J.P. Morgan & Co. has decided to build up its U.S. mutual fund business and has brought a longtime executive back from Japan to lead the charge.

George C.W. Gatch, 37, took up his new post Monday. Mr. Gatch headed Morgan's U.S. fund business until January 1999, when he moved to Tokyo to head a fledgling joint venture with Dai-Ichi Kangyo Bank Ltd. That venture, DKB Morgan, is now up and running, managing $3.2 billion of assets.

Bringing Mr. Gatch back "is really about sharpening our focus on mutual funds," said Ronald R. Dewhurst, the head of J.P. Morgan Asset Management Americas, to whom he will report. New York-based Morgan has identified mutual funds as one of its "growth opportunities," Mr. Dewhurst said.

He said Morgan aims to make mutual funds a larger part of its overall business and to "leverage the resources we already have in place" elsewhere in the company, such as global research.

One of Mr. Gatch's first tasks will be to come up with new product ideas.

"Our ambition is not to replicate the menu of offerings of some of our best competitors, but to focus on areas where we have some competitive advantage," Mr. Dewhurst said.

One product that exploits such an advantage, he said, is Morgan's Global 50 mutual fund, which Mr. Gatch, a 14-year Morgan veteran, helped to design. Global 50 invests in about 50 stocks identified by analysts scattered around the globe.

Possible new products include alternative investments and global and sector funds, Mr. Dewhurst said. "Our view is not to be me-too," he said. "We need to think more creatively."

Mr. Gatch will also work with Morgan's private banking unit to develop mutual fund distribution through the new Morgan Online Internet account.

Morgan's mutual fund business has prospered in Mr. Gatch's absence. U.S. mutual fund assets under management recently reached $50 billion, up from $20.1 billion at yearend 1998.

Mr. Dewhurst attributed that growth to the strategies Mr. Gatch put in place four to five years ago. "He was very much the architect of creating a focus around that business," Mr. Dewhurst said.

Now the challenge is to continue that pace, observers said.

"Morgan has invested a lot of money into the asset management business," in terms of personnel, distribution, and technology, said Michael L. Mayo, an equities analyst at Credit Suisse First Boston in New York. "Now it's a matter of improving revenue growth and slowing expense growth."

Andrew B. Collins, an equities analyst at ING Barings in New York, said that Mr. Gatch's move stateside could signal a retrenchment in Morgan's Japanese ambitions.

While $3.2 billion of assets is a fair showing, Morgan will have trouble keeping up with companies such as New York-based Citigroup Inc. and Amsterdam-based ING Group, which have spent more money and established a stronger presence in the Japanese market, Mr. Collins said.

Morgan is "recognizing where their longer-term strengths lie," he said.

On the contrary, Mr. Dewhurst said, Mr. Gatch, whose was originally slated to stay in Japan for two years, was able to come back six months early because the joint venture is running better than expected.

"The traction we've gotten with that business has been much quicker than anticipated," he said.

And, as Mr. Mayo of Credit Suisse noted, "It's part of J.P. Morgan's culture to rotate managers around the world to give them a breadth of experience."

Gerard W. Lillis, who heads Morgan's investment management activities in Asia, is assuming responsibility for DKB Morgan. Mary Savino, who took over Mr. Gatch's U.S. duties when he went to Japan, moved two months ago into a more "client-directed" role in institutional sales, Mr. Dewhurst said.

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