NEW YORK - J.P. Morgan & Co., a firm known for its base of elite private and corporate clients, for the first time is targeting small retail investors with a new series of mutual funds.
The funds, in registration with the Securities and Exchange Commission, are expected to be available through Charles Schwab & Co.'s Institutional OneSource, a no-transaction-fee program in which mutual funds are available through fee-only financial advisers. The Schwab deal is still pending.
The minimum investment for the nine new funds - to be called JPM Advisors Funds - will be only $5,000, a far cry from the $25,000 minimum on the firm's Pierpont Funds family. Morgan is registering six international and three domestic funds.
"We feel a kinship with the fee-only (financial) planner marketplace. We're confident they will explain what we do in a responsible way. We internally don't view ourselves as going retail with this. ... It's not that we had actively tried not to get external shareholders. In fact, we have a fair amount of shareholders in Pierpont who were not Morgan clients," said Eve Guernsey, managing director of J.P. Morgan Mutual Funds, New York.
"Sometimes people believe there's more of an exclusive veil around us than there is in practical terms," she added.
"We have no plans to become a significant direct marketer. Our plates are quite full focusing on the subadvisory and financial adviser world. That's why we chose Institutional OneSource," instead of Schwab's no-transaction-fee mutual fund marketplace where individuals buy funds for themselves without an intermediary.
The retail push is one of many changes in J.P. Morgan's mutual funds marketing strategy. The firm has added two top marketing executives.
David Fermo, formerly a vice president of Goldman, Sachs & Co., will market subadvisory services to banks. Building the firm's subadvisory business by marketing to banks, trust companies, insurance companies (for variable annuities) and mutual fund companies is seen as a key priority by the firm.
"We only go after firms with good distribution. Ideally, we want to run two or more asset classes. We want leverage on both sides. It's not always going to be a fit," said Ms. Guernsey.
In another new initiative, Joanne Cregg, formerly a vice president of Lehman Asset Management, was hired to head institutional sales to internal clients and external marketing to consultants of the firm's mutual funds. Part of her mandate will be to focus on non-qualified plans and other small plans with at least $10 million, which are not Morgan's natural client base, according to Ms. Guernsey.
"We get $300 million in referrals from consultants a year without marketing. With marketing, who knows?" said Ms. Guernsey.
"J.P. Morgan Investment Management has excellent relationships with consulting firms that we have never taken advantage of till now. In 1995, we want to actively tell consultants we're in the business with a family of funds that can be accessed by smaller plans."
Unlike Federated Investors, Pittsburgh, a leading subadviser of bank mutual funds using its own label, J.P. Morgan will run funds for banks as a subadviser, with the banks using their label.
J.P. Morgan also is planning to launch an asset allocation fund, with spokes off a hub portfolio for each of J.P. Morgan's target markets. The first priority will be a spoke for the 401(k) market. Since July 1993, the firm has used Hub and Spoke software developed by Signature Financial Corp., which enables it to create a number of mutual fund "spokes" serving different investor groups off each "hub" portfolio.
The firm's six hub portfolios each have a Pierpont and JPM spoke and may also have a spoke for offshore clients.
J.P. Morgan's Pierpont Funds, with $4.5 billion, are offered mainly to private clients.
Launched only 18 months ago, the JPM Institutional Funds have grown to $1.63 billion in assets, mostly from Fortune 500 defined contribution plan sponsors; foundations and endowments. J.P. Morgan asset managers also invest on behalf of their high net worth clients using the JPM Institutional funds.
Alistair Jessiman, a managing director of J.P. Morgan, will assume the added responsibility of overseeing distribution of the JPM Advisors funds to financial advisers.
The firm also is hoping to persuade existing subadvisory clients to use its mutual funds. "In our subadvisory effort we will talk to existing and potential clients about using a Hub and Spoke structure where it's appropriate," instead of a separate account arrangement, said Ms. Guernsey.
In terms of new products, J.P. Morgan is developing an asset allocation fund it hopes to launch sometime in 1995. But first it wants to answer some key questions: "How do we most effectively deliver that - a fund of funds? a diversified fund?" Ms. Guernsey said.
Whatever it decides, the defined contribution market will be its first priority.
