Don't look for J.P. Morgan & Co. to change its approach to the intermediary market just because it has gained a massive distribution partner in Chase Manhattan Corp.
In fact, said Robert F. Deutsch, vice president and head of J.P. Morgan's intermediary distribution, there is not a lot of overlap in the markets Chase and J.P. Morgan pursue, and J.P. Morgan is pleased with the progress it has made in capturing high-net-worth market territory by marketing to independent financial advisers, insurance companies, and banks. These intermediary distribution channels are still relatively new areas for J.P. Morgan, which turned its attention to reaching customers through regional banks, investment advisers, and insurers only three years ago.
The strategy has borne fruit. J.P. Morgan's mutual fund assets have increased 54% over the last three years, to $59.3 billion. By comparison, mutual funds grew 42.8% on average over the same period, according to the Investment Company Institute.
J.P. Morgan is finalizing its megamerger deal with Chase Manhattan Corp., which was announced in September. Chase - which currently has $39.6 billion of assets under management in 57 mutual funds - mostly aims for the middle market, meaning there is little reason for either company to adopt the other's approach, or cut back overall product offerings.
Combined, the two companies would have $107.3 billion of assets in 88 mutual funds, and there no plans to whittle down the line. "Product by product, there is not a lot of overlap in this area of the business," said Mr. Deutsch.
Both entities have gone outside their traditional bastions - Chase, over the past two years, has expanded beyond its traditional branch network to get to the middle market, and Morgan has gone after high-net-worth customers through intermediaries.
Morgan has built a strong presence among retail high-net-worth providers, while Chase has a firm footing in the middle market.
The merger makes for an interesting combination: Morgan competes with firms such as Morgan Stanley Dean Witter & Co., Goldman Sachs & Co., Citigroup Inc., and other world-class institutions for the biggest clients, while Chase would maintain the ability to handle individuals in a branch.
Tom Burnett, president of Merger Insight, a New York institutional research service, said there are "three important components of mutual fund distribution - commercial, investment advisers and money management." A combined Chase-J.P. Morgan "is suddenly a giant in all three areas."
J.P. Morgan's intermediary distribution group, based in Delaware, was started three years ago, when Mr. Deutsch joined the company after 10 years as a senior relationship manager at Goldman Sachs Asset Management.
Mr. Deutsch said J.P. Morgan chose to reach high-net-worth customers through independent financial advisers, banks, and insurance companies because the market was growing, and that was the way to reach them. "These intermediaries are looking to build relationships with firms that offer more than just mutual funds, and we can provide more."
The group provides not just fund products, but also a full array of bank products, including loans, CDs, and annuities, he said. "Customers are intrigued that we offer these choices, and we do make sales."
The key to working effectively in this fast-evolving market is constantly developing new products, Mr. Deutsch said. Besides its 31 mutual funds, J.P. Morgan currently offers money market funds, subadvisory services, and annuities, and next year it will offer separate accounts with other alternative structures, including hedge funds and private equity funds.
The next step for J.P. Morgan will be aligning Morgan's line of mutual funds with Chase, whose assets under management have grown steadily over the past three years, he said.
Bryan Paul, a financial services analyst with PNC Advisors, said that J.P. Morgan's momentum in asset management, and the new products it expect to announce after the merger is completed, should help that side of the company lead the new entity.
"For this merger to be successful, good leadership is a requirement," he said. "This merger was all about pairing Morgan's capabilities with Chase's clients. It will be important for the Morgan management style to be explicitly in charge."
Related Content Online:
- J.P Morgan 12-month stock report (Source: Thomson Invesetor's Network)
- Chase Manhattan Corp. 12-month stock report (Source: Thomson Investors Network)
From Our Archive: