Morningstar plans to remain privately owned

Morningstar Inc., the mutual fund research organization, plans toremain privately owned, delaying a sale of stock until the companyfinds it needs additional capital to conduct operations, said JohnRekenthaler, its research director.

"We don't have any immediate plans to go public," Rekenthalersaid. "We have enough capital that we can finance whatever things wehave to do."

Rekenthaler, 37, said Morningstar rang up sales of $40 millionlast year, and the figure will increase this year. The companypublishes several periodicals, and has become known in the mutualfund industry for its rating system of one through five stars, itstop ranking. Some fund companies promote their Morningstar ratingswidely in marketing campaigns.Morningstar would rather not face the kind of scrutiny faced bypublic companies. As a public company, Morningstar would have tocontend with securities analysts examining its quarterly results and"looking over (its) shoulder and second-guessing" the way it investsand spends its capital, Rekenthaler said.As a private company, Morningstar has some flexibility in itsoperations. "If we're having a couple of bad quarters where cashflow's not positive, that's OK if we're investing for the future,"Rekenthaler said.If Morningstar decides to go public, employees could profithandsomely. "Everybody in the company has stock options," he said.Morningstar has watched the pace of acquisitions in theinvestment industry. McGraw-Hill Cos. bought Micropal, Europe'slargest money management research company. Lipper AnalyticalServices Inc., the leading U.S. provider of information toinstitutional investors, agreed in July to be acquired by ReutersGroup PLC.Morningstar said at the time of the Reuters-Lipper announcementthat it valued its independence. Morningstar bolstered itsmanagement structure last March by hiring Timothy Armour to be itschief operating officer. He had been president of Stein Roe MutualFunds, a unit of Stein Roe & Farnham, the mutual fund company.Large-company equity funds will begin to run out of steam in1999, Rekenthaler said.Forecasting the decline of the so-called large-capitalizationfunds, a group represented by such market stalwarts as MicrosoftCorp., Merrill Lynch & Co. and Merck & Co., has been a losingstrategy in recent years, Rekenthaler said. The confluence of lowinflation, moderate U.S. economic growth and investors' desire forsafe investments have propelled large stocks.Rekenthaler said he has invested about half of his personalportfolio in small-cap stock funds. "I'd be surprised to see (thebull market in large cap stocks) go on more than another few months,"Rekenthaler said. "I think this string is pretty well played out bynow."The Standard & Poor's 500 index, which tracks large stocks, hasrisen 17.6 percent in the past year, compared with a drop of 11percent by the Russell 2000 index, a benchmark of small stocks. Overthe past three years, large stocks trounced their small counterparts,26 percent to 10 percent.