Sub-Advisory Institute Award Recognition
The Sub-Advisory Institute is recognizing three Chief Industry Visionaries of the sub-advisory and manager research space this year – individuals who have had a rich history of demonstrating foresight and implementing innovative strategies in the industry while contributing to the conversations and directions between peers at industry events and gatherings. We spoke to our three inaugural recipients on their experiences and thoughts, and lessons and insights for allocators across the board.
Nominated as Industry Visionary recipient, Peter Di Teresa is Head of Manager Selection at Morningstar Research Services LLC, a subsidiary of Morningstar, Inc. Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia that offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and 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. Peter and his team focus on record keepers serving small and micro retirement plans, in addition to working with broker dealers and wealth management groups.
Peter received his bachelor’s degree from the University of Chicago and Harvard University, where he earned a Master of Arts. He is a published author, having co-written “Morningstar’s Guide to Mutual Funds: 5-Star Strategies for Success” in 2002, with his Morningstar colleagues, Christine Benz, Director of Personal Finance, and Russel Kinnel, Director of Manager Research.
In the investment management industry, he has spent more than 20 years in the manager selection space; since he joined Morningstar 29 years ago, he has leveraged his team to work with clients to understand what their models and asset allocation templates look like and identify their rate categories that will be a fit for the specific approach they have and likely to interact with each other.
The following is edited for length and clarity.
Can you share a broad overview of what your manager selection methodology looks like today?
What my team does now very much reflects how Morningstar started. The firm was in the mutual fund research space, but the principles are the same, focusing on how the strategy, be it active or passive, is run and who is behind it. For active managers, it’s about getting a deeper understanding of the process, its strengths and weaknesses, and the resources devoted to it. That’s very qualitative, but it’s paired with Morningstar long-time focus on gathering data, not just returns data that we crunch, but also historical portfolios going back for decades, so there’s always been a strong quantitative foundation for the analysis.
Working from that foundation, we focus on qualitative elements: We talk with managers, understanding their process. It’s something our peers do—it isn’t unique--but Morningstar does a lot of it, and we have a lot of very experienced people at the firm, including the folks on my team.
Any development or trend on asset allocation in general that surprised you or stood out for you that you might be surprised going back to 20 years?
A lot of the “traditional approaches” still very much have a place. I was a little surprised at all the talk about the 60/40 portfolio during the past year or so.
The other thing that’s been surprising is that it’s taken as long as it has for there to be a bigger embrace beyond the open-end mutual fund, and now we’re having discussion of, “Is the mutual fund dead?” (The answer’s no), and much greater interest in ETFs, CITs, more broadly accessible separate accounts gaining steam relatively recently.
Related to all this: It’s a little surprising how long it seems to have taken for passive to get the traction it now has. We’ve seen some pendulum swings from active to passive and back in the past, but not at this level. ETFs have bumped this forward, and there’s probably some overkill in the big shift from active to passive, but the fundamentals haven’t changed that much.
What would you say is your team’s greatest accomplishment since you joined?
I’m very pleased on the retirement side, which is the longest-running part of my team’s work where we have a number of long-standing relationships. One of the things I’m proudest of us doing is that we have long been advocates for what are known as zero-revenue funds, such as R-6 shares, that don’t carry distribution fees, making the cost of retirement plan administration transparent. Historically, only very large plans had access to such funds. We have clients who were early in making those share classes accessible to small retirement plans, and now all of them offer that.
Looking forward, there’s a whole slew of new products coming out that we’re very interested in, especially in the guaranteed retirement income space: This was allowed by the SECURE 2.0 Act, allowing plan sponsors to include annuity products within a retirement plan. The appeal for plan participants is that these products offer a guaranteed level of income for the life of their annuity. We’re seeing a tremendous variety of approaches from the firms developing these products, and it’s very interesting to research and assess them.
Aside from that, we work with broker dealer clients going to ETFs, especially active ETFs, and separate accounts that are structured in a way to be more accessible and structured, too, so we’re seeing more innovation in retirement and non-retirement.
What do you like to spend your time doing?
My wife and I have two kids: My older daughter is a sophomore in college, and my younger daughter is a senior in high school; they keep us busy. Aside from that, I’m a serious runner; it doesn’t mean I’m good, but I take it seriously.
For a while, I have been struggling to learn to play guitar. Looking at my nephew, it’s much easier when you’re a teenager, but it’s good to try something totally outside your prior experience: I wanted to learn something to make me use my brain in a different way. I had gone down a path of learning a language, and music was not in my wheelhouse, so it was a new kind of challenge. For me, it’s slow going, I’ll say that.
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