Following the rollout of Morningstar’s Cirrus in late 2023 – a new index calculation platform – the firm's chief indexing officer Gareth Parker reflected on the milestone for the firm and client reception in South Korea after a recent visit.
This platform marks a shift for the index provider as it moves from outsourcing its index calculations to an in-house system.
Cirrus has particularly resonated with clients and revealed a fresh set of priorities. On a recent trip to South Korea, governance and conflicts of interest questions from potential new clients were raised, underscoring this as a key priority when building an index.
Parker also found that that clients not only seek effective calculation and management of their indices but also highly value Morningstar’s expertise and input in designing these indices.
Finally, with ambitions to become a $100m business over the next two years, Parker reflected on Morningstar’s top priorities over the next 12 months, including expanding its structured products and leveraged loan indices.
How is your role going after joining Morningstar two and a half years ago?
It is going really well. While Morningstar is not a start-up like my prior venture, there is a similar level of excitement about doing new things and growing a fast-moving business.
More specifically, it has been an exciting time bringing together the technology capabilities from my prior venture with Morningstar’s capabilities, to create a new index calculation platform we call Cirrus.
It is a very important and strategic project for Morningstar Indexes and we completed its rollout late last year.
How significant is the launch of Project Cirrus for Morningstar and your clients?
Very significant indeed. Morningstar used to outsource its index calculations to various external providers. Cirrus, a thoroughly cutting-edge, microservice-based index calculation platform, brings it all in-house and will scale rapidly with our growing index business.
Most importantly, we can give our clients the best possible service. For example, we can now rapidly deploy new indices and build out client files with data to suit such as analytics, ESG data and different proforma formats.
We are particularly pleased to be able to ingest and manage client data to suit too. For example, we can compartmentalise IP and data even where it conflicts with other data. So, we can calculate indices using price sources from different venues for the same security. We have also been building the team, expanding our operations and technical staff in every time zone.
Can you tell us about your time in South Korea?
I was in Korea to work with existing clients and meet new prospects. There are several ETFs issued by Korean partners of ours, listed both in Korea and the USA, that use indices we calculate.
They are particularly strong in the use of AI and there is a lot of use of thematics too.
Interestingly, I thought the trip was primarily going to be conversations about technical capabilities arising as a result of Cirrus, as our prospects there are generally very innovative issuers using all sorts of novel data and index creation mechanisms that require specific calculation algorithms, the IP in which needs careful protection for their peace of mind.
It is clear our clients do not just want effective calculation and management of their indices, they also value our input on their index design, or even for us to design their indices for them from their data or intellectual property which we are happy to do.
In addition, they are going beyond just wanting a simple calculation, they want to be able to demonstrate that their indices are properly managed with no potential conflicts of interest or selective use of data and so on.
A surprisingly large number of clients raised governance and conflicts of interest questions too.
Clearly, Morningstar is both an index provider in its own right and a calculator and administrator of client indices too, so the prospects wanted comfort that we are on top of those and we are.
We have spent a lot of time internally and with our regulators ensuring that the governance structure we have built protects everyone’s interests and IP without being overly complex.
What are the priorities for the next year?
We have been named as the fastest-growing index provider for two years now and remaining in that position this year is clearly a priority, and I am confident we will achieve that given what I have been saying about Cirrus and our team’s capabilities.
Ultimately, we are aiming at becoming a $100m business over the next two years. To do that there is a lot of focus on our structured products franchise as it is particularly strong, and having recently brought the calculation of the Morningstar leveraged loan indicess in-house – Cirrus again – we are also focused on growing that franchise.
The Morningstar MOAT indices continue to have great traction and we are building out more MOAT indices all the time and traction is building in the LCD leveraged loan indices that we recently acquired.
In addition, I have a lot of fondness for our Index Services capabilities – working with clients on their index plans is a great way to keep abreast of developments on both the factor-based and thematic sides of the investment world.
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full edition, click here.
