George Gatch became J.P. Morgan Asset Management's CEO of Investment Management Americas in May, taking the helm of the predominantly institutional business after spending the previous decade launching and building the firm's retail arm, J.P. Morgan Funds, into a leading asset gatherer. From 1998 to 2000, he was in Tokyo launching a mutual fund joint venture with Dai-Ichi Kangyo Bank — “one of the fastest growing investment trust companies in Japan while I was there,” he said. Still, Mr. Gatch sees himself as an institutional kind of guy, and J.P. Morgan at the forefront of the convergence of institutional and retail money management. On the institutional side, he sees his firm extending its strengths serving corporate clients to other major client segments, such as sovereign wealth funds, public pensions, and endowments and foundations. On the retail side, he said J.P. Morgan will continue to lead the way in extending institutional investment techniques, such as shorting, to individual investors as well. And while competitors such as BlackRock Inc. tout the benefits of having active and passive capabilities under one roof, Mr. Gatch insists J.P. Morgan will plant its flag firmly in active territory.
You've been described as a “classic retail guy.” That's not the way I would describe myself. I spent most of my career (at J.P. Morgan) growing up in an institutional investment management firm (building, among other things) an investment platform and relationship management team that serviced insurance companies, for the variable annuity and variable life insurance market. In many ways, it was the adaption of the great capabilities J.P. Morgan had been managing for large institutional investors to the needs of insurance companies, and adding the ability to communicate the benefits of the strategy towards a more retail client base. I also spent a period of time building the most successful institutional money fund business in the world.
There may be a misconception in terms of the strength of our capabilities and how it applies to the marketplace. I think we've been successful at convergence between institutional and retail money management, delivering our capabilities on a wholesale basis in the retail marketplace. We do it through positioning our capabilities within the context of a portfolio, asset allocation strategies. And one of the reasons we've been so successful over the last three years is the expertise that we've developed in the institutional market (and) the ability to tailor that to the needs that are rapidly evolving for the individual investor.
You're talking about target-date and lifestyle funds? We're also talking about the new tools individual investors need to meet new challenges. (For example) the shorting of stocks, a technique developed in the hedge fund industry, that we've been successful in evolving in our institutional businesses. We've taken shorting and brought it to mutual fund investors in our 130/30 funds and our market-neutral funds, (adding) another component for a (more) diversified portfolio than individual investors have historically had access to. A big part of our success has been working with institutional-type investors (who) use (these) individual investment strategies within large diversified portfolios they manage on behalf of individual investors.
Has the financial crisis dented your 130/30 business? Our long-only strategies have performed extraordinarily well over the last three to five years, and that investment technique, with the addition of the ability to short, has done even better across a range of strategies we offer in the marketplace.
In an August memo, you set the goal of “transforming” J.P. Morgan's Investment Management Americas business into “the leading investment firm in the U.S.” How will you know when you've succeeded? Through the conversations we have with our clients every day. It's one of those objectives that will never be reached, but the success is in pursing it with extraordinary passion and extraordinary commitment.
Your memo also cited the “unparalleled” depth and breadth of your firm's product lineup. Couldn't BlackRock, with its BGI acquisition, claim that high ground? We have 170 unique investment strategies; we're the leader in alternative investment management, real estate investment management, 130/30 investing in the U.S. (as well as) one of the largest managers of market-neutral strategies. We have a breadth of fixed income (and equity) capabilities in the U.S., and the same is true (for) our European and Asian investment teams — investment capabilities that would be very difficult for other firms to compete with. But what makes us really unique is the depth of relationships and history we have in managing money for the most sophisticated investors around the world — understanding clients, their needs, their expectations, and developing capabilities to meet those needs.
Have those relationships evolved much in recent years? A great deal. I think the appointment (in August) of John Garibaldi, who's now leading our institutional advisory and sales team, reflects the way our clients are evolving and how we're evolving to meet their needs. Before, John was the head of our strategic advisory group, managing relationships with the largest clients. ... To me, John reflects the way we want to move our firm — his deep understanding of our clients portfolios, their needs, will allow us to input that into the investment organization, to make sure that our capabilities evolve. And we're taking that same view from the institutional business and bringing it to the retail marketplace. The insights that we get from how you structure portfolios — that U.S. equities are no longer going to be the dominant piece of an institutional clients' portfolio. We can see the dangers of having too much exposure to a single asset class and what that did to individual investors during the financial crisis. So ... classic retail? I'd put it the other way around. I think we're classic institutional, and (tailoring) that intellect and insights where appropriate to individual investors.
You've cited the need to confront challenges from exchange-traded funds and passive management. Does J.P. Morgan need those capabilities? We're not going to be all things to all people. We are an active manager. If we believe we can deliver active capabilities into the ETF marketplace, we might consider doing so. But we are an active manager and we're going to stick to our knitting.
Flows into passive now aren't making you wonder? Investors (will continue) to look for cheap access to beta. I hope BlackRock and others are extraordinarily successful in solving the passive investment needs for institutional and retail clients, because we have every intention of solving their needs on the active side of their portfolios.
What has the move to liability-driven investing meant for your corporate plan-focused business? We have very strong LDI capabilities that we're working with clients on, as they seek to change the way they manage their funds, in line with the new structures that they're putting in place. But it does require in the corporate market that we also become a much bigger player in the defined contribution arena because that is an area that's going to be much more important to corporations as they seek to provide retirement savings for their employees.