Morningstar has launched the Morningstar PitchBook Global Unicorn, which it describes as the first index series to provide daily insights into the behaviour and performance of late-stage venture capital (VC)-backed companies, designed to empower investors to better understand and access this rapidly growing but difficult-to-track asset class.
The firm writes that this new series of market indexes combines the leading VC data, analytics and insights from PitchBook, an independent subsidiary of Morningstar, with the indexing best practices of Morningstar Indexes, one of the fastest-growing global index providers.
“In today’s market, investors are increasingly looking to nontraditional asset classes like private markets for portfolio diversification and investment opportunity,” says Ron Bundy, president, Morningstar Indexes. “Our new global unicorn indexes combine the deep data and insight of PitchBook with the best practices of Morningstar Indexes to deliver a new state-of-the-art series of benchmarks for the late-stage venture capital market.”
According to Morningstar research, private capital markets have grown substantially in the last decade, with more companies staying private longer or pursuing less traditional funding strategies. This trend has fueled a growing number of “unicorns,” or VC-backed companies valued at a billion dollars or more. Companies like Instacart, Stripe and ByteDance are widely considered to be some of the most dynamic, fast-moving companies, driving new global markets and economic developments.
Once only accessible to sophisticated investors like pension funds and the ultra-high net worth, late-stage venture capital-backed companies are increasingly making inroads into individual portfolios through retirement plans and ownership of “crossover” mutual funds, the firm writes. But investor access and insight into the late-stage VC market has not improved as quickly as the market has grown. This market has been difficult for index providers to track due to its illiquidity, lack of reporting standards and no mark-to-market pricing capability.
The Morningstar PitchBook Global Unicorn Indexes, a series of 11 global, regional and single country indexes, address these challenges as the first daily published unicorn market benchmarks. The index series employs a proprietary three factor mark-to-model pricing methodology to provide more frequent valuations for the asset class. The first of its kind, the model employs a range of valuation measures and comparable data from private and public market peers to bring transparency to an asset class that has been hard for investors to track.
“Our new unicorn indexes will go a long way toward bringing transparency to what has become a significant segment of the capital markets,” says Morningstar Indexes head of innovation Sanjay Arya, CFA. “Investors will be able to gain insights into late-stage venture capital markets through our sophisticated daily valuation methodology, increasing their odds of success.”
“This product is a unique way to deliver PitchBook’s extensive data and insights from its deeply ingrained industry analysts to investors,” says Kyle Stanford, CAIA, Senior Venture Capital Analyst at PitchBook. “This is another important step in expanding our research capabilities for this growing area of venture capital.”