J.P. Morgan is moving aggressively to market funds for private labeling.

NEW YORK -- If J.P. Morgan has its way, banks, investment firms, and even corporations will soon be slapping their names on Morgan's mutual funds.

The top-drawer New York bank is pushing full force into a much-discussed but largely uncharted area of the funds business: managing private-label mutual funds.

To facilitate its plans, Morgan recently became the largest bank to restructure its mutual funds into the hub-and-spoke format developed by Signature Financial Services.

Initially, Morgan plans to focus private-label marketing efforts on its existing clientele, notably Fortune 500 companies and regional banks.

Leveraging the Franchise

"One of the biggest leverages we have is the Morgan franchise, and we are clearly going to start there," said Evelyn E. Guernsey, managing director of Morgan's U.S. funds. In time, she added, the private-labeling business could win over new customers for Morgan.

Leveraging existing relationships is a hallmark of Morgan's business strategy. Indeed, Ms. Guernsey said, her staff is already working with Morgan's corporate finance group to review lists of financial institution clients who might be candidates for private-label relationships.

While those discussions haven't led to any firm deals so far, Ms. Guernsey said she is confident that private-label arrangements will pan out over the next few months.

"We would hope to have a success by the end of the first quarter," Ms. Guernsey said. "At least one - maybe two."

Funds Heavyweight

With $13 billion in fund assets under management worldwide, Morgan is one of the banking industry's leaders in mutual funds. But only recently has the bank begun committing major resources to its mutual fund business.

The big step came in December 1991, when Roger A. Sayler was placed in charge of the funds management division. Mr. Sayler, who joined Morgan in 1977, is a veteran money manager who had spent the past eight years developing structured equity-investment and institutional investment-management products.

Staff Doubled in Size

"Mutual funds have been a growing and important part of our investment business around the world for several years," Mr. Sayler said. "But over the last year and a half we have elevated its importance significantly."

Since taking charge of the funds management division, Mr. Sayler has doubled its staff to 60 people. Many high-level bankers were recruited from within the Morgan organization, including Ms. Guernsey, who was placed in charge of the U.S. funds business in November 1992, after 15 years with Morgan's private bank.

Mr. Sayler has also reached outside the organization for some fresh blood, bringing in several people from investment banking and mutual fund firms.

Last summer, Morgan laid the groundwork for further growth in funds with the shift to the hub-and-spoke structure.

$5 Billion in |Hubs'

Under the arrangement, nearly $5 billion invested in Morgan's U.S.-based Pierpont and JPM Institutional funds is managed in 11 asset pools, or "hubs."

"Spoke" funds, which invest in the hubs, can be offered to different types of investors at different prices.

Hub-and-spoke would have made sense even if the bank hadn't set its sights on private labeling, Ms. Guernsey said. That's because Morgan manages a diverse array of assets - including mutual funds, offshore funds, individual retirement accounts, and commingled pension assets - that could just as easily be managed in one pool.

"We've got several distinct vehicles being run by different people. Clearly, that's an expensive cost structure," Ms. Guernsey said.

|Spokes' Easily Added

Right now, all 11 spoke funds are marketed by Morgan to its own clients. But the beauty of the hub-and-spoke structure, according to Ms. Guernsey, is that it is relatively simple to add new spoke funds for companies that would in turn market the funds to their own clients.

"My gut reaction is that banks are going to hold the most potential," Ms. Guernsey said. She noted that there are some 4,000 mutual funds on the market, including more than a thousand managed by banks.

"It's hard to believe that all of them can be economically viable in the long run," Ms. Guernsey said. "There is a cost to running this business, and it's not cheap."

To be sure, private-labeling isn't the only tune in Morgan's repertoire. The bank also sees big opportunities to market its mutual funds to 401(k) plans and to corporate cash-management clients.

Morgan has already had a few nibbles from prospective private-label clients. The bank's three money-market mutual funds have drawn considerable interest - a surprise to the executives, because such funds are considered a commodity business.

But both Mr. Sayler and Ms. Guernsey agree that the big opportunity for Morgan is to help companies that already manage some mutual funds to fill in gaps in their product line.

In particular, they have high hopes for Morgan's global funds. The bank currently offers an international equity fund, and has two funds in registration that would invest, respectively, in emerging-markets equities and international bonds.

"The comparative advantage we'll probably always have is the global focus of our investment management business," Mr. Sayler said.

In addition, Ms. Guernsey said. Morgan's status as a wholesale institution should make it an attractive partner to retail financial institutions.

"If a regional client |spokes' into our hub, they're not going to run into us around the corner," Ms. Guernsey said. "We're not going to be marketing on their clients' back doorstep."

That could give Morgan a edge over some regional banks that want to provide private-label funds, she added.

"Some of the larger money-center banks in New York that have a retail bent may be inherent competition" for their prospective private-label partners, she said.

Ms. Guernsey has some pretty clear ideas of the types of companies that she would like to line up as private-labeling clients.

"General Electric is a good example of a corporation with a huge mutual fund family," Ms. Guernsey said. "We can do the same thing for that kind of fund distributor as we can for a bank or investment house."

She is also fascinated by community banks' push into mutual funds. Morgan is unlikely to start pitching its services to small banks, but it could, for instance, develop mutual funds in alliance with community bank trade groups, she said.

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