A sea change may be occurring in the $12 trillion asset management space, as JPMorgan Chase in February became the first bank to crack the top 10 list of the largest U.S. stock and bond funds.
According to research firm Strategic Insight, JPMorgan’s lineup, led by global funds chief George Gatch, posted higher net sales growth as a percentage of assets than any other firm with at least $50 billion. Gatch is scheduled to speak at this year’s Morningstar investment Conference in June, signaling a broader acceptance of banks in the mutual fund space.
Bloomberg reports that while rival banks sought to sell asset management units following the financial crisis, “JPMorgan escaped relatively unscathed, allowing it to spend on the unit and lift long-term fund assets by 160% since 2008. The largest U.S. bank by assets succeeded in part by courting financial advisers to complement its in-house sales force and by offering hedge-fund-like products that have become more popular as investors flee traditional stock funds.”
“We want to remain in the top five in net flows every year for the foreseeable future,” Gatch told the news service. “If we do that, we’re well-positioned as the markets normalize.”
Funds owned by banks, brokerages and insurers have lost ground over the past decade to pure money managers such as Vanguard Group Inc. and Franklin Templeton.
As Bloomberg notes, the asset management unit, which also includes money funds and separate accounts for institutions and wealthy investors, produced 11% of JPMorgan’s $21.5 billion in fourth- quarter revenue and 8.1% of its profit.
“Gatch, 49, who joined the firm in 1986 and took over the mutual funds business in 2001, has driven growth in part through an internal sales force of financial advisers who can sell the firm’s funds as well as those of rivals, a fading approach that some observers say creates a conflict of interest," Bloomberg says. "He’s also pouring resources into capturing business from independent registered investment advisers, or RIAs, the fastest-growing competitor to traditional brokers.”
He’s done it almost exclusively with actively run funds, another anachronism. U.S. investors pumped 2.5 times as much money into index-tracking funds, including exchange-traded products, in the past five years as they did into those whose managers pick securities. That, according to Bloomberg, leaves JPMorgan winning more business in a shrinking portion of the funds industry.