JPMorgan Asset Management is mounting a late push to become a major player in the investment-only defined contribution business.
"JPMorgan has had significant success in institutional asset management and is gaining momentum in retail," said David Musto, the head of the investment-only defined contribution business for JPMorgan Funds. "Heretofore we have not been as present in the IODC space, but there is a tremendous opportunity to get into this space."
The asset management unit of JPMorgan Chase & Co., which has $1 trillion of global discretionary assets under management or administration, wants its mutual funds to become widespread in the investment-only defined contribution market, which consists of 401(k) and other defined contribution plans that include offerings from multiple asset managers.
To make this happen, it must persuade advisers to small and midsize plans, and sponsors of the biggest, that its investment-only defined contribution products belong on their platforms.
Asked about its asset growth goals, Mr. Musto noted that leading investment-only defined contribution fund managers draw annual net inflows of $2 billion or more. "Our aspiration is clearly to be a leader in this space," he added.
Companies including Fidelity Investments and Vanguard Group are among the big players in the market, which Boston-based Financial Research Corp. has estimated is growing from $400 billion at the end of 2003 to nearly $1 trillion by 2010. The investment-only defined contribution market sells products through the platforms of nonaffiliated record keepers.
But an opportunity has arisen for JPMorgan to break in, Mr. Musto said. One factor has to do with the Pension Protection Act signed into law last year by President Bush. It provides "safe harbor" protection to employers that automatically invest plan participants' assets in so-called default vehicles.
Mr. Musto also cited an emerging preference among plan sponsors afor products such as target date funds that are designed to meet certain benchmarks and specific goals. "This is the beginning of a new inning," he said.
Robert J. Ellis, a senior analyst at the Boston research firm Celent LLC, said that it is not too late for asset managers to grab market share but that JPMorgan's big challenge lies in name recognition. "JPMorgan Asset Management is not a brand name," he said.
To thrive in the investment-only defined contribution business, asset managers must sell everyone from sponsors to record keepers to account holders on using them, and name recognition is a key selling point, he said.
JPMorgan last year started its SmartRetirement series of target date funds, which are aimed at 401(k) plan sponsors and participants. The portfolios are targeted to anticipated retirement dates, and over time their emphasis shifts from capital appreciation and growth to fixed-income products.
And late last year the company began building a distribution team dedicated to the market. The unit has six employees and plans to add two within a few months, he said.
Three people were hired last month - one from within JPMorgan; one from Principal Funds, the mutual fund business of Principal Financial Group; and a third from Bostonian Group, a retirement plan adviser. JPMorgan announced the hiring of Mr. Musto himself as a managing director early this year, describing his job as running the retirement and defined contribution investment-only business. He had been an executive in the retirement unit of Prudential Financial, where he was responsible for the small-market retirement business.
With many asset managers focusing on the investment-only defined contribution business these days, he said, recruiting for experienced talent is vigorous.
"A lot of talent is being drawn into asset management firms specifically," he said. "Individuals with fairly deep experience in the full-service space are coming aboard to grow [investment-only] efforts."
Along with managing defined contribution plan assets, JPMorgan plans to give advice to advisers that serve plan sponsors based on the sponsor's history of investing for defined benefit plans.
The contest for investment-only defined contribution clients is important not just because of the opportunity to manage 401(k) dollars, he said. Many asset managers view this market as the foundation for winning rollover assets once participants retire. "Having your investment capabilities well recognized within the defined contribution plans increases the likelihood that your funds and your capabilities will be accessed in post-retirement," he said.
What's more, the investment-only defined contribution business can be profitable for companies that can apply their core institutional investments, he said.
Mr. Garmhausen is a regular contributor to American Banker.
