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Rating:Who Will Buy J.P. Morgan Funds from Jamie Dimon?  Not Rated 5.0 Email Routing List Email & Route  Print Print
Friday, October 04, 2013

Who Will Buy J.P. Morgan Funds from Jamie Dimon?

Reported by Tommy Fernandez

Is J.P. Morgan Funds about to make headlines again?

A year ago The New York Times alleged JP Morgan pushed its bank brokers to favor its own funds with investors. The second shoe dropped this summer when American Banker reported that the OCC had looked into similar practices in its retirement division and that a former broker had filed a complaint with FINRA.

Now, a fund firm honcho has told MFWire that CEO Jamie Dimon is quietly shopping the funds. Whether that is true, we don't know, but a sale certainly makes sense.

Indeed, there must be mornings when Dimon wakes up and asks himself, "Why me?"

He is dealing with lingering headaches from the Federal Bailout and the London Whale mess, as well as new headaches coming from investigations into his company's mortgage securities and energy trading operations.

So you can't blame him for simplifying the bank's businesses; A strategy he outlined in a memo that Quartz obtained and published last month.

Selling off the retail mutual fund business would certainly be a simplifying move and remove a sales conflict that apparently has both the SEC and OCC staffs turning over rocks.

Just how bad things could be was revealed in a complaint filed by Bryant Tchan with FINRA earlier this year. Simply put, Tchan claims he was pressured after moving clients from proprietary to non-proprietary mutual funds. Most shocking (if true) is his claim that the "bank's software flagged trades in nonpropietary funds and required brokers to respond to inquiries from the system within 30 days or risk losing compensation," according to an InvestmentNews report.

Clearly, those issues could cause a CEO or board of directors to revisit their strategic thinking on a business unit.

Meanwhile, JP Morgan's retail funds may be at the peak of their value. Morningstar's Monthly Market Summary places JP Morgan Funds at number two in net flows so far in 2013 with $15.6 billion through last Monday (Sept 30). Over the trailing 12 months the funds have pulled in nearly $23 billion.

Rivals also express admiration for the quality of JP Morgan's target date funds and the group is one of the few with a place at the table in the large plan 401(k) market.

Morningstar pegs the bank's non-money market fund business at $202 billion. Based on recent deals, the business could be worth $2 billion or more.

You'd need the right kind of boat to net this kind of fish-- a whaler, in fact. MFWire has not heard any specific names tied to a sale, but who could a buyer be?

If you look at U.S.-based competitors, that's a smallish fleet. Fidelity's Johnson family is notoriously disinterested in buying market share. Vanguard can't because of its ownership structure. Capital Group just won't and T. Rowe Price doesn't need to.

BlackRock and State Street probably wouldn't have much use for an active manager of this size. Though either firm could be interested in acquiring the 401(k) business.

With PIMCO going its own way, Allianz could be in the market. BNY Mellon and Guggenheim would also have to be on the list of usual suspects. Overseas suitors could include Janus investor Dai-ichi Life Insurance or any of a number of other dark horses.

And, any number of private equity players could come to the table (PE firms own American Beacon, Guggenheim, Nuveen and TCW amongst others).

If you go down the list, one obvious candidate that could benefit the most from such a big buy would be Goldman Sachs. CEO Lloyd Blankfein made the trek to last Spring's ICI GMM and publicly declared an interest in aggressively growing GSAM (and joked at "eating Jamie Dimon's lunch" after being reminded that JP Morgan Funds was the event's sponsor).

What about an IPO? To gauge the appetite of Mr. Market, consider the experiences of these two fund firms: Artisan Partners and ING U.S. (the firm to be known as Voya).

When Artisan launched its IPO in February, it raised $332 million and sported a market cap of nearly $2 billion. That works out to roughly two percent of its $85 billion AUM. Since the IPO Artisan's stock price surged to more than $52. That's a price jump of more than 70 percent.

ING/VOYA has performed similarly. When the company IPO'ed in May the market valued its $460 billion AUM business at more than $5 billion. VOYA's share price has soared since, rising by more than a third to over $30 per share.

A J.P. Morgan spokesperson declined comment.

All in all, the fund honcho who tipped us to a potential sale may be on to something. We would not be surprised if Jamie Dimon agrees. 

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