2024 Annual CEO Letter

Investors face an ever-expanding menu of investment choices. But the combination of new (and yet-to-be-tested) investment vehicles and high expectations brings elevated risks for all participants. Investors of all sizes will need guidance, and Morningstar is ready to provide it. The depth of our data, research, and tools positions us to assist investors and advisors and help asset managers turn these new opportunities into successful investor experiences. This is what we’ve done for four decades. It’s our mission. And we are ready for the challenge ahead.

As we enter 2025, our teams are particularly focused on anticipating investor needs as the convergence of public and private markets accelerates. By June 2024, private markets had grown to more than $15.5 trillion in assets. Companies are staying private longer and at times reaching the scale of public firms, further expanding the investor base. Advisors and asset managers are increasingly looking to private markets for diversification and opportunity. This is accelerating demand for semiliquid fund structures like interval funds, business development companies, and real estate investment trusts, particularly in private credit, whose growth is accelerating at a breakneck pace and now tops $1.8 trillion in assets. As more institutional and retail investors hold private investments alongside public investments in their portfolios, they will need transparency on portfolio exposures and risks. We believe that we’ve got great building blocks in place to meet this moment. Our teams’ deep expertise in building portfolio analytics and tools provides us an opportunity to construct a common language of investing across public and private markets.

We’re dialed into the growth of private credit, building on our 2022 acquisition of Leveraged Commentary & Data. In 2024, PitchBook launched PitchBook Credit, a centralized resource on the PitchBook platform that combines PitchBook’s proprietary data with LCD news, research, and tools to streamline credit workflows. PitchBook continued to expand its data coverage, which now encompasses leveraged loan and high-yield bond news and analysis as well as business development company portfolio holdings and collateralized loan obligations, delivering transparency on historically opaque debt deals and fund disclosures. These enhancements helped support the migration of LCD clients to the PitchBook platform; that process is nearly complete, with close to 90% of clients transitioned. And, in early March, we announced our acquisition of Lumonic’s private credit portfolio monitoring and management product, which will empower clients to easily monitor their assets alongside PitchBook’s best-in-class reference data and analytical suite.

At the same time, Morningstar Credit is meeting the increased demand for credit ratings on private debt in sectors ranging from esoteric asset-backed securities and asset-based lending to investment-grade and non-investment-grade private-placement corporate transactions. In 2024, we estimate that private-market ratings accounted for roughly a quarter of our ratings revenue, up from roughly 18% in 2022.

Since our founding, our analyst teams and research capabilities have been central to our ability to evolve and meet the demands of a changing market. They are integral to our efforts as we work to expand our coverage and insights across public and private markets. Today more than 1,000 researchers across the firm cover stocks, credit ratings, private-market investments, managed investments, and sustainability. We also leverage their expertise in constructing portfolios for clients of Morningstar Retirement, Morningstar Wealth, and Morningstar Indexes. Those analysts are keepers of our mission. They aren’t afraid to stake out sometimes contrarian views on the latest market trend. For example, while new vehicles, like the recently approved SPDR SSGA Apollo IG Public & Private Credit ETF, promise to give retail investors access to private markets in a more accessible and lower-cost manner than what’s currently available, our analysts have also raised questions about how they will work in practice, especially should they face meaningful outflows. Finally, our analysts are essential advisors as our teams create processes to link our public and private data and develop new categories for private-market investments.

Our company goals guide our work of helping investors make sense of the increasingly complex investment ecosystem. In 2024, we made progress across multiple fronts.

Beyond its work to expand its private credit offering, PitchBook continued to build out its dataset and make enhancements to the PitchBook platform. In 2024, we added data on 80,000 new transactions in Europe as well as 4,500 new funds across Asia-Pacific and Europe. The count of public and private companies on the PitchBook platform crossed the 5 million mark, up from 3.8 million as of the end of 2023. As of February 2025, PitchBook covered more than 2.5 million private-market investments, 500,000 investors, and 140,000 funds globally.

PitchBook also introduced new capabilities to address our clients’ key use cases. We expanded access to public equity data and research, which help support core valuation and due diligence workflows, with the introduction of third-party equity research to complement the Morningstar institutional equity research available on the platform. We also unveiled significant enhancements to PitchBook’s Research Center, including advanced search and filtering capabilities and improved reader view tools, to streamline market analysis and due diligence workflows.

Morningstar Indexes and PitchBook jointly developed investable indexes designed to help investors gain exposure to private markets, with two key recent launches. In January 2025, we launched a new investable Morningstar PitchBook Unicorn 30 Index, which tracks the 30 most liquid late-stage venture capital-backed private companies valued at $1 billion or more. This provides investors with access to some of the most innovative and fastest-growing companies across developed global markets. In February 2025, we introduced the Morningstar PitchBook Buyout Replication Index, which draws on PitchBook’s data on buyout funds and transactions and tracks publicly traded small- and mid-cap stocks that resemble companies targeted by private equity funds.

Our Data and Analytics team had a busy year as it prepared for a key product launch and made important updates to existing products. In January 2025, we launched Direct Advisory Suite, which represents the next generation of our advisor offering. Its updated, modern interface offers a connected suite of tools spanning proposal creation, investment research, and portfolio analysis. We will offer it globally, targeting the broker/dealers who have traditionally been Advisor Workstation clients as well as registered investment advisors. Morningstar Advisor Workstation clients are expected to be enabled and updated to Direct Advisory Suite in 2025 and 2026 so that they can take full advantage of these enhanced capabilities.

In Direct, we introduced enhancements with an emphasis on creating an improved and streamlined user experience. Continuing the momentum from 2023, we refined Morningstar Direct’s user interface and expanded the Direct Lens experience. Direct Lens, designed to integrate and unify portfolio-creation capabilities, now offers expanded features such as portfolio creation and analysis, list building, investment search capabilities, asset flows, and the integration of an AI-powered research assistant to more efficiently help users make the most of Direct Lens’ features. We enhanced Morningstar Direct’s equity data by incorporating consensus estimates and more comprehensive fundamental equity data. This development broadens the application of Morningstar Direct by showing users detailed equity insights alongside traditional use cases. Morningstar Direct’s data coverage now extends to private investments, public investments outside of mutual funds, and individual securities.

In 2024, Morningstar Sustainalytics introduced significant enhancements to several key products, including its flagship ESG Risk Ratings product, and made updates to its suite of regulatory products and services, including an extension of its EU Sustainable Finance Action Plan Solutions Suite. Highlights included a dedicated resource to support alignment with new fund-naming guidelines from the European Securities and Markets Authority and the next iteration of its EU Taxonomy solution that enhances coverage, quality, and presentation of its data.

Finally, our analyst teams continued their essential work to deliver differentiated insights to our clients. Our Manager Research team introduced an important enhancement of the Morningstar Medalist Ratings, which refined our framework for assigning ratings. Using historical data, the updated framework introduced a more precise assess-ment of how much value a managed investment can add before fees, compared with its assigned benchmark.

We introduced a companywide AI goal with a straightforward objective: remake internal and external workflows to get users the answers they want faster and without all those annoying clicks. We’re focused on three primary use cases: using AI as a tool to improve our teams’ productivity, using AI to improve the quality and efficiency of our operations, and using AI to get better, faster, and targeted insights and experiences to our clients.

Our data teams have long used automation and artificial intelligence in their processes, and today a large percentage of the structured data we ingest (think expense ratios) is largely untouched by a data analyst unless there’s an anomaly. The big opportunity with generative AI is to help process the growing reams of unstructured data that we take in, including via PDFs and regulatory documents or scraped from websites. We deployed our first generative AI solution in a human-in-the-loop workflow for analysts in late 2023 and continued to roll that out over the course of 2024. As we introduce these solutions, analysts move from doing data entry to overseeing the process and addressing issues, helping us get to quality at scale.

We also enhanced our AI capabilities in our products, including releasing AI Insights transcription in PitchBook, which enables users to extract and summarize key insights from earnings call transcripts, and upping our investment research assistant Mo’s game. We have an ongoing focus on improving the quality of Mo’s responses—an effort that any firm deploying generative AI will recognize. Mo also developed new skills: Mo can help an Advisor Workstation user create an investment proposal and can point a Direct Compass client asking a relevant question to our screener, help to populate the screening criteria, and run the screen itself. On Morningstar.com, Mo can now answer product support questions, which represent about half of the questions it’s asked. When we launched Direct Advisory Suite, it came with all these capabilities as well as a new Insights tool, which provides the latest from our research teams on a list of securities or a portfolio, delivered in a concise summary.

Driving efficiency and scaling our business effectively are central to our ability to generate long-term durable growth.

We are keeping a close eye on revenue per employee at the consolidated level as well as across our operating segments. In 2024, our teams demonstrated good discipline: Average revenue per employee increased to roughly $200,000 from $170,000 in 2023.

Our commitment to building for scale drove the streamlining of our product portfolio in a couple of key areas in 2024. This included refocusing Morningstar Wealth on areas that require less capital to scale, enabling more efficient and sustainable growth. In December, we closed on the sale of customer assets in our US turnkey asset management platform (TAMP) to AssetMark, part of a broader strategic alliance with that firm. We weren’t getting to scale fast enough with the US TAMP, nor did we see an end to ongoing investments (something that even the largest players in the space have yet to figure out). In the US, our teams are now focused on Morningstar Model Portfolios offered on third-party platforms, including AssetMark’s, whose advisors were mostly not users of our TAMP.

In February 2025, we announced that we will be retiring Morningstar Office after 20 years and providing a streamlined transition for interested clients to SS&C’s Black Diamond Wealth Platform, which will integrate our new Direct Advisory Suite product and allow advisors to continue using the Morningstar data and research they’ve loved in Office. With the introduction of Direct Advisory Suite and the integration with Black Diamond, we’re excited to elevate our game with advisors. Outside the US, we remain focused on the opportunity ahead for our International Wealth Platform.

In our Data and Analytics segment, we sold our commodity and energy data business to Zema Global Data in a transaction that closed in September. While we were pleased with the product’s performance during our ownership, we found that the buyer base remained distinct from our core client segments, and we hadn’t found a good opportunity to cross-sell with our other investment data. As we look to drive growth and scale in Data and Analytics, that business didn’t have a clear place.

By contrast, we see good opportunities to scale in other parts of the business, including Morningstar Model Portfolios, where we’re able to support growth in assets under management without making significant new investments, and Morningstar Retirement, which is already at scale with the highest adjusted operating margins in the business. For PitchBook and Morningstar Data and our platforms in Data and Analytics, we have developed products that can be widely sold across various customer segments and geographies. Finally, as we crossed the five-year anniversary of the 2019 DBRS acquisition, Morningstar Credit is beginning to scale its existing credit rating capabilities into new geographies, leveraging existing methodologies. With those methodologies in place, the teams can focus on executing and meeting demand for credit rating products.

Those of you who have followed Morningstar over the years know that whenever I’m asked what keeps me up at night, I always answer that it’s the next person we hire at Morningstar. We want to make sure that person feels as strongly as we do about winning, contributing to our culture, and supporting our mission. To attract and retain great employees, we continue to focus on providing a performance-based environment where people who power our mission know their ideas are welcome, their voices heard, and their contributions rewarded. We expect a lot from them, and it’s fair for them to expect the same from our organization.

We offer a variety of educational and career development programs to ensure ongoing growth opportunities for all colleagues across levels, job fields, and locations. These include our annual employee educational stipends, which employees can spend on their choice of professional development resources, and our Morningstar Development Program, the primary entry point for recent college graduates. In 2024, we introduced a new Manager Academy, which provides training and development for our colleagues who have been newly promoted into manager roles. Also new in 2024, our High Performer Program offers individuals personalized development programs in a cohort setting as they grow into leadership positions. In 2024, 54% of our open roles were filled by internal candidates, demonstrating the value we place on developing, recognizing, and rewarding internal talent. Kudos to Amanda Kelly and her team; in her still-short Morningstar career, Amanda is making a huge difference in our talent development processes and programs.

Finally, we’re pleased to be winning accolades across markets. In 2024, we were named a Certified Great Place to Work by the Great Place to Work Institute for the seventh year in a row, in 2024, obtaining a score of 72, which continues to exceed the institute’s average company score of 57.

Consolidated revenue increased 11.6% to $2.3 billion, or 11.8% on an organic basis, with contributions from across most of the business.

We generally benefited from a favorable market environment. The Morningstar US Moderate Target Allocation Index—a benchmark for 60/40 portfolios—increased 13.0% in 2024, primarily driven by gains in public equities as stock markets across most regions globally generated gains. Bonds were generally flat, with the average fund in the US intermediate core bond Morningstar Category up 1.7%. Meanwhile, for the trailing 12 months ended September 2024, PitchBook reported average private equity fund returns of 11.6% and average private debt fund returns of 8.7%.

The economic environment and healthy market returns created tailwinds for our business, especially for our more economically sensitive segments. Against the backdrop of three Federal Reserve rate cuts, bond issuance and credit rating activity surged across asset classes in all regions, supported by pent-up demand coming into the year. That drove a 35.1% increase in Morningstar Credit revenue in 2024 compared with 2023 and a 15.9-percentage-point increase in adjusted operating margin to 26.0%. Increased residential and commercial mortgage-backed securities issuance and demand for corporate credit ratings played an important role. A special shoutout to all our credit ratings analysts globally and the Morningstar DBRS business development team headed by Sean O’Connor, who worked lights-out to deliver this strong outcome.

Morningstar Credit’s strong growth also reflected the team’s efforts in recent years to build a more diversified revenue base that’s less reliant on structured finance ratings. In 2021, revenue from ratings on CMBS, RMBS, and ABS accounted for roughly 67% of Morningstar Credit revenue. The share of Morningstar Credit revenue coming from structured finance ratings declined to 61% in 2024. That’s thanks to the team’s ongoing efforts to expand into private- and middle-market corporates in the US and Europe and the impact of a small but growing data business, which benefits from our expanding coverage. Even within structured finance, we’ve seen a shift toward a higher proportion of revenue coming from ABS and RMBS, benefiting from the work we’ve done to build out teams and methodologies in both areas over the past few years.

Morningstar Wealth and Morningstar Retirement also benefited from tailwinds as positive market returns contributed to 12.3% and 19.7% increases in assets under management and advisement, respectively, in 2024 compared with 2023, supported by positive net inflows. Morningstar Retirement’s flagship managed accounts program experienced steady growth, making it one of the fastest-growing managed account providers by assets under management in 2024. That reflected the success of our multi-faceted distribution channel, which includes a Morningstar-branded option, a white-label version, and our advisor-managed accounts. We were especially pleased with a double-digit percentage increase in net flows to advisor managed accounts, which we offer through registered investment advisors who help employers select retirement plans. We’re also ramping up our work with broker/dealers, who provide an important connection to the growing number of micro retirement plans that are expected to drive growth in the retirement plan market in the years to come.

As primarily license-based businesses, PitchBook and Morningstar Data and Analytics don’t tend to be as sensitive to changes in the macroeconomic environment. PitchBook revenue increased 12.0%, or 12.1% on an organic basis, and Data and Analytics revenue increased 5.5%, or 5.8% on an organic basis, in 2024 compared with 2023. PitchBook followed a fairly consistent trajectory over the course of the year, with good growth dynamics in core private equity and venture capital clients. That was offset by a more challenging environment for noncore client segments with more limited use cases, including smaller corporates. Meanwhile, Morningstar Direct and Morningstar Data continued to be the primary drivers of increased revenue for Morningstar Data and Analytics, with growth across geographies. Increases in managed investment (fund) data and Morningstar Essentials helped drive Morningstar Data growth for the year, while we saw some softness in our exchange market data product, which offers real-time streaming market data from roughly 200 global exchanges.

While most parts of the business grew in 2024—including Morningstar Indexes, which benefited from higher assets under management for key products, largely driven by market gains—Morningstar Sustainalytics had a more challenging year. Revenue declined modestly compared with 2023. This was largely due to softness in our flagship ESG Risk Ratings product, where vendor consolidation and softness in parts of the retail asset and wealth client segments has hurt, in licensed ratings, where we’ve shifted our approach, and in second-party opinions.

Companywide profitability also grew meaningfully during the year. Consolidated operating income increased 110.2% to $484.8 million in 2024, including the impact of a $64.0 million gain associated with the sale of customer assets from our US TAMP to AssetMark. Adjusted operating income, which excludes intangible amortization expenses and M&A-related activities (including the gain related to the US TAMP asset sale), increased 51.2%. Operating and adjusted operating margins increased to 21.3% and 21.7%, respectively. We remain focused on increasing adjusted operating income and margins as our business scales.

Morningstar Credit and PitchBook made significant contributions to consolidated adjusted operating income growth. Morningstar Credit adjusted operating income increased 248.4% to $75.6 million in 2024. As we’ve noted before, the credit business is one with significant operating leverage, and that was apparent in its 2024 results. PitchBook adjusted operating income increased 25.9% to $186.4 million in 2024 with an accompanying increase in adjusted operating margin to 30.1%, driven in part by lower stock-based compensation due to the cancellation of the PitchBook plan after founder John Gabbert’s departure. Given the opportunities we see in private equity and credit markets, we’re continuing to invest here, but it’s good to see our growing scale reflected in profitability.

While Morningstar Wealth remained unprofitable in 2024, its adjusted operating loss narrowed considerably, supported by targeted reorganizations in the business in 2023 and careful attention to expenses. We remain focused on growing that business to profitability. Expenses incurred during the transition period following the closing of our strategic alliance with AssetMark, as we wind down our US TAMP, are expected to have a temporarily negative impact on profitability. However, we expect to see a positive run-rate impact on adjusted operating income from that transaction once the transition period has concluded.

Our increased profitability supported higher operating and free cash flows. Cash provided by operating activities increased 87.0% from 2023 to $591.6 million in 2024, and free cash flow increased 127.5% to $448.9 million. In 2023, operating and free cash flow were suppressed by several items related to the repurchase of our brand in Japan, severance related to the transition and shift of our China operations, and payment of the final contingent amount for the LCD acquisition. Excluding these items, which totaled $90.8 million, and $1.8 million in severance related to the sale of the US TAMP assets in 2024, operating cash flow and free cash flow would have increased by 45.7% and 56.4%, respectively.

During the year, we continued prioritizing debt repayment. We reduced debt by $273.8 million, which together with improved profitability lowered our consolidated funded indebtedness to consolidated EBITDA ratio as defined in our financial covenants to 0.9 from 1.7. Paying down debt in the years following large acquisitions is consistent with our prudent approach to managing our balance sheet and maintaining financial flexibility, and it has helped reduce interest expense.

We bought back $11.6 million of our shares during the year at an average price of $347.51 and paid $69.3 million in dividends. In December, we announced a 12.3% increase in our quarterly dividend to 45.5 cents per share.

Over the past year, our team saw several important transitions.

In December, Jason Dubinsky stepped down as our chief financial officer. Jason was my key partner in helping to strengthen and diversify Morningstar’s financial and business profile over the years. I am grateful for Jason’s leadership, stewardship, and friendship.

After a thorough process, we selected Michael Holt as Jason’s successor, effective Jan. 1, 2025. Mike made a significant impact on our business as our chief strategy officer and president of research and investments, driving our M&A strategy and centralizing and scaling our research and investment capabilities. He is a talented individual who cuts through the noise and gets things done.

Earlier in the year, PitchBook founder John Gabbert left the company. John was a special leader and created immense value for all stakeholders. He left behind a topnotch team, now led by Rod Diefendorf, who has served as PitchBook’s chief operating officer since 2016 and took over as president following John’s departure. Rod is off to a strong start, and his team has been responding well.

Also in 2024, several colleagues who helped make Morningstar what it is today retired. John Rekenthaler was hired by Joe Mansueto and Don Phillips in 1988 and made a career in multiple leadership roles on our research and investment management teams. Together with Don, John helped design the Morningstar Style Box and the first Morningstar Categories. For the past two decades, he authored the Rekenthaler Report, which has become one of the most popular and widely cited columns in all of investing and personal finance. He helped build the Morningstar voice and was one of my inspirations. If you enjoy reading John’s column, you can follow him on Substack as he tackles a wider range of topics.

Pat Fay also retired from Morningstar at the end of 2024, after five years as chief operating officer for Morningstar Indexes and, more recently, Morningstar Sustainalytics. Although his time with the business was shorter, he’s had a huge impact and will be missed. I offered Pat the opportunity to reduce his hours and work part-time for 40 hours a week, but he was strangely uninterested in the offer.

Finally, while he remains with us in a consulting role, Doug Turnbull retired as head of Morningstar DBRS in Canada. Doug led what I believe to be the moatiest part of our business and did a terrific job in the role for nearly 10 years. Doug’s successor is Richard Sibthorpe, who joined us after a long stint at BMO Capital Markets. In a short time, Richard has already had a meaningful effect—he’s out with clients, focused on widening our moat, and thinking deeply about how we grow even further into private markets. I expect he will have a very positive impact in the years ahead.

I look forward to welcoming you to our annual shareholders’ meeting on May 9 in Chicago, where we take live questions from shareholders and have the opportunity to engage with you. We’ve got Rod and Detlef Scholz, who leads Morningstar DBRS, on tap for business deep dives, and we’ll of course take all your questions. I do hope you can make it!

Best regards,

Kunal