendors, such as video conferencing services, to consistently deliver their services without material disruption. Our ability to deliver information using the Internet and to operate in a hybrid working environment may be impaired because of infrastructure failures, service outages at third-party Internet providers, malicious attacks, or other factors. If disruptions, failures, or slowdowns of these electronic delivery systems or the Internet occur, our ability to distribute our products and services effectively and to serve our customers may be impaired.
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We primarily rely on a third party to provide backup facilities for our data. We cannot guarantee that these facilities will not be impacted by interruptions in the future. We may not be able to fully recover data or information lost during a database or network facility outage impacting the provider of our backup facilities. Any losses, service disruption, or damages incurred by us could have a material adverse effect on our business, operating results, or financial condition.
Although we maintain insurance, at levels we believe to be appropriate, this insurance may not provide adequate protection in the event of a loss. Additionally, the existence, magnitude and impact of the risks we face often remain unknown for substantial periods of time. These risks could damage our brand and reputation, result in litigation, regulatory actions, sanctions or other statutory penalties, lead to loss of customer confidence in our business operations, including the security and reliability of our products, services and system, any of which could harm our ability to retain customers and gain new ones, result in financial losses for which we are not insured or adequately insured, and could lead to increased expenses to address or mitigate any damages or disruptions.
We could face liability for failing to adequately protect or properly use the information and data we collect, store, use, create, and distribute or the reports and other documents we publish or that are produced by our software products.