Morningstar Introduces Morningstar PitchBook Buyout Replication Index

Morningstar Indexes and PitchBook continue their collaboration to provide investors more access to expanding markets with a new index designed to capture the key characteristics of buyout investing using publicly listed equities.

Morningstar, Inc. (NASDAQ:MORN), a leading provider of independent investment insights and index solutions, has introduced the Morningstar® PitchBook Buyout Replication Index™, representing a portfolio of public companies designed to exhibit a similar risk and return profile as companies targeted by buyout managers.

Since the inception of the buyout strategy in the 1980s, private equity managers have consistently applied a core playbook: targeting underperforming companies that generate strong free cash flow. However, the industry has struggled with establishing a representative benchmark, as traditional equity indexes fail to capture its distinct approach to security selection, sector tilts, and use of leverage. Infrequent valuations of private equity portfolios further smooth volatility and obscure true risk.

The Morningstar Pitchbook Buyout Replication Index tracks publicly traded small- and mid-cap stocks that resemble companies in private equity buyout funds. It employs a systematic approach, combining top-down industry exposure aligned with the U.S. buyout market and bottom-up company selection using dynamic public market data to identify public businesses with established cash flows.

The index is underpinned by PitchBook's data on buyout funds and transactions and uses machine learning for constituent selection.

Sanjay Arya – Head of Innovation, Morningstar Indexes:

"Our new index aims to replicate returns from private equity buyout funds with the transparency and liquidity of the public markets. It's a powerful combination of PitchBook's data and Morningstar Indexes' expertise, representing a unique slice of the market."

Andrew Akers, CFA – Lead Quantitative Research Analyst, PitchBook:

"Private equity firms customarily attribute their performance to operational alpha, but our research found that for many private equity funds, leverage, valuation shifts, and sector selection are actually the primary performance drivers. The Morningstar PitchBook Buyout Replication Index was created to capture these factors systematically and provide a much-needed and realistic benchmark for the private equity industry. As the private markets continue to grow in prominence and accessibility, we'll continue building a suite of tools to help our clients understand GP strategies and performance analytics."

Key features of the Morningstar PitchBook Buyout Replication Index include:

• Private equity-like returns with liquidity: Tracks public equities with characteristics favored by buyout funds, enabling investors to access private equity-like exposure without the high entry costs, capital commitments, or lock-up periods typical of traditional private equity strategies.
• Powered by AI-driven innovation: An advanced neural network identifies public companies with take-private characteristics such as strong free cash flows and stable margins.
• Captures the distinct features of buyout portfolios: Mirrors the sector and leverage profiles of private equity portfolios to deliver exposure that is truly comparable to private equity.
• Addresses return smoothing with greater transparency: Provides full visibility into constituents and daily marked-to-market updates to mitigate delays in private fund reporting and accurately reflect the true risk profile of the private equity asset class.

About Morningstar Indexes

As the fastest-growing global index provider for the last three years according to Burton-Taylor International Consulting, Morningstar Indexes was built to keep up with the evolving needs of investors—and to be a leading-edge advocate for them. Morningstar's rich heritage as a transparent, investor-focused leader in data and research uniquely equips Morningstar Indexes to support individuals, institutions, wealth managers and advisors in navigating investment opportunities across all major asset classes, styles, and strategies. From assessing risk and return with traditional benchmarks to helping investors effectively incorporate ESG objectives into their investment process, our range of index solutions spans an investment landscape as diverse as investors themselves. We help investors answer today's increasingly complex questions so that they can more easily reach tomorrow's goals. Please visit indexes.morningstar.com for more information.

About PitchBook

PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity, and M&A landscape—including public and private companies, investors, funds, investments, exits, and people. The company's data and analysis are available through the PitchBook Platform, industry news, and in-depth reports. Founded in 2007, PitchBook operates globally with more than 3,000 team members. Its platform, data, and research serve over 100,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities. institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $328 billion in AUMA as of Sept 30, 2024. The Company operates through wholly- or majority-owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on X (formerly known as Twitter) @MorningstarInc.

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