Morningstar CEO took risks to go far

— -- Joe Mansueto doesn't look like a wild man.

He's a youthful-looking 52, soft-spoken, with a ready smile. He doesn't act like a wild man, either. "I've worked for him for 20 years, and I've never heard him raise his voice," says Don Phillips, managing director at Morningstar morn.

Still, you have to wonder. Stock in the company he founded, Morningstar, is down more than 50% the past 12 months. The financial industry is reeling. Media companies are getting clobbered. Mansueto runs a media company that specializes in the financial-services industry. But Morningstar has been on a buying spree, snapping up six companies in a year, including one that follows South African mutual funds. "It's our first presence on the African continent," Mansueto says, with pride.

Those who have followed his career aren't surprised. "It's a tough time in financial services and the media, but it's a good time if you have cash," Phillips says. "He's takes a long-term view when everyone else is taking a short-term view."

And, in fact, behind Mansueto's quiet Midwestern manners is one of the nation's boldest entrepreneurs. Mansueto started Morningstar in 1984 with $80,000 when he was 27 years old, going up against fund-tracking services that had been in business since the 1940s.

Morningstar had one big advantage over its rivals: It aimed its services at consumers in a format that was easy to use and understand. The Morningstar style box, which let investors know a fund's investment strategy at a glance, has become iconic — as has Morningstar's own logo, which Mansueto paid legendary designer Paul Rand $50,000 to create. And Mansueto pushed the company hard to invest in technology, which meant it was offering computerized databases when other companies were still printing monthly newsletters.

Analysts are definitely staying busy

Today, Morningstar is a $1.3 billion company with operations in 19 countries and sales of $501 million. The Chicago-based investment-tracking company covers stocks, mutual funds, hedge funds and managed accounts, and sells its data to individuals, financial advisers and institutions. Not content with running Morningstar, Mansueto formed Mansueto Ventures in 2005 and bought Inc. magazine, which focuses on small businesses, and Fast Company, a magazine devoted to the stock market.

No doubt about it, the current market has been tough for Morningstar and its subscribers. "We have been so used to upward trends for the last couple decades," Mansueto says. "But my generation has never seen losses like this. In 1973-1974 I was in high school. This is the biggest downturn of my career."

The number of people who pay for Morningstar's premium services has fallen modestly, Mansueto says, but Morningstar.com is still one of the largest paid sites on the Internet. Mansueto was wild enough to diversify Morningstar's business from just consumers, targeting financial advisers and institutions. And in a bear market, individual investors seek the help of financial advisers. "They have earned their keep this year," Mansueto says. "We're trying to supply them with the materials they need so they can handle all the business."

In a time when nearly every financial institution has been laying off financial analysts, Morningstar has been beefing up its staff. "We have the largest independent analytical staff in the world," Mansueto says. "We've ramped up the European fund analysts to 25, and are trying to build to the same level of coverage in Europe that we have in the U.S."

In short, when the great financial institutions have been selling, wild man Mansueto has been buying. The purchase most familiar to most investors: 10k Wizard, a website that offers searchable Securities and Exchange Commission filings.

But Mansueto has also added to Morningstar's formidable database operations, which include Ibbotson Associates, a respected Chicago research corporation. "We purchased Tenfore Systems, a U.K. company that supplies real-time price quotes from 160 sources around the world," Mansueto says. "There's a very large market, about $1 billion in size, for real-time price data, and we're excited about getting involved in that."

Growing and taking care of its staff

All told, Morningstar has spent $104 million in the past 12 months buying businesses that fit its operations. And, Mansueto says, not all of them were rock-bottom bargains, despite the ruined financial landscape. "Valuations have come down a bit," Mansueto says. "But private companies tend not to sell if it's not a fair value to their mind." They can wait for better times.

And in an era when companies are slicing benefits and reducing salaries to a fistful of boiled gravel, Morningstar is famously kind to its employees, who get free soft drinks and a paid six-week sabbatical every four years. "If you look around the offices, it's a pretty egalitarian setup," Phillips says. "Joe doesn't have this big suite of offices, and his desk is the same size as everyone else's." Mansueto, who has expensive holdings of Morningstar stock, draws a salary of $100,000 a year.

Although Morningstar doesn't provide bond ratings, it stands in good position to benefit from the woes of other analytical firms, such as Standard & Poor's, which have come under fire for not being critical enough in their evaluation of mortgage-backed securities. "Our bright line of distinction is that other companies have embraced the pay-for-ratings model, but Morningstar is truly independent," Mansueto says. "No company pays us to cover them; no company commissions research. Users pay for licensing fees to use our research after we have created it."

Indeed, Morningstar's reputation for tough, independent-minded research has led to invitations to testify before Congress on the effect of fees on mutual fund performance, as well as the 2003 mutual fund trading scandal.

Despite Morningstar's activism, however, Mansueto remains a devotee of the free markets. "I'm skeptical of government intervention," he says. "As Steve Forbes said, if government spending were the path to prosperity, then the Soviet Union would have won the Cold War."

As for Morningstar's path to prosperity, Mansueto is sticking to a not-so-wild idea: focusing on helping investors. "We're not going to expand to other areas outside of investing," he says.

And he expects to push abroad. Morningstar gets about 20% of its revenue from overseas, but half of all investible assets are abroad, he says. "We're going to let a very investor-centric strategy guide us," Mansueto says.

He also sees Morningstar integrating its new databases into existing platforms. For example, he's considering adding bond data to Morningstar's offerings. "Investors would like to track it," he says. In other words, he wants to give customers more for their money, not less. Why, that's just crazy talk.