J.P. Morgan Chase's love-hate relationship with its giant private equity arm has finally led to a breakup. This month the bank said it would spin off $13 billion-in-assets J.P. Morgan Partners, which will be run as a separate company by JPMP chief Jeff Walker.
Walker, 49, a longtime colleague and ally of J.P. Morgan Chase CEO Bill Harrison, has led the private equity unit since 1984. His group kept a low profile until the mid-1990s, when it became a high-flying financier of Internet and telecom start-ups. When that market crashed, so did JPMP, which suffered more than $2 billion in operating losses from 2001 through 2003.
Additionally, the business became a sore spot with competing private equity firms that are important clients of J.P. Morgan's investment bank. Several other Wall Street firms, including Credit Suisse First Boston and Morgan Stanley, recently exited private equity investing for that reason. Moreover, Harrison and Walker had diverging plans for JPMP. Harrison had long wanted to reduce the proportion of bank assets devoted to private equity; Walker had designs on expanding the unit.
Walker's departure also settles a sticky internal political situation stemming from J.P. Morgan's acquisition last year of Bank One. Dick Cashin, a favorite of exBank One CEO Jamie Dimon, remains as head of J.P. Morgan Chase's private equity business (Dimon will succeed Harrison next year). Cashin's unit, which is one sixth the size of Walker's and has been run separately to date, focuses on smaller deals that the bank's clients aren't competing for. J.P. Morgan will give the group $2 billion to invest.
Walker leaves on a high note. Last year JPMP distributed $3.7 billion to investors after selling several portfolio companies. Now he'll lead the 50-person group in finding a new name and seeking to raise a new, $4 billion fund, probably next year; J.P. Morgan will contribute up to $1 billion. JPMP's Asian buyout and San Francisco venture capital teams, both of which are in the process of raising new funds, will be affiliated with Walker's firm but operate independently of it. Walker can't help but feel like it's 1984 again. "We have our focus back," he says.