NEW YORK -- Executives with Chase Asset Management say they are ready to shift their focus to U.S. institutional investment opportunities.
The bank will continue to build the asset unit despite rumors that Chase Manhattan Corp. is in discussions to buy J.P. Morgan & Co., executives said.
Chase Manhattan built the money management unit from the ground up in the past two years; CAM already has gained $155 billion in assets under management. But only $4.8 billion of that is U.S. institutional tax-exempt assets.
Chase Asset stayed out of the U.S. institutional market initially to avoid the "consultant-driven" environment in the United States, said Mark Richardson, CAM chief investment officer and chief executive officer. The bank first took advantage of its worldwide banking channels.
"We are a significant player but not a market leader," he said. "And Chase aspires to be a market leader."
Chase executives think it's time to call on U.S. consultants and pension fund executives.
The group has an established track record for fixed income. Its aggregate core fixed-income strategy returned 9.8% in 1997, compared with 9.64% for the Lehman Aggregate Bond Index; an annualized 10.79% for three years, compared with 10.41% for the benchmark; and an annualized 8.43% for five years, compared with 7.48% for the index.
In the past two years, CAM has developed equity products that still are struggling to beat the benchmark, but CAM executives are confident they will succeed. The large-cap equity product returned 33.58% last year, compared with 33.36% for the Standard & Poor's 500 stock index. For three years, it returned an annualized 29.5%, compared with 31.1% for the S&P 500.
Chase sold its asset management division in 1991 to Union Bank of Switzerland. The unit became UBS Asset Management (NY) Inc. and now is a part of the enormous UBS-Swiss Bank Corp. merger.
Chase began to rebuild the asset management business internally in 1995, about the time its noncompete arrangement with UBS expired.
Executives initially took advantage of the company's vast, worldwide banking infrastructure and business relationships in more than 52 countries to win pension fund business in Japan, the Netherlands and Sweden. They also relied on established fixed-income expertise to get asset management mandates from central banks and insurance companies.
CAM reported $11 billion in new business in 1997, of which about $6.5 billion was from new clients. Only a fraction of the money is U.S. institutional tax-exempt.
But if Chase and J.P. Morgan combine, the deal would give CAM a big boost, considering the strong, multiproduct investment unit of J.P. Morgan.
Morgan has 40% more assets under management than Chase. Also, about 47% of Morgan's $278 billion in total assets under management are U.S. institutional tax-exempt compared with 3% of Chase's total.
And Morgan has ventured into the defined contribution business, while Chase is only now making plans to enter that area, even though Chase is adviser for the $35 billion Vista Mutual Fund family.
"The strategy for DC is being pulled together now," said Stephen Prostano, CAM's chief operating officer. System platforms are being consolidated and the executives believe the bank initially will handle DC administration.
Morgan, meanwhile, bought 45% of American Century Cos. last summer. Kansas City, Mo.-based American Century is the fourth largest no-load U.S. mutual fund company.
J.P. Morgan announced with its last earnings release it would be open to a merger or acquisition, said investment banker Thomas Courtney Jr., president, The Courtney Group, New York.
A Chase/Morgan combination could have some synergies, he said. Morgan can help fill the bank's underwriting gap while boosting Chase's presence in investment management.
Mr. Richardson wouldn't comment on acquisition speculation, but he confirmed Chase Manhattan was most intent on filling gaps in the bank's overall financial services such as equity underwriting and merger advisory services. But support also is strong for asset management, he said.
Mr. Richardson became the asset management leader last fall after Arjun Mathrani left during a reorganization of that group. Mr. Mathrani is now a banking executive at ING Group, Netherlands. During the reorganization, Chase's private banking division was peeled away from asset management to allow asset management to focus on the institutional market.