Morningstar Puts Its Money Where Its Mouth Is With a $375 Million Acquisition Gamble…

“I’m feeling CRSP-y” - Morningstar 

Morningstar just dropped $375M to buy the Center for Research in Security Prices (CRSP) from the University of Chicago… a.k.a. The nerd factory that accidentally invented the index fund.

(Source: Giphy) 

Friendly reminder: CRSP’s first “database” in the 1960s was literally three miles of magnetic tape proving that U.S. stocks returned 9% annually from 1926 to 1960. It also proved that mutual funds were dogsh*t compared to just owning the market, which was super awkward for Wall Street sales guys trying to push 2% fees on widows and orphans. Fast forward, and CRSP is now the quiet benchmark behind $3T in Vanguard funds… including the $2T Vanguard Total Stock Market Index.

(Source: Morningstar) 

Meaning, Morningstar buying this is like your dentist buying the deed to the towns nearest meth lab. Sure, Morningstar built its empire handing out star ratings on mutual funds, but now it owns the underlying benchmark that millions of boomers’ retirement accounts are strapped to. For more context, the $375 million price tag is about 7x sales for a business pulling in $55M annually… but hey, CRSP indices are the official yardstick for $3T+ in U.S. equities. 

However, here’s the part Morningstar won’t say out loud. Yes, this deal makes them one of the “top index providers,” right up there with MSCI, FTSE Russell, and S&P Dow Jones. Except… CRSP’s only massive because Vanguard wanted a cheaper benchmark after telling MSCI to shove its fees a decade ago. If Vanguard wakes up one morning and decides to self-index? Morningstar’s $375M investment just turned into a very expensive alumni donation to the University of Chicago.

(Source: Giphy) 

As for investors, this just means Morningstar went from “mutual fund reviewer” to “index landlord” overnight. It means Vanguard investors indirectly just watched their cheap index benchmark get flipped to a company that will almost certainly test how much “cheap” they can strip out before Jack Bogle rolls over in his grave. And it means indexland is about to get louder, dumber, and even more incestuous than it already is. Wonderful.

Of course, we’ll see how this will impact the measuring stick for the same three firms that already own every stock in America… but for now, place your bets accordingly. Until next time, friends… 

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.