Morningstar Inc. has been rating stock and bond funds for everyday investors for years. Now it will award gold, silver and bronze medals to less-liquid private asset funds marketed to the masses.
The data firm will apply a Medalist Rating system to the booming market of semi-liquid funds that can hold private credit and equity, real estate and infrastructure assets, the firm said Tuesday in a statement. The rankings, slated to start in the third quarter, will shed light on funds that typically charge steeper fees in exchange for potentially higher returns.
The company’s analysts plan to dig into how the funds mark and value their assets to determine whether they’re likely to deliver returns in the future that are better than an investor could get in a fully liquid strategy.
“If you are surrendering some of the liquidity of these particular investments, we expect to see additional upside on the return,” Laura Lutton, global head of manager research at Morningstar, said in an interview.
One of the points of the ratings, Morningstar said, is to “call out” potential underperformers, with some funds potentially being labeled neutral or negative.
The expanded ratings reflect the asset-management industry’s aggressive push into private markets. BlackRock Inc. Chief Executive Officer Larry Fink said in March that a 60/40 portfolio of stocks and bonds may no longer provide enough diversification. A new normal for portfolios may be 50/30/20, he said, with 20% of investments being in private assets.
With pensions and endowments reining in some private investments, asset managers have been competing to reach retail clients — and not just the super wealthy. Franklin Resources Inc. CEO Jenny Johnson told analysts last week that selling alternative assets to individuals is “a massive opportunity” and likened the process of educating financial advisers on the products to “hand-to-hand combat.”
