With a top-notch reputation as an investment manager and cachet to match, J.P. Morgan & Co. is charting a successful course as a subadviser for mutual fund sponsors.
In the last year, Morgan's subadvisory client base has grown to 13 clients, mostly from its existing roster of customers. These new accounts represent $1.3 billion in fund assets, says Evelyn E. Guernsey, managing director of Morgan's U.S. funds.
Morgan's fund operations have been growing steadily since receiving an infusion of corporate resources in late 1991.
Worldwide mutual fund assets for Morgan are now $15 billion. Domestic mutual funds make up more than a third of the total, with the retail Pierpont Funds accounting for $4.3 billion and the JPM Institutional Funds about $1.4 billion.
"The firm has far exceeded on the longterm end the growth of the banking sector and the industry overall," said Dennis Dolego, a principal of Financial Research Corp. In Chicago. "Institutional funds have really been the catalyst for the growth."
Mr. Dolego noted that his firm's data show that while the Pierpont Funds' assets dropped by 8%, institutional fund sales from December 1993 to August 1994 rose from $374 million to $1.2 billion.
Competition for subadvisory clients is stiff among mutual fund companies and investment management firms, but Morgan believes its strength lies in having a combination of benefits that separate it from the crowd.
"Morgan has a unique advantage in not directly competing with these companies because of our wholesale approach," said George Gatch, vice president of funds management at Morgan. "And because of the breadth and depth of our investment management organization, we have a product capability that many of these subadvisers don't."
The Morgan name doesn't hurt, either. "Morgan's primary strength among strengths is its name," said Geoff Bobroff, head of Bobroff Consulting, East Greenwich, R.I. "In the institutional setting, it's one of the premier names in the industry."
The bank markets subadvisory services to mutual fund sponsors and insurance companies. As a subadviser, Morgan's role is strictly one of money manager with the authority to buy and sell securities on behalf of the fund sponsor.
The number of relationships the bank has gained so far is a good sign of progress, Mr. Bobroff said. "The bank has excess capacity in the money management arena, and it is trying to get itself in a position to use up that capacity by becoming more available in the marketplace."
With business growing at an encouraging pace, Morgan plans to increase its mutual fund staff to drive that growth even further.
New positions have been created for two vice presidents, an associate and a compliance team. The new employees will focus specifically on marketing and relationship management for subadvisory clients.
"Their goal is not only to uncover new prospects," Ms. Guernsey said, "but our hope is to broaden the relationships we already have with fund sponsors to allow us to manage more than one asset class for them."
Ms. Guernsey noted that maintaining Morgan's image is another important part of relationship management. "We'll also be helping fund sponsors in the marketing and positioning of the funds, which will be a new twist for us," she added. "Heretofore, we have really just been a pure money manager."
In marketing subadvisory services, Morgan looks for clients with gaps in their own portfolios. One common hole for many funds is a lack of global investments, another key advantage for the bank.
"Morgan is one of very few truly global investors," Ms. Guernsey said.
Subadvisory services are offered as a straight, separate account or as part of the bank's Hub-and-Spoke structure, a complex arrangement of funds Morgan adopted in July 1992.
The Hub-and-Spoke structure, a system devised by Signature Financial Services, shuffles the nearly $6 billion invested in Morgan's U.S. Pierpont and JPM Institutional funds into 12 asset pools, or hubs.
Twelve more spoke funds invest in those hubs and are offered to different types of clients at varying prices. The structure gives clients a range of diverse investment vehicles because new spokes can be added to the hub with little effort but with much less expense.
Morgan's hubs and spokes have attracted just one client since the system was introduced. Mr. Gatch acknowledged that the structure has been slow in attracting customers but he said this is changing.
"We've recently seen increasing focus on the cost efficiencies of Hub-and-Spoke," he said.
This year's downturn has also fueled interest in the Hub-and-Spoke structure. "In the last three months, we've seen 10 sponsors inject capital into their money market or short-term bond funds," Mr. Gatch said. "As a result, there have been inquiries as to whether it's more efficient to simply convert those existing funds into hubs and spokes."
Mr. Gatch noted that Morgan's strong track record in international investments actually gave this year's market drop a silver lining for the bank. "Some international markets have performed extremely well and focused attention on the need for fund families to have fairly broad product lines," he said.
In general, of course, the downturn has hurt. Ms. Guernsey said the bank's Pierpont funds have been flat so far this year.
"Our investors have basically been holding still," she said. "They've committed themselves, but not they're not adding incremental assets right now."