Summer 2014

INTERVIEW: New reach for Morningstar

Nick CheungMorningstar Asia is adding to its range of products and services in the region, and chief executive officer Nick Cheung is expanding his operational and research teams to provide thought leadership, equity research and investment management services.

Nick Cheung, chief executive officer, Morningstar Asia, has ambitious plans to expand the range of products and services in what is the fastest-growing region for the group. 

Headquartered in Chicago, Morningstar provides independent investment research in North America, Europe, Australia and Asia.

The products and services offered in Asia centre on mutual funds, and the main clients in the region are either asset managers or distributors. 

About 80% of what the team at Morningstar Asia is tasked to undertake is related to mutual funds, Cheung says, adding that in the US this part of the business accounts for just 40%.

In the US, the largest business drivers are services around equities and equity-related products. Morningstar, Cheung adds, has one of the largest independent equity research teams worldwide.

“This is something we will be bringing to Asia,” Cheung says. “We are already expanding our resources in Hong Kong, China, and other regions.” Australia features high among the regions Cheung would like to expand into, followed by Singapore. 

“Investment management services will be one of the main growth areas for Morningstar globally,” Cheung says.

“We are in the process of applying to become a regulated entity in Hong Kong and once we get that legal status, we will be able to offer more services related to consulting.”

Cheung says Morningstar Asia is expanding rapidly, but the team in Asia still leverages global resources. US-based investment consultants, for example, help out in Asia. 

This is set to change, though, as the investment consulting business is being built. “We will be starting from Hong Kong and gradually expanding into other countries in Asia,” Cheung says. 

The investment consulting team will largely be based in Hong Kong, but will be covering other markets, including Singapore, Taiwan and China. 

“We want to build up this capability to better integrate our resources in the region, including on the investment consulting side,” Cheung adds.  

Morningstar Asia already provides some investment consulting services in South Korea, China and Australia, and Cheung says he will focus this year on integrating all the resources into one single large team to provide better services to clients. 

The largest one of Morningstar’s data centres is in Shenzhen. Initially, the plan had been to put in place a satellite team, but Cheung says it grew so fast – from ten people to 950.

The Hong Kong office, where Cheung is based, is small. Much of the work is leveraged on the Shenzhen office.

Morningstar also has offices in Australia, India, Japan, Korea, New Zealand, Singapore and Thailand. Indonesia and Malaysia are currently covered out of the Singapore office. 

Morningstar also created a new category for sharia-compliant funds last year, servicing a small part of the asset management industry that is growing fast. 

There are also ambitions to expand the thought leadership part of the business, where Cheung says Morningstar Asia can bring global knowledge.

“We would like to raise our voice on the passporting ideas in Asia,” he says. 

There are several different passporting initiatives in Asia, but Cheung says the most promising one will be the mutual fund recognition scheme between Hong Kong and China.

“The role Morningstar can play in this type of initiative is quite unique because Morningstar is probably the only research firm that has global reach and local knowledge.” Morningstar has operations and research analysts on the ground in most of Asia, as well as elsewhere in the world. “We can easily bring the global knowledge we have learnt in other countries into China and share it with the industry,” Cheung says, adding that this could work both ways. 

While its awards cover an ever-growing universe of funds, its inaugural investment conference takes place in June at the Mandarin Oriental Hotel in Hong Kong.

“That is a signature event that showcases Morningstar’s best idea and best knowledge on different topics in finance,” he says. “We are doing a lot more to promote thought leadership of Morningstar, and we hope that by doing so we will be creating more value for the industry and, in the end, benefit investors.”

Ratings agencies have had to defend their work after the financial crisis, but Cheung says one of the things that set Morningstar apart from its competitors is the approach of the model behind its ratings. “The most significant difference is that our ratings are not commission-based,” Cheung says. 

“We are not being asked, or we do not ask our clients to pay, before we create any ratings.” 

Cheung says the rating model is independently handled by its research team. 

The research team will decide what fund they want to rate, the methodology, and Cheung says it has nothing to do with the business side.

“If you are not being independent from the commission side of the relationship, then it is really difficult to have an unbiased view,” Cheung says. We actually do not need to change our story because this has been our approach since day one.” 

Morningstar offers different types of ratings for different types of investment vehicles. 

The Morningstar analyst rating – a qualitative rating – is very forward-looking.

The rating has this element because it actually carries a recommendation: you can buy, sell or hold.

The Morningstar star rating – a quantitative rating – is generated as soon as the investment vehicle meets a certain criteria. 

While it would be near impossible for his team to cover every single investment vehicle, Cheung says the analysts will usually look at larger investment vehicles, or those that are popular among investors. 

“Once the research has been done, the business team shows the results to the client. If the client is happy the result, which is not always the case, they can license it.”

Cheung says Morningstar will always license the whole suite of ratings and asset managers cannot “cherry-pick” when it comes to ratings. 

“They may decide to just disclose the ratings for the better funds, but from our perspective, if we license the rating, we will make sure they get the whole suite of ratings, including the not-so-well rated funds.”

Morningstar was founded in 1984 in Chicago, and launched in June 2000 in the US. 

Cheung has been with Morningstar Asia from the start, adding that the official launch date, June 13, 2000, coincided with his wedding day.

©2014 funds global asia

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