J.P. Morgan Asset Management is changing the rules of a $2 billion pooled stable value fund to make it more attractive to wrap providers.
J.P. Morgan said Wednesday it is dropping a so-called 12-month put option for its pooled Commingled Trust Fund Stable Asset Income Fund. The put option allows sponsors to cancel participation in the fund at book value within 12 months of giving notice.
Put options in SAIF and other pooled stable value funds make wrap providers uncomfortable — due to the potential for lost business — and put pressure on the availability of insurance for pooled stable value funds, Peter Chappelear, managing director and head of J.P. Morgan Asset Management’s stable value business, said in an interview.
“This was a pro-active move by us,” Mr. Chappelear said. “SAIF was not yet exposed to the pressure (of reduced wrap capacity). We decided to act before we had pressure.”
By eliminating the put option, Mr. Chappelear said clients that withdraw from the fund will be paid at the lesser of book value or market value. However, if the market value is below book value, sponsors can change their minds and stay in the SAIF pool, he said.
Mr. Chappelear said his firm discussed its strategy with wrap providers, adding that eliminating the 12-month put option should address the wrap capacity concerns for SAIF.
Mr. Chappelear said his firm’s action with SAIF doesn’t affect the $18 billion in J.P. Morgan Asset Management’s individually managed stable value funds, which don’t have put options. SAIF, which is used by smaller defined contribution plans, has 250 clients, he said.