FUND RATERS BECOME RAIDEES IN M&A BLITZ

Like mutual funds themselves, the companies that rate them felt the pinch of heightened competition in 1998.

Morningstar Inc., the Chicago company that’s at the head of the class, broadened its retail-focused business to appeal to foreign investors and institutions. And it boosted its marketing to fund companies and brokerages, raising questions about its objectivity in assessing those companies’ funds. (It responded by putting together an ethics policy that keeps analysts from researching for companies whose funds they rate.)

Morningstar, which is widely expected to go public, also hired the former president of Stein Roe & Farnham’s mutual funds unit, Timothy Armour, as chief operating officer and began looking for a chief financial officer.

Meanwhile, archrival Lipper Inc. gained a deep-pocketed backer with its sale to Reuters Group PLC. It then unveiled new, more precise categories for general U.S. stock funds that many in the industry said were a marked improvement.

Also turning up the heat are bond-rating firms Standard & Poor’s and Moody’s Investors Service, which recently began assessing fixed-income mutual funds.

All these moves make puzzling the lack of action by Value Line Inc., the stock-analysis and money-management firm that began rating funds five years ago. The New York company seems to have made little marketing headway, even though it has garnered favorable reviews in the press.