JPMorgan Chase & Co.’s asset management business is wooing large clients in part to keep up with the new landscape emerging from consolidating pension plans in Europe.
Pension consolidation, more demanding investors, and fee pressure have pushed the firm to focus on winning the business of the biggest investors globally, according to Patrick Thomson, J.P. Morgan Asset Management’s head of international institutional clients.
“We are focusing our efforts on the larger clients,” he said in an interview. “One of our strategic priorities is looking at top tier clients.”
The consolidation trend is putting pressure on asset management fees, as economies of scale help pensions increase their purchasing power. J.P. Morgan Asset Management will now offer smaller clients a pre-selection “menu” of products and services, while larger investors will benefit from bespoke services, according to Thomson.
“There are fewer smaller clients,” he said. “We have observed a market consolidation and we are responding to that.”
Britain’s Department for Work and Pensions said in a February report that there’s “a strong case” for voluntary consolidation of defined benefit plans, and that it’d like to see more pensions merge. It would offer “significant savings in terms of administrative costs, as well as the benefits of scale such as access to more sophisticated investment advice and the ability to access better investment opportunities,” the department said.
J.P. Morgan Asset Management has seen consolidation in the U.K. with the Local Government Pension Scheme, as well as in the Netherlands, where there’s now less than half the number of defined benefit plans than existed a decade ago, according to Thomson.
“Ten years ago, there were over 800 plans in the Netherlands, that’s down to 320 plans at the end of last year,” he said. “The Dutch regulator has encouraged the idea of getting that to around 240 plans by the end of next year.”
JPMorgan’s Asset and Wealth Management division had $2.5 trillion in client assets globally at the end of last year, according to its annual report. The firm has direct relationships with 60 percent of the world’s largest pension funds, sovereign wealth funds and central banks, as well half the world’s wealthiest individuals and families, the bank said.
Thomson said the market has entered an era where larger investors expect more “customized information” from fund managers, instead of the traditional request-for-proposal searches.
With international regulation such as Solvency II being interpreted differently from country to country, Thomson said he’s found it necessary to hire insurance industry specialists with geographical market knowledge. He said he hopes this will appeal to major insurance groups.
Solvency II is a new set of rules governing insurance companies in the European Union to help ensure they have adequate capital in a steep and sudden downturn.
“Like any industry, we are making sure that we are delivering the appropriate level of service to the right sort of clients,” Thomson said. “Ten years ago, insurers may have been buying conservative fixed-income through Luxembourg-domiciled funds, but today, they are asking for strategic partnerships to outsource significant, holistic mandates with high service levels.”
