If you happened to be driving down Hohman Avenue in Hammond, Indiana, in December of 1978, you may have seen a hand-lettered sign reading "Fine Pines and Awesome Balsams," designed to advertise the services of a small Christmas-tree business that had sprung up in the neighborhood just that month. It was a modest affair, as seasonal Christmas tree lots go: a rented parking lot filled with the aforementioned pines and balsams, snow fences to keep out thieves, and rented lamps to light the way after dark for families wandering through the merchandise, looking for that perfect tree. It was quite ordinary in all respects but for the proprietor: Joe Mansueto, the soft-spoken, contemplative, 22-year-old doctor's son who had rented the lot, lights, and snow fence, and hauled all the trees to Hammond from the Randolph Street Market in Chicago, was not your average tree hawker. For starters, he was on his way to earning his master's degree in business administration from the University of Chicago Graduate School of Business-an institution that seeks to prepare its charges for the executive ranks, not sap-stained grunt work. But as Mansueto counted out the change for those eight-foot pines, his young mind was already nursing the seeds of an idea that would turn him into a billionaire. And it had nothing to do with trees.
"I guess I broke even," Mansueto says today, sitting in a glass-walled conference room in the Loop headquarters of Morningstar, the financial information firm he founded 22 years ago. "I realized that the key thing is how you manage your inventory. If you're left with too many trees at the end, that can kill you. I think if I had done it another year, it would have been a moneymaker."
Mansueto knows something about making money. Morningstar, which he founded in his Lincoln Park living room, has become one of the most recognizable brands in the business of investment advice. Its star ratings for mutual funds have made it the Roger Ebert of the investing world-a universally recognized and trusted adviser that reduces the intimidating complexity of mutual funds into simple, at-a-glance evaluations. If you have a retirement account, or invest in mutual funds, there's a good chance that you've used Morningstar's services, even if you didn't know it-Mansueto has found a way to sell his data and analysis to just about everyone who handles or writes about money, from Yahoo to big brokerages like J. P. Morgan Chase to small-scale financial advisers.
In May 2005, Mansueto took Morningstar public, and his 78-percent ownership stake in the company he meticulously guided for more than two decades became worth more than $600 million overnight. Since then, the stock has soared 90 percent, catapulting Mansueto last year onto Forbes magazine's list of the 400 wealthiest people in America. His 30 million shares are currently worth $1.3 billion. (This past April, Mansueto revealed plans to sell up to 1.2 million of those shares, which at recent prices would fetch more than $50 million.)
It didn't take long for Mansueto to find some new toys to buy with all that money. Last June, just one month after the IPO, he surprised many by buying two struggling financial magazines, Inc. and Fast Company, from Gruner & Jahr, a division of the German publishing conglomerate Bertelsmann, for $35 million. A few months before that, Time Out Chicago-an attempt by the owners of Time Out London and Time Out New York to extend the successful youth-oriented weekly city guide to Chicago-was launched with a 50-percent investment from Mansueto. A few years prior to that, Mansueto lost out in an attempt to buy the very magazine you now hold in your hands when Primedia sold it in 2002. Though Mansueto says he entered the high bid of $37 million, Primedia decided instead to sell it to Tribune Company for $35 million.
Clearly, Joe Mansueto has a magazine jones. And he wouldn't be the first to make obscene amounts of money in the business world and use it to buy himself cachet in the form of a shiny new magazine or newspaper-Philip Anschutz, the billionaire founder of Qwest Communications, is launching a chain of commuter newspapers aimed at young readers; Bruce Wasserstein, the New York investment banker, bought New York magazine two years ago for $55 million; and the real-estate mogul Mort Zuckerman has his New York Daily News and U.S. News and World Report. But if Mansueto is indeed making a play to join the press barons-he is coy about whether or not more purchases are in the offing-he lacks one crucial attribute common to the ego-massaging billionaire who buys himself a soapbox: an ego.
"I've met a lot of billionaires," says John Koten, the editor in chief of Inc. and Fast Company, and the CEO of Mansueto Ventures. "And Joe is different. The important thing about Joe is that he's very substantial, not showy. I think of him as a real Midwestern billionaire. Whenever he says something, people know that, even if it's not loud or histrionic, they need to listen to what he's saying. There's a tremendous amount of strength there. It's almost Zen."
Mansueto may be a billionaire, but at Morningstar he's cubicle bound like the rest of us. He's never had an office, and prefers being open and accessible to his employees over being "cramped" behind closed doors. There's a fairly good chance that no other billionaire has spent six weeks, as Mansueto once did, working as a night manager at Arby's-not because he needed the job but because he was considering opening a restaurant and was curious about the business. For someone who has devoted his life to helping other people accumulate wealth, he is remarkably uninterested in its trappings. According to his friends, the closest thing to an extravagance in Mansueto's life is the seven-year-old BMW he drives (approximate blue book value: $21,000), which is notable mostly because of the significant step up it represents from the used Mitsubishi Montero with rust holes in the floor panel that he continued to drive well after he earned his first million. "He is splurging when, if he sees a sweater at the Gap he likes, he buys it in several colors," says his longtime friend and former business partner Kurt Hanson. Indeed, Mansueto showed up for an interview wearing what looked suspiciously like a Gap charcoal turtleneck sweater and blue jeans. "I think Joe is genuinely self-effacing," Hanson says. "It's not that fake self-effacing that politicians do. He has no psychic need for a 2,000-square-foot corner office with a mahogany desk."
No one who has ever met Joe Mansueto would peg him for a Christmas tree salesman. He is quiet, unassuming, and intensely thoughtful, with a medium frame and well-tended hands that don't advertise an aptitude for hard physical labor. He is a ringer for the actor Michael Moriarty, who played an assistant district attorney on Law & Order; he shares Moriarty's purposeful gaze and open face. And yet anybody who has met Mansueto also knows that selling Christmas trees for a month just to see how it's done-just because he was curious-is precisely the sort of thing he would do. He seems blithely unaware of the status barriers that make it unlikely for a recent MBA grad to be managing the night shift at Arby's, and he has a penchant for following his curiosity wherever it leads him. In the late 1990s, when Morningstar began to establish a Web presence, he decided he'd better learn about the online world. So he set up a charmingly primitive Web site he used to keep friends and family up to date on the progress of the birth of his first child, Jenna. He did the entire project himself, from registering the domain name to writing the software code that allowed users to post messages on the site. "I always enjoyed just kind of seeing how business works," he says. "At the end of the day, you have more money in your pocket than at the beginning of the day. It's kind of interesting how that works."
Mansueto got his first sense of how it works when he was in the sixth grade. Born in 1956, he grew up in Calumet City, Illinois, near the Indiana border, in a neighborhood he describes as a classic suburban idyll-riding his bike around the neighborhood, football in the street, trips into the city on the weekends for lunch at the Walnut Room. His parents met at a hospital. His father, Mario, was an ear, nose, and throat specialist; his mother, Sara, was a nurse who left the profession to stay home with Joe, his brothers, John and Daniel, and his sister, Connie.
As a child, Mansueto was a ham radio enthusiast. His first successful act of entrepreneurialism was when, at a ham festival, he saw a receiver on sale at a steep discount. "I knew it was worth, say, $300," he says. "And this guy was selling it for $100. I remember borrowing $100 from the guy's father who took me. And I went and sold it for about $300. And you know, as a sixth grader to make $200 in a month, I was in heaven. I thought, Gee, this is easy. How you can buy something and sell it for more-I was just kind of amazed how that works."
Mansueto carried that gee-whiz fascination with making money to the University of Chicago, where he went as an undergraduate and stayed on to earn an MBA. To hear him tell it, Mansueto's time there was like a scene out of Real Genius, the 1985 geeks-gone-wild Val Kilmer vehicle, but with do-it-yourself business ventures instead of Kilmer's elaborate, gonzo physics experiments. He and his roommate, Hanson, launched the Room 607 Soda Service out of their dorm room in the Shoreland. "I think we did it more for the entrepreneurial fun than for the money," says Hanson. "We found you could call the Coke distributor and he'd roll up ten cases of Coke to your room." Students would stop by 24 hours a day for soda and chips, and Mansueto and Hanson each pulled in about $500 in profit per quarter.
The same ethic informed Mansueto's Christmas tree venture a few years later. "Here's a guy with an MBA from one of the best business schools in the country standing in the middle of all these trees," recalls Jeff Jarmuth, another college friend, who now advises hedge funds. "And he was always really good at investing, even back then, so money wasn't an issue. But he was as happy as a clam, because he was running the show."
After graduating, Mansueto and Hanson went into business together, launching Strategic Media Research, a consulting firm that did market research for radio stations (Hanson had interned at a few stations during college). They set up shop in Northbrook-because, Hanson says, the suburb's name looked classy on the business cards-and conducted phone surveys designed to tease out the demographic characteristics and consumer habits of people who liked groups such as the Eagles. After about a year, Mansueto realized he didn't want to be in radio, and he decided to strike out on his own.
Shortly after business school, Mansueto read The Money Masters, by John Train, a collection of profiles of successful investors. One of them was the Oracle of Omaha, Warren Buffett. For Mansueto, it was a transformative experience. He had long been fascinated by investing, and his friends say that studying companies was his only real discernible hobby. "He'd write away for annual reports," says Jarmuth, who lived with Mansueto after they graduated. "The mailman would come, and he'd be cussing because he had 800 pounds of annual reports." Reading about Buffett's no-nonsense, no-frills, long-view approach to investing ignited something in Mansueto, and he sent away for the latest annual report from Buffett's company, Berkshire Hathaway. "It was an epiphany," Mansueto says. Buffett's direct, unadorned letter to his investors was a welcome departure from the typical annual report, which tended to be little more than a thicket of PR-driven bromides designed to prop up the stock price. In discovering Buffett, Mansueto found a model for the kind of businessman he wanted to become: methodical, ethical, and transparent.
Around the same time, Mansueto began investing in mutual funds. In the early 1980s, prior to the widespread introduction of individual retirement accounts and the emergence of the middle-class individual investor, mutual funds were a relatively small phenomenon, and there was no single source of information on them-performance, holdings, and the like. The only way to get that information was to order each fund's prospectus individually, which Mansueto did. One night in his one-bedroom apartment at Clark Street and Wrightwood Avenue, as he looked through all those prospectuses spread out across his dining room table, the idea hit him.
"I thought, Boy, wouldn't it be really interesting if somebody compiled all these things into a compendium, so I wouldn't have to make these calls every three months?" Mansueto says. "Gee, maybe this could be a business. You could publish a book on mutual funds with comprehensive information, with the goal of helping investors make better decisions about the funds they were buying."
And so Morningstar was born. But, methodical as ever, Mansueto waited a few years before actually diving in. First he did that stint at Arby's to see if he wouldn't rather pursue a chain of fast-food health food stores (he would not), and then he spent two years working for a venture capital firm and later as a stock analyst, just to make sure the mutual funds idea held up over time. It did. So in April of 1984, he launched Morningstar.
His timing was astonishing. When Mansueto started Morningstar-first as a quarterly book with a one-page summary of financial data for every fund available, before branching out into newsletters and commercial databases of fund information-there were 1,200 mutual funds with $370 billion in assets. Today there are more than 8,000 funds with more than $8 trillion in assets. Throughout that period of massive growth, Morningstar was virtually the only game in town for getting information on mutual funds, and it continues to be so.
"They've had an immense impact," says Jane Bryant Quinn, Newsweek's personal finance columnist. "Before Morningstar, people had absolutely no idea-you can't really tell anything from the fund's prospectus. Now, everybody wants to buy a five-star fund. All the ads [for funds] trumpet their four- or five-star ratings. It's given people the sense that they can get independent evaluations of mutual funds, which they never had before. Before Morningstar, what did they have to go on but what the salesman told them?"
Today, Morningstar employs 118 analysts to cover 2,000 funds and 1,700 stocks. It has recently launched a database of hedge funds-a notoriously murky corner of the financial world-and taken a huge step into asset management with the $83-million purchase of Ibbotson Associates, a Chicago firm that manages more than $500 million in retirement accounts. Morningstar has offices in 16 countries, including China, England, and Australia. Last year, it pulled in revenues of more than $227 million. But despite Mansueto's initial commitment to helping individual investors by shining a light on the mutual fund world, less than a third of that money came from Morningstar's individual investor services, which consist largely of its Web site. The vast majority of its revenue-$168.6 million-now comes from licensing its data and ratings to financial advisers and institutional clients such as Charles Schwab, Merrill Lynch, Fidelity Investments, Goldman Sachs, and J. P. Morgan Chase.
That arrangement-Morningstar makes money off some of the same firms that it is supposed to be dispassionately evaluating-has raised eyebrows, and in December 2004 the company announced that New York attorney general Eliot Spitzer had opened an investigation into Morningstar Associates, its consulting arm. Morningstar Associates sells its services to 401(k) plans, designing menus of funds that should be attractive to a given company's employees. Spitzer has not specified what he is looking into, but published reports have speculated that his office is investigating the possibility that Morningstar may be paid to recommend certain funds-a charge the company firmly denies. A separate Securities and Exchange Commission investigation into an error Morningstar made in reporting a fund's value was closed in February without action.
The conflict-of-interest accusations are particularly troubling because they cut to the heart of Morningstar's brand identity-providing independent, uncorrupted investment advice without fear or favor, so to speak. When scandal gripped Wall Street in 2001, after Spitzer launched investigations into 11 investment banks for offering biased research in an attempt to drum up banking business, Morningstar's analysts were some of the earliest and most outspoken critics of the shenanigans. And Morningstar eventually stepped in to help remedy the situation-and make some money-by agreeing, as part of the banks' settlement with Spitzer, to provide independent analysis for five banks to pass on to clients. (Ironically, most of those banks offer mutual funds that Morningstar also rates.)
"It would certainly be nice if those investigations wrap up soon," says Marvin Loh, the managing director of D. E. Investment Research, which covers Morningstar, adding that the purchase of Ibbotson has increased worries about conflicts of interest. "Some people have raised concerns that it would possibly conflict with their other business lines. They're rating mutual funds, and they purchase mutual funds" on behalf of clients whose assets they manage.
Mansueto says that there are rigid rules at Morningstar designed to ward off conflicts of interest: one is that the people responsible for selling the data are not allowed to talk to analysts, period. But he is characteristically philosophical about the criticism. "I think it's very fair," he says. "I think it's only natural to evaluate the evaluator. We've tried to be very open and transparent in how we run the business, and let people make their own judgments about who we are, what we do, and how we do it. For the regulators to be looking at this, it's perfectly fine. These are legitimate things to inquire about." When Spitzer launched the investigation, Mansueto's friends Jarmuth and Hanson tried to argue that it was political grandstanding on Spitzer's part-he had just declared his candidacy for governor of New York. "We couldn't get Joe to agree to that," Hanson says.
"One good lesson Joe took away from Buffett in starting Morningstar was developing a thesis on what is a good business-and publishing is a good business," Hanson says, because you incur costs just once to gather the information, and sell it over and over again. (Not to mention, he adds with a wry laugh, "serve a community with lots of money"-investors-"and it shouldn't be too hard to get money out of them.")
But publishing financial evaluations is different from publishing magazines. And the question for Mansueto is precisely how hard it will be for Inc., Fast Company, and, to a lesser extent, Time Out Chicago-he's on the hook for only half of that venture-to get money out of an advertising community that is eyeing print media warily as readership drops and online competition surges. Though magazine ad revenues were up last year a total of 7.6 percent across the board, to $24.8 billion, according to the Magazine Publishers of America, the total number of U.S. magazine ad pages sold in 2005 had crept up by just over half a percentage point over the preceding year. And even as the industry as a whole slowly shakes off the post–9/11 ad slump-a revival driven in large part by the success of celebrity titles like Us Weekly-the business category has been anemic at best. Total ad revenues for business titles last year were $1.65 billion, up from $1.47 billion in 2000. That's an average annual growth rate of just 2 percent-the sort of returns that a Morningstar analyst would scoff at.
Few publications more clearly embody the tumble that print magazines have taken since the Roaring Nineties than Fast Company. When the real-estate tycoon Mort Zuckerman sold it to Gruner & Jahr in 2000 for a whopping $350 million, Fast Company was pulling in more than $77 million a year in revenue and was fat with 2,126 ad pages-more than Vanity Fair. Last year, it took in less than half that-$31 million-with a mere 476 ad pages. Much of Fast Company's decline can be attributed to the fact that the Silicon Valley culture it chronicled with cover lines like "How to Web-ify Yourself" simply doesn't exist anymore-live by the bubble, die by the bubble. And its close identification with the irrational exuberance of the Internet boom is the biggest obstacle it faces in re-establishing a loyal readership: to a business community that still smarts from boondoggles like Pets.com, the term "fast company" doesn't mean what it once did.
Inc., a staid, 26-year-old monthly with a longstanding audience of entrepreneurs and small-business owners, is on better footing. But its numbers are only slightly less disconcerting than Fast Company's-ad pages were down 12 percent last year, and revenue was down 7 percent. Six years ago, Inc. took in $125 million in revenue; last year it pulled down just more than half that. Together, Fast Company and Inc. lost $10 million last year. Mansueto says he hopes to cut that loss in half this year, which essentially means he paid $35 million for the privilege of losing another $5 million this year.
Nor is Time Out Chicago, which was launched a year ago, a sure bet. Though Time Out has met success in London and New York, it remains to be seen whether the magazine's snappy, urban approach to weekend living will sell in Chicago. Already, Mansueto says, it has hit distribution snags: after learning that the distributor had been leaving boxes of the magazines unopened in stores rather than making sure they were quickly put on display-which meant death for a weekly-Time Out had to hire its own people to go store to store and make sure the magazines got on racks. "It's not making money," Mansueto says. "Nor do we plan for it to make money for several years. That's just how it is in the magazine business. But there's some real momentum behind it in terms of the circulation, in terms of the advertising support." (Mansueto declined to offer specific figures, aside from pegging the circulation at "about 40,000"; Time Out Chicago's publisher, Steve Timble, did not respond to repeated voice mail messages.)
All of which raises the question: If Joe Mansueto is so smart, what's he doing investing in business magazines?
"He's in good company," says Koten, the CEO of Mansueto Ventures. "Si Newhouse and Rupert Murdoch are planning to make big investments in business news." Koten is referring to Condé Nast's plans to launch
a new business title in 2007, and News Corp.'s planned business-news cable channel. "These are not properties that stand a chance of going backwards," he says, acknowledging that the magazines under his care, having been bled dry and neglected by Gruner & Jahr, have essentially hit rock bottom. "But the brands have a value beyond print." Inc.'s conference business, for instance, was once a major part of its operation, Koten says, and he's working to beef it up once again.
For Mansueto, picking up Fast Company and Inc. for less than 10 percent of what Gruner & Jahr paid for them in 2000 isn't much different from buying a ham radio receiver that's on sale for a third of what it's worth. Only this time, he didn't have to borrow money from a friend's dad to seal the deal. "Buy low, sell high," Koten says. "His view is that Gruner & Jahr bought at the absolute peak and hung on until they hit bottom."
"True, the magazine business is a bit in the doldrums today," Mansueto says. "But in my view, it's more cyclical than secular. It's not a long-term decline for the magazine business if you've got a strong franchise. The magazine business is not the newspaper business. Google and Craig's List are a real threat to classified advertising. But a monthly magazine-I think it's pretty hard to re-create that experience on the Web. If you look at Time Warner, their magazine business does, I don't know, $5 billion in sales, a billion in profit? I mean, that's not chump change."
But for all Mansueto's cold-eyed, analytical justifications, there is an emotional explanation for his new hobby. You don't try and fail to buy a city magazine, and then say yes when an expanding local entertainment magazine franchise comes calling, and then put in a bid for two business magazines all in the course of three years just because you think they're all good investments that happened to come over the transom. He likes magazines, and he wanted to own some. "They're very creative, interesting businesses," he says. "I love to read. I'm a magazine junkie. And so there's something about the great journalism, combined with compelling graphics, nice paper stock-that whole package I find very attractive if it's done right."
In fact, Mansueto says, Koten would like him to own more-he has raised the prospect of buying more titles. "The magazines are fun, interesting things," Mansueto says. "Might something pop up? It may. But I've told them, ‘Let's get these magazines working first, before we broach the subject of buying more.'"
Mansueto put about $250,000 of his own money into Morningstar during its first five years of operation. Just under half of that came from savings bonds that his father had bought for him as a child. Mansueto is still very close with his parents-he drives to their home in Munster, Indiana, most weekends for dinner-and he becomes emotional talking about his father's efforts to make sure he had a nest egg to start out with. "I had these savings bonds that my dad gave me when I graduated," he says. "You know, it's kind of touching when you see them, because they all have dates on them. I was born in September 1956. So there's one dated September 1956 for $100. And then there'd be one from October 1956. And so every month, my dad is going to the bank and buying me savings bonds since I was born. I felt that that's money that I didn't want to lose."
Family looms large in Mansueto's life. In 1998, he married Rika Yoshida, a Morningstar analyst. Today they have three children and live in a Lincoln Park condominium. Mansueto keeps strict work hours, 8:30 a.m. to 5 or 6 p.m., with an occasional Saturday at the office, so he can spend as much time with them as possible. Aside from his beloved early morning jogs along Lake Michigan and reading the occasional annual report, he has no other interests or hobbies to take him away from them-a fact of which he seems almost proud.
Four years ago, his younger brother John, a financial adviser who lived in the Chicago area, came down with what seemed like a bad flu. "I remember I had lunch with him," Mansueto says; "he was saying, ‘I'm feeling bad; I think I'm just going to go home and sleep.' And then a week later he's in the hospital, and a couple days later he's on a respirator." John was diagnosed with West Nile virus-there was an outbreak in Chicago that year. "He had a very severe form of it," Mansueto says, "where basically it was like polio. You lose the capacity to move your muscles." After a nine-month hospital stay, John was released in the spring of 2003. He was still weak, wheelchair bound, and in need of physical therapy. Because he had trouble breathing, his lungs had a tendency to fill up with fluid, which had to be drained at the hospital. On Friday, May 30, 2003, while John was on the way home from physical therapy, his lungs filled up too quickly and he drowned. Mansueto has difficulty talking about it. "I feel like I've led a golden life," he says. "With the exception of losing my brother. Compared to that, I've never had any bad thing happen to me. I still wake up in the middle of the night and think about it. We were very close."
In 2007, if all goes according to plan, Morningstar will move from its current location on West Wacker Drive into a new office tower at the long-neglected Block 37 site at State and Randolph streets in Chicago's Loop. (It's worth noting that nothing has ever gone according to plan when it comes to the long-vacant lot downtown; at press time, construction had been halted owing to the financial woes of the construction company contracted to build the development.) Mansueto and his team will share the building with CBS and WBBM–Channel 2; Mansueto hopes to build a huge financial information display at ground level on Washington Street, possibly a giant stock ticker that will roll out Morningstar financial data throughout the day. On top of the tower, he has secured the rights to add the Morningstar logo to the city's skyline, a prospect that one might expect would be a big deal for him-the name of the company he started nearly a quarter century ago from his living room will become a part of Chicago's landscape-but he demurs: "It's nice. It's not the Sears Tower. It's taller than Marshall Field's, but it's not as tall as many of the skyscrapers in Chicago."
The name that will soon loom above the downtown streetscape comes from Henry David Thoreau's On Walden Pond. "It was one of the first books I read when I was at the University of Chicago," Mansueto says. "I can still remember sitting in Regenstein Library, sitting in one of those very comfortable chairs, finishing that book, wondering, Gee, how is Thoreau going to end this book? And I get to that last line: ‘The sun is but a morning star.' And I pause, and look out over the quad, and the snow is coming down, and I think to myself: What the hell does that mean?"
He has since figured it out: "It's an optimistic statement. Something that's been around as long as the sun is still in its infancy. It's still a morning star. There's a rebirth that's just beginning. Thoreau, to me, is about independence, self-reliance, thrift. That's what Walden's all about."
It's vintage Mansueto. The thinking man's capitalist, he named the company that would make him a billionaire-and ostensibly help make countless investors who use Morningstar's data wealthier than they otherwise would be-after the work of a transcendentalist tax dodger. Is he aware that Thoreau was not exactly a fan of the accumulation of wealth?
"Well, OK. It's not a perfect analogy," he says. "That's why it's not the Thoreau Company."