MORNINGSTAR TO LAUNCH JAPAN UNIT ON APRIL 1ST — NO FOOLING: DESPITE EARLIER BAD TRIP, RATINGS FIRM IS BANKING ON JAPANESE INVESTORS’ YEN FOR AMERICAN FUNDS

Undeterred by two previous misadventures abroad, Morningstar Inc. is planning to offer its brand of investment data and analysis to Japanese investors.

The Chicago-based mutual funds ratings firm, which failed miserably with a Japanese venture in the early 1990s, is back again, in an effort to benefit from the pending liberalization of restrictions on investing in U.S. funds. This time it has signed a preliminary deal with Tokyo-based software firm Softbank Corp. to form a joint venture called Morningstar Japan K.K.

Morningstar Chairman Joe Mansueto says he hopes to have the operation running by April 1 — the start of Japan’s fiscal year — when regulatory barriers against investing in U.S. and other foreign mutual funds come down.

Farewell to England

The move comes a little more than two years after the firm bailed out of an 18-month-old London venture to provide data and analysis of “unit trusts” — the British term for mutual funds — to financial advisers and individual investors in the United Kingdom. Delays in obtaining regulatory approval, stiff competition from British research firm Micropal Inc. — now owned by Standard & Poor’s Corp. — and the secretive nature of British fund companies helped derail the project.

Several years before that, a move to sell research on Japanese securities to U.S. investors fell apart after the Japanese stock market imploded.

Mr. Mansueto is confident history won’t repeat itself. Besides, he needn’t worry about the beleaguered Japanese stock market since this time he’s selling what he knows best: data on U.S. funds. In time, Morningstar plans a database on Japanese funds, and perhaps other countries’ funds as well.

“Certainly, you learn from each one of those ventures,” he says. “I think both those situations had their unique circumstances. I think we were right in our desire to (expand abroad). I think we were too small a company at that time.”

One difference today: with the new move into Japan, Morningstar isn’t taki
ng on all the risk. It has a financially secure partner that is familiar with the regulatory and cultural terrain in Japan, Mr. Mansueto says.

And the time seems right. Japanese stocks can hardly go much lower, having lost more than half their value since the market’s peak in 1989.

open market

When the market opens up, demand for U.S. funds — and objective information on them — should be strong, he says. The vast bulk of Japanese investors’ assets are held in low-yielding money-market-like funds called postal accounts. Japanese mutual funds generally are poor performers, often treated by Japanese brokerages as repositories for their lagging stocks, Mr. Mansueto says.

But will Morningstar find enough Japanese do-it-yourselfers ready to make the huge leap from money market-type funds to American stock and bond funds?

“I certainly think the [Japanese] demand for internationally run and marketed funds will be very high,” says Paul Barnes, media director for Standard & Poor’s Micropal Inc., who takes credit for helping to foil Morningstar’s U.K. incursion. “I think the ‘star’ (ratings) approach will be well received. I don’t see why they would have problems of the same kind they had in the U.K.”

Mr. Mansueto has his eye on other foreign markets, too, although he won’t say which ones.

“Overall, I’m very optimistic about the growth of mutual funds and other investments worldwide. Beginning to look abroad is something I think Morningstar should be doing.”