Morningstar CEO Warns on Private Markets Complexity

In Brief:

The rapid convergence of public and private markets presents both significant opportunities and complex risks that could overwhelm advisors and their clients without proper analytical tools and skeptical evaluation. Morningstar CEO Kunal Kapoor, speaking at the 2025 Morningstar Investment Conference in Chicago, outlined how his firm is responding to this fundamental shift by extending its analytical framework to cover private investments. With private debt now exceeding $1.2 trillion in assets and retail investor interest surging, Kapoor emphasized the critical need for standardized evaluation tools to navigate higher fees, reduced liquidity, and complex structures. The CEO warned that aggressive marketing campaigns will target both advisors and clients in coming years, making independent analysis more crucial than ever for portfolio construction decisions.

Big Picture Drivers:

• Market Structure Evolution: US public companies declined while PE and VC-backed companies exploded from under 9,000 in 2005 to approximately 75,000 today

• Capital Migration Patterns: Companies stay private longer and raise more capital from private sources, avoiding IPOs due to better private market pricing

• Retail Demand Surge: Twenty to twenty-five percent of retail investors express interest in private equity investments, driven by workplace exposure to PE-backed companies

• Credit Focus Shift: Private credit has emerged as the primary opportunity area for advisors, with US private debt reaching $1.2 trillion in assets under management

• Technology Integration: AI-powered tools remove friction from advisor workflows while enabling sophisticated portfolio construction and personalized client service

By The Numbers

• $1 trillion+: Current assets in US active ETFs, up from $180 billion in 2020

• 1,000+: New active ETFs launched since early 2024 (less than 18 months)

• 140: Total interval funds managing over $100 billion in assets

• 3x higher: Average fees charged by semi-liquid funds compared to traditional mutual funds or ETFs

• 6 million: Privately held companies tracked globally through Morningstar's Pitchbook platform

Key Insights:

• Complexity Barrier: Nearly a third of advisors want to offer private market vehicles but avoid them due to complexity, creating opportunities for firms that can simplify evaluation processes.

• Marketing Skepticism Required: Kapoor expects aggressive marketing campaigns targeting advisors and clients around private market convergence, advising a skeptical approach to evaluate true value propositions.

• Standardization Challenge: Bringing analytical rigor to private markets requires new data points, rating systems, and workflow tools specifically designed for illiquid investments with limited transparency.

• Liquidity Trade-off Analysis: The fundamental advisor question becomes whether expected outperformance justifies clients giving up liquidity and paying significantly higher fees for private market exposure.

• Data Infrastructure Advantage: Morningstar's Pitchbook ownership provides access to 6 million privately held companies globally, 400,000 debt deals, and over $31 trillion in debt volume for analysis.

• Portfolio Integration Tools: New "percent private" data points help advisors evaluate existing fund exposures, with some traditional funds already carrying significant private asset allocations without clear disclosure.

Memorable Quotes:

• "Public markets have been a trusted path and will remain a trusted path for capital formation, investor returns, and long-term retirement planning" - Kunal Kapoor, acknowledging continued importance of traditional investing approaches

• "If you're going to change anything, you really need to be sure you're adding incremental value as opposed to subtracting it" - Kunal Kapoor, cautioning advisors about portfolio modifications involving private markets

• "While private equity grabs all the headlines, it's really private credit where I think you should be focusing your attention" - Kunal Kapoor, redirecting advisor attention to the most practical private market opportunity

• "We want to bring clarity to complexity in all we do. It's our rallying cry" - Kunal Kapoor, describing Morningstar's mission when addressing the private markets challenge

• "It's okay to come to it with a skeptical lens" - Kunal Kapoor, advising caution amid expected marketing pressure around private market investments

The Wrap:

Kapoor's presentation signals a pivotal moment where private markets transition from institutional exclusivity to retail accessibility, but warns that success requires sophisticated evaluation tools and healthy skepticism. While the convergence offers genuine diversification opportunities, advisors must navigate complex fee structures, liquidity constraints, and marketing hype to deliver real value to clients. Morningstar's expansion into private market analytics represents an attempt to democratize access while maintaining the analytical rigor that built trust in public market investing.