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JPMorgan Chase & Co. (NYSE:JPM)

UBS Global Financial Services Conference

May 21, 2014 11:00 a.m. ET

Executives

Mary Erdoes - CEO of Asset Management

Analysts

Unidentified Analyst

Good morning everyone. I am very pleased to welcome Ms. Mary Erdoes to the stage. As you all know, Ms. Erdoes is the CEO of JP Morgan’s Asset Management business doing – she is also a longstanding member of JP Morgan’s 10 person operating committee. She has been with JPMorgan for 18 years, contributing to tremendous growth of the asset management business.

The plan this morning is for me to spend about 25 minutes asking questions, and then we’re going to open it up to the floor for all of you to ask questions. So hopefully you will think of some good ones, while I’m prattling on, on stage.

With that perhaps we can start with some general questions about JP Morgan before we get into the asset management business.

I guess the first question I want to start with is, as JPMorgan is well into the execution phase of its simplification process, given that Q1 revenues were a little bit weak versus consensus forecast, it seems fair to ask whether the internal focus, be it removing politically exposed clients or ensuring all your paperwork is up to snuff, is that having a temporary impact on your ability to sort of grow business?

Mary Erdoes

It’s a great question which is a hard one to answer in the aggregate. There are pockets of places where work on remediation or simplification making sure that we’re doing the core things that our clients need as opposed to the non-core things, especially if you’re doing them for non-core clients. And I think all of us worry about that in whatever businesses we run. And so we spend a lot of time doing that and also making sure that we have all of the, you call it paperwork, but really it’s support to have the infrastructure as strong as it can be to make sure that we protect bad things from happening. And that’s been in process for several years and I think you’re seeing the real flow through of that. I think the markets themselves have been slow for the first quarter and continuing in through the basically year to date.

And they not just slow down the general appetite for people to do as much activity although on the M&A side you’re still see some strength and on the flow side, and asset management, we’re still seeing strength on the banking side. But there are pockets that are slower. And also when you derisk certain areas, you’re taking away the revenue base. So I wouldn’t say it’s an internal focus where the whole place is sort of focused internally and we’ve lost sight of anything. Clients come first and foremost and we work really hard, I think just the general tone has been a little slower and I am hoping that the second half of the year we get a little bit more progress in the markets and a little bit more clarity on where the things are going and then people feel more confident reinvesting.

Unidentified Analyst

Okay, fair. And then sort of tangentially related question, we sort of joke with clients, the money center banks have made sort of missteps, a bit of a team sport and you guys had yours with the CIO office but Citigroup’s had Banamex and Bank of America lost 4 billion of capital, I am just curious how collectively that sort of impacted your dialogue with both clients and regulators?

Mary Erdoes

Well for sure, if you just take a longer-term perspective, when you say sort of what happened, there are a lot of things that led up to the crisis of 2008 and there were just a lot of things that went wrong whether it was borrowing issues, whether it was lending issues, whether it was the shareholders, whether it was the banks, whether it was the clients, everybody had some impact as they went through and readjusted to the new world. And as we've all worked really hard to make sure that we have new rules and regs to prevent us from having those same things happen again, we’re working hard not to make different rules and regs that cause other things to happen from an unintended consequences perspective.

So there is just a lot of work jointly between the money center banks, the big ones that have the massive global flows and the coordination that you need globally to figure out how these rules and regs are going to play out in different parts of the world with the regulators. And the closer that they have gotten over the past two years, the better progress we've made, the more implementation you can see some of these things coming to fruition. And once you have a clear set of rules of the road, people can then move forward with them. I think that what you’re seeing in 2014 we have clear sets of rules of the road, we know exactly what’s happening in certain countries, there’s still open areas and others. So I think that makes anybody feel better, and people have been working really very hard and they have good debate and good dialogue and that’s going to make it better. It’s not going to necessarily prevent all the future problems of the world, there will be future problems, there will be future stresses on the system. We just hope that we have better mechanisms to work through them and I think each of these regulatory issues that we put into play are being very well thought through and we need to make sure that we don't add the next one thing that causes the other great work to be undone.

Unidentified Analyst

And so I think you sort of answered very thoroughly that the relationship with the regulators and how about your clients, do you find a backlash as your name or some of your competitors’ names are on the front page of the paper, do you find -- you need to spend more time with them talking through the issues and why your name is there, or has that sort of not been an issue as much?

Mary Erdoes

So we’re very fortunate we run a global business and we have clients all over the world. And our clients have continued to vote with their feet for many decades and many crises. And so this is not our first crisis and this is not the first stress in the financial system. And so we have continued to grow deposits every year, loans every year, assets under management every year, new banking relationships every year, investment banking rankings continue to be incredibly strong. And our clients trust us to be there for many many years to come and they work very hard to figure out who are the firms that they're going to entrust to work with them because their firms are pension funds and government entities, sovereign wealth funds, central banks and they’re going to be around for many decades. So they need a partner who is going to be there with them and JPMorgan has been here for two centuries and God willing, we will be here for another two centuries.

Unidentified Analyst

A couple more questions for the group, and then we’ll get into your business. I guess I’d be remiss in not asking the question that I think the turnover at an operating committee level at JPMorgan has been a little bit higher recently. You run an asset management business, presumably you understand better than most just the importance of continuity. So I was wondering if you could just talk a little bit about the impact of personnel changes have had on the strategy of the execution or just a collective sort of thinking around the group?

Mary Erdoes

Yeah, we have a very broad and deep bench both at the operating committee as well as all of the different operating committees of the four major lines of business. And it’s something that many of the investors have spent a lot of time getting to know many of us and getting to know the next level down, we spent a lot of time at our own investor day making sure that we expose people to that broader set group of people. But the bench is very deep. The tenure is very long and the way this operating committee works is it’s very very strong, we all sit together, we launch together, we meet together multiple times a day and it's a very special group of people.

Unidentified Analyst

And then the last question at a group level, and probably just a clarification for myself. But at the February Investor Day, I think one of Marianne’s first slides referred to 2014 as a transition year. And she went on to say that the firm’s going to protect its franchise of future earnings power. And so I am just wondering if you could just elaborate a little bit what you mean by saying 2014 is a transition year and then the obvious question is what are you transitioning to in 2015?

Mary Erdoes

Well, hopefully for all of us who are transitioning into stronger markets we will also eventually have higher interest rates, we will have a more normalized set of financial conditions if there is such thing. And we will have gotten through the work that we talked about, right? So five and a half years worth of a lot of work to make sure that we have a sound and well functioning financial system globally. And it’s the globally part that’s sort of hardest to maneuver because you try to do one thing here and you need to make sure it doesn’t reverberate in some other part of the world.

And so the transition is you work really hard to figure out how well that’s going to work, you wait for the final rules and regs and now they’re all being put into place, and you’re going to optimize liquidity, capital etc. and we are doing that. And that’s the transition and then you also make sure that you’re derisking on the things that you don't need because you just take a different look at the way that you deploy capital in the new environment of how capital is being used and that’s helpful to everybody. So those are the transition periods and what you should have on the other side of that is a very high functioning team that’s there to serve the clients in the products and services that they need, and that we can provide, and that we’re best in class. And if we’re not best in class, then that’s not for us to be doing.

Unidentified Analyst

Okay. And now sort of I really want to get into the asset management business, it’s sort of fun part of the Q&A I guess. And start with sort of a broad question, and I guess a lot is in [aid] [ph] about an asset management business that this within a universal bank and quite often in the context of sell-side researches it’s kind of written in a negative tone. This is a 20 times multiple business trapped in a 10 times multiple business kind of tone to it. But maybe I am wondering if we can flip that around and talk a little bit about the benefits you receive and the synergies and maybe you can sort of elaborate on that and what you think the upside to working in a universal bank is?

Mary Erdoes

So I only know what it’s like to work the way that I work at JP Morgan and it’s JPMorgan. It’s the JP Morgan Private Bank, it’s JPMorgan Asset Management, it’s a investment management piece, it’s a hedge fund piece, it’s a private equity piece, and that’s what we’ve done again for many many decades. And clients come to us because we are JP Morgan. They come to us because they trust us. That could have started with a trusting relationship where we were managing their personal money and eventually they needed help on their corporate balance sheet. And so we introduced them to people in either the commercial bank or the investment bank to be able to help them with that side or very often vice versa, some of them will have worked very hard to start a company or to be a CEO of a company and eventually they will have their own wealth that needs to be managed; we help governments around the world and so we will help them with their balance sheet in terms of structuring things on the investment banking side, but then very often they would want to outsource a lot of the asset management and we’re one of the largest investment managers of sovereign wealth fund and central bank money around the world and all of that is because they come to trust JPMorgan, they trust the people, they trust the fiduciary nature of the people that are facing them, and that’s probably the most important thing, which is each one of our four lines of business within JPMorgan is run as its own business. I run a fiduciary business for a fiduciary client. It is not smooshed with something else that might have a priority of something higher for a different kind of client type or different kind of activity.

And so each one of us runs it for the clients that we have and the activities that they expect of us. And for us that’s been just incredibly beneficial and it’s hugely synergistic. And the fact that valuations aren’t always what you think they should be if they were standalone or whatever is dwarfed by just the nature of who we are, the global perspective of where we are, we can go into lots of different places where we’re not necessarily need to be the biggest, we might want to have a foothold for -- very small foothold for a long period of time until it’s ready to be a larger part in a market and we can afford to do that. And that’s what our clients expect, we can put research people on the ground and be able to look at stocks and different companies in different local areas and be able to work for that because we also have an office that does clearing and treasury services there and you get the synergies of that, and then we now those companies better, we have greater insights, more familiarity and then if we ever want to go onshore in that country later in the future, we’ve had a long-standing relationship, and I think it just is very powerful model.

Unidentified Analyst

And I guess the way we measure the success ultimately is the financials, right? And so you’ve got some – on the financial side, you’ve got some I guess pretty aggressive target to get 9% to 10% revenue growth, I think 16% pretax profit growth, which are aggressive numbers, but albeit in line with what you did in 2013. And so I am wondering if you can kind of walk us through the process behind setting those targets, like how much of that is data versus absolute sort of performance that you guys – assume the markets go up 10% and I guess you will get those targets pretty easily but maybe you could sort of disaggregate – when you set those aggressive targets, how much of that is sort of alpha as opposed to data?

Mary Erdoes

It’s a great question, although just a correction sort of our revenue forecast that we put out on investor day is 7% to 12% range in good years and in bad, and earnings over the cycle should be sort of 10% to 15% range with the goal of a 30 plus percent margin and a 25 plus percent ROE. And we came up off a very, very strong 2013, where all of those, most all of those targets were exceeded, and 2014 is off to a slower start, it doesn’t stop us from investing, it doesn’t stop us from continuing to work hard. But the question that you are asking sort of what is the gearing of our investment management business, it’s really two businesses, it’s the wealth management business and then investment management business. And then most important gearing for you all is flows, right? So it’s just how much clients entrust us with more money, we’ve had 20 consecutive quarters of positive inflows since the crisis and we continue to gather assets not for the sake of going out and be an asset gatherer but because clients want us to manage more of their money. And I think that’s the important thing.

We’re an active manager, and so clients come to us for active management, you can see from our numbers recently that this is certainly a phenomenal time for active management across almost everything that we do. But when you're in a fixed income markets, and you’re in the equity markets, and you’re in the [alt] [ph] markets, it just depends on what’s going to happen in the market. And so we continue to have very strong fixed income performance as well as flows. But our equity flows continue to be surprisingly strong versus the industry and it’s based on our very strong investment performance and it’s over many many decades.

We also have things like – you just look at these pockets of where we’ve been working hard, you have a lot of strategies that just weren’t in favour at all, some of them that might have even had bad or less strong performance of five or 10 years ago and now you look at something like our European strategy where you think geez! are people really putting money into European equities as one of the top flowing strategies, it’s 20 plus percent over the past year, 700 basis points of alpha over last five years running, there is just a lot of great stuff we have and that’s the best of power of who we are. We are a series of many, many boutiques where we don’t have just one thing we do and when the one thing works it works, and when the one thing doesn’t work it doesn’t work. The ability to have many things for our clients to pick and choose what they need, when they need it, there is a lot of people that want income right now but there is a lot of sovereign wealth funds that say actually I want emerging markets equity right now. But it’s out of favour, I am trying to make really long-term investments and this is exactly the time that I want it. See you are there for many different clients for many different reasons and many different seasons.

Unidentified Analyst

You talked a lot about performance in answering that question, and I guess one of the challenges when you’re as big as you are, is to still have the differentiated performance and not just sort of gravitating to the media and you guys have done that, right? So given the numbers right this question, that I think the five year period two-thirds of your mutual funds are in the top two quartiles for performance, the 10 years 80% of your funds are in that sort of top two quartiles. So how do you institutionalize some such good performance particularly for an institution of your size?

Mary Erdoes

So there are probably two parts to that. One, what JPMorgan isn’t is one or two sort of massive funds and then a series about little thing. We are a number of funds and we care very much about capacity constraint issues, and so we will close the fund at any time when we feel like maybe it’s even temporary or running up against the period of time because the most important thing is the existing investors of the fund. We’re not out for flows stake, we're not out -- our goal is not to be the biggest fund manager in the world. Our goal is to be the best. We may end up getting more assets because of that but our end goal is not to be the biggest.

And so making sure that we understand each and every portfolio manager gets to run their strategy how they wish, how their clients have mandated them to, and two people sitting right next to each other can have very different views on the world, they can execute them differently, one can be going long on one thing, the other can be going short depending on their short medium long-term forecast. To do that you have to have the care and feeding of the portfolio managers. And for us and for many of the great asset management firms of the world, the portfolio managers and the research channel implementers [ph], that’s the holy grail, they need to be treated as such. They get paid first, everything else is second. They get walked in the door in the morning first, sat down, we give them everything they need, the care and the feeding, and you try and keep everything else away because the most important thing is every day they wake-up and they work for the client.

And if you can keep that conditioning to be always at the forefront of your mind to run a proper fiduciary business, then it can thrive and that’s – we’re really seeing the results of many many people doing that over decades in our firm.

Unidentified Analyst

At your analyst day, you talked about $2.2 billion of incremental revenue and $1 billion of incremental cost from new investments, and those are some pretty big numbers even for an institution of your size. Can you give some examples of the areas where you see the most interesting investment opportunities, like what’s that you’re most excited?

Mary Erdoes

Yes, so the biggest part of those investments, and those of you who have been following us for years have been on our private banking side, and because we’re not as big as some of the other wonderful institutions of the world who are in the wealth management business, we have the great ability to be able to grow at whatever pace we want because we are just not over-sized in any market, and especially in the international area. And so we can very carefully think about who we want to hire, we don’t need to hire hundreds of people in a particular market, we can hire 5 or 10 in many different up markets and then be able to put them in our team based approach. So it’s not just a single producer as single broker trying to sort of make transaction money as part of a team that does lending, wealth advisory, investment management, traditional banking, they’re surrounded by other people. And so the ROI on that next marginal hire is higher than it would normally be when you think about a traditional sort of start up single broker trying to build a book, and it’s shorter – it’s certainly shorter in the US where we already have this great machine and it’s shorter than you would think in a lot of these international markets because again we’re sort of not capacity constrained in that part. So that’s been a very big part of the 700 front office people over a 3 year period and they continue to show their ROI very healthy over the last year and half or so.

Also, in the investment management area, there are areas that we weren’t in, in great strength, like the insurance market where there were other big players. And so we didn't think that, that was a place or space that we should go into. We've hired a number of people, we’ve invested a huge amount of technology there and we are having great success of being able to help insurance companies to think through how they are managing their assets. So there is a area. Then there is the fund management area where we have a lot of clients who come to us and say you don't make this sort of thematic based strategy. And I would really like something in just the healthcare space as opposed to an S&P 500. And so have a global healthcare fund, that’s now got a long-term track record, and beginning to receive flows and it’s best in class. And those are the kind of things that you have to invest and they are – it’s not short of an ROI as it is to hire a private banker, you need a three year track record, then you have to have assets come in. And so that’s a little bit longer but when you have the breadth of what we have you can afford to do that, and by the way you have to factor in the ones that didn’t work. And so those peel off [ph] but we track each and every one of our investments down to the human being that we hire, the time, the ROI and whether we’re doubling down or tripling down or whether we’re cutting our losses and we’re moving on to the next thing. It’s a very well oiled machine that we run on that, in that respect.

Unidentified Analyst

And let’s talk a little bit about global wealth management business. And I guess first of all the last seven years for your clients has been probably more focused on risk and reward in that spectrum. What’s client appetite like today having come through this crisis?

Mary Erdoes

So just to level set, it’s important to remember that the wealth management clients of the JPMorgan are different perhaps than a lot of the wealth management clients. There was a presentation yesterday that you had here and talked about the sort of ultra-high net worth 50 million plus was 10% or 11% of the clients that the entity has, 62% of our clients are 50 million plus and we mean 50 million with us, not 50 million net worth. So it’s just very different size kind of client. And so with that, you might see very different patterns. I'm not sure I would extrapolate what we see in the JPMorgan wealth management business to what you might see across retail. But in our business you see very much in the global wealth management business what you see in our large pension fund and sovereign wealth fund business, which is continuing to take advantage of this sort of nondirectional market, lot of interest in Asia, lot of interest in emerging markets, still a lot of interest in credit long and short, even interest in things like Africa, a lot of real estate, a lot of co-invest.

And the other thing when you think about our business especially in the wealth management business, we have a very large proportion of investment in the alternative business from those clients. You don’t generally see that in other wealth management business. And so just year to date we’ve had over $7 billion in sort of all/thematic investments just on the private client side and they want those bespoke parts to be able to think about a theme, to be able to think about a theme globally but not care about a benchmark to be able to think about crushing the equity markets and the debt markets to be able to think about the public and private markets and be free to roam however the portfolio managers deem appropriate. That’s a lot of where the new money is going and there is still activity, people are still wanting to put money to work and again our investors have very very long time horizons. So any time you can get pockets like this, even though it doesn’t feel directionally, you know that you have hope that in the future it'll end up having been a very smart time to invest.

Unidentified Analyst

I guess it’s a bit more bullish than I would have thought, I mean I guess given you’re servicing the ultra high net-worth individual I would have thought they have a lot of risk tied up in corporations and what not, but when you talk about Africa and all, it sounds like there is a pretty healthy risk appetite at the moment?

Mary Erdoes

Very healthy and yes, they do have a lot – most everybody has a lot tied up in either the company that they work for, or the company that they started, or – but they have diversified their wealth outside. I would also just add that, that’s also the benefit of investment management being the other side of the equation which is – this great wealth management that caters to the ultrahigh net worth we see themes that those clients want. To be able to then say let’s put that in a mutual fund form or perhaps the retail client sitting in Italy would like to be able to think about that in a more liquid fashion, and I am not talking about liquid ultimately, talking about just taking thematic things and putting them in, in fund format that people can benefit from, I think it’s a lot of the help of the success of the retail side of our business where we sell the mutual fund side of our business. And we’ve had great flows and I think that's because of great investment performance and that is also because of new products that we have been able to make that are resonating with the end clients and what they want today.

Unidentified Analyst

And you talked about the return on investment being relatively quick when you hire a sort of the private banker and bring them on to your platform, presumably that’s true for some of your or few of your competitors as well. So can you talk a little about given it’s an area of investment for you, just how heated is the market for talent, I mean there is not that many people that can really serve the 50 million net worth clients. So is that a very competitive market right now or is it – talk a little bit about that?

Mary Erdoes

Yes, it’s highly competitive, it’s just like hiring a portfolio manager or a great investment advisor in the institutional side, great private banker on the wealth management side. Conditioning of long-term fiduciary minute experience if they aren’t in our firm already, they need to have worked for really great firm with the right values and the right culture and the right clients first and the right driven research mentality of how to be able to help clients in the very long term. Those are long long cycle hires, very long cycle which is why you can’t start and stop that process. You are either going to continue to invest for the long term and so we may be interviewing people who is going to take us all the way until January of next year to have on our platform. But that means all year round you have to do that in order to think about growing your business but also replacing people who eventually retire or do other things – and so it’s a muscle that we have, it’s a muscle that we’ve developed over the years and you really need that muscle. But there are many great competitors large and small, local, global and we’re all looking for that same perfect human being.

Unidentified Analyst

I will ask one more question before we turn over to the audience for questions from the floor. But I guess on the asset management business in the past, I think you’ve expressed a view that you’re going to see consolidation in the industry and assuming that’s still your view, what do you see is the losers in that consolidation?

Mary Erdoes

So again, I think in investment management in particular, I mean everyone is a competitor, right, the new startup person who does one thing with one thing, the alternative players, the larger benchmark driven passive player, I mean everyone is your competitor. And how do you think about who are the winners and losers, there will always be winners and losers. I just can’t imagine in today’s day and age starting up a new boutique investment management firm and understanding the rules and regs and the things that you need that you’re going to need a lot of assets to be able to pay for all of those things. It’s just a different world. You need to understand your client, you have -- you have issues everywhere and so scale works in your favor and therefore it would lead you to believe that there will only be a few bespoke boutiques that will be able to do that and do that very well. And otherwise it’s just much harder for the new entrant for sure and certainly for the smaller entrant who has to – or the smaller player who has to make sure that they have – you can’t just have one general counsel anymore, you need multiple to be able to deal with the many requests that come in.

Question-and-Answer Session

Unidentified Analyst

So with that, why don’t I open it up to the floor and see if we can get some questions from the audience.

Unidentified Analyst

Thanks. So a question for you given your role in the operating committee, if we look at the company adjusted expense target for the year down just over a billion, that actually seems pretty soft given how weak the revenue environment is for all of your businesses outside of asset management. So I guess my question is why isn’t that target more aggressive again given revenue environment as well as what a lot of your peers are doing both regional banks and other investment banks?

Mary Erdoes

So there’s 3 things at play. One is there is just a general expense management which we laid out at beginning of the year for you and we continue to guide as we think that, that’s going higher or lower. And that’s our best guess as we sort of land a full year. The second thing is that the controls environment is expensive and while we wish everything could be a technology fix that was implementable today because then that’s a very scalable way to deal with it. There is lot of technology that hasn’t come online yet and so you have compensating controls with human beings, as that are making up for it. And so that will eventually go away and hopefully that will go away soon but it doesn't go away overnight. So that’s the second piece.

And the third piece is, that just because the markets are slow, doesn’t mean that we don't want to be in certain areas where we want to continue to invest. And so we’re making the constant trade-off every day for our shareholders as to what’s a good long term investment versus what’s fundamental changed – commodity business has fundamentally changed, there are certain decisions we’ve made there. The correspondent bank, we’ve made lots of decisions there, we’ve made decisions in the student loan business, I myself have a decision to get out of the retirement plan, services business doesn’t mean I am going to get out of managing retirement money but you need scale for that. And so that’s better in the hands of somebody that has greater scale. Those decisions are being made all day long but it doesn’t mean we will ever stop investing, and so those are three equations that bounce around and still land us back at that same number.

Unidentified Analyst

We hear a lot about LDI, and it seems like the flows into those products are starting to accelerate. So can you maybe talk about your experience at JPMorgan with those products and how much of your AUM is currently there and where you see that going and the like?

Mary Erdoes

So when we deal with clients who are trying to immunize their future liabilities and think about where they are with their overall pension schemes, we do that both out of the fixed income group as well as the solutions group, because sometimes it crosses over not just fixed income but other areas. And that team has been growing rapidly, and also with focus mostly in the US and now we are seeing a lot of activity from places like the UK, where we have a big pitch there today, as a matter of fact, where we’re working on on helping lots of different clients with that. The interest rate environment as such that, that’s a challenging thing to do and you have to think very carefully about how to do it but the equity market has also helped over the past couple years. So it’s enabled people to be able to make those decisions and so it’s obviously multivariable equation that we work really hard on doing. I think that’s why we’ve had so much success in that market and it continues to be a very high growth area for us, because when clients come to us they know that they are not coming to just the fixed income house, that has lens [ph] which is fixed income. They are coming to someone that has multiple answers and will give them the unbiased answer as to what’s best for them, with their assets and liabilities and can help them across the spectrum without feeling like they have to get them into sort of one area or one product that they may or may not have.

Unidentified Analyst

I actually have one more if that’s okay. When you think about the two type of business, the private client and then the asset management business, it’s sort of a natural feeder, so how much of your AUM that you have in the asset management business -- of the long-term AUM, excluding the money funds, how much of that is actually sourced from your private client business and then maybe of the growth of the flows, what percentage does that make up?

Mary Erdoes

We don’t break out those numbers but it’s a relationship that’s a very healthy one. On some of the things that investment management actually makes and constructs is because the private bank has said please make me something. One of our star portfolio management team is sitting on the back of the room here today and actually one of their big strategies that they run 130:30 [ph] strategy was started with a single private client because it’s couple hundred million dollars and said I would like you to help me to run this strategy based on your DDM methodology and I think that, that could be very helpful for me. Lo and behold, that was incredibly helpful not only to that client but also to hundreds of thousands of clients thereafter. Those are some of the things that helped back and forth and so that continues to be a way to help us to think about new product innovation if we wanted and then the same is true where we -- the private bank might find an opportunity that is made mostly for institutional side of the market and investment management and they won't like it because of the tax issues for US client or something. If it can be made differently then they can take that same idea and go after someone else to make it for them and it can be a very very healthy way to think about new product growth.

So it’s an excellent relationship between the two and it’s also very helpful for all of the different channels that we distribute assets to, to be able to learn from one another. Every retail investor in the world wants to know what the higher-level retail investors of the world are doing. Every billionaire of the world wants to know what sovereign wealth funds are doing. Every sovereign wealth of the world wants to know what the central banks and the institutional investors are doing and all of that can be shared with our different client bases and help them to fast forward into the things that people are investing in or not. So it’s a very helpful way to be able to have shared learning.

Unidentified Analyst

Thank you. Mary, JPMorgan on the asset management side has been sort of – with respect to acquisitions, select, not as prolific as some in the industry but if you look at say the Highbridge acquisition arguably the most successful for majority purchase of hedge fund transaction ever was done. How do you think about sort of inorganic growth opportunities, be it sort of at other pockets of call it manufacturing strength or otherwise going forward?

Mary Erdoes

Yes, when you think about the Highbridge acquisition, also the Gavea acquisition that we did in Brazil, those are very unique and special cases where you have groups of people that want to have their firms live on beyond them. And you have groups of people that are very familiar with JPMorgan and have the same cultures and values and all that. And acquisition of any kind only works if all those ingredients are in play and otherwise it’s very delicate thing in the asset -- I believe it’s very delicate in the investment management business in the acquisition game because investment management firms are very high in culture being one of the most important things that makes them work, and autonomy being an equally important thing for lot of these investors who want to do their thing the way they want to do their thing. They don’t want to be told what stocks and bonds they can or can’t buy and sell.

And so each one of those cases has to be treated very specially and we’re always on the lookout for them but they are very rare because they have to fit all those criteria. And so all else equal, growing from university straight up and being conditioned into research and trading and portfolio management and being exposed to many many management team meetings with CEOs and CFOs, groom them from the right out of school is generally the best success for us.

Unidentified Analyst

Thank you. Given the turbulence in the markets where you’re seeing the most investor interest in which products and specific strategies and if you could talk a little bit about demand for private equity whether you’re seeing that in private equity type products, and if people are doing a bond replacement products where are they going?

Mary Erdoes

So income continues to be the theme for lots of people, even thought it’s harder and harder to get, and that’s because the memory of 2008 for many many investors especially the retail investors who may have made the wrong decisions as they headed through the fall of ‘08 into the spring of ’09. If those memories are long lasting and they are hard to get the confidence back to able to go fully back in the market. So things that have income around them even though they might have equity exposure, are the first and foremost thing that that they want to take risk on, so we’ve had a lot of money continue to come in the income products, absolute return fixed income also being another version of that, huge flows into there.

But solutions for us, the multi-asset class areas where a client doesn’t necessarily say I want to check the box on this mid-cap thing and the other box on this Japanese equity thing, I want you to be sort of freer to roam, those also continue to be very high flows. So those are our highest flows and again we continue to gather assets at a rapid pace across each of those areas. Again surprisingly global emerging markets, it doesn’t have high retail flows but have very big chunky institutional flows and you will see one of those every couple of week and those are pretty big and sizable.

On the alt side, it’s a continuous investment and clients just wherever they can afford illiquidity they want it because the markets are looking for liquidity. And so everyone that doesn’t need liquidity in the next 1, 3, 5, 7 years and can afford to invest in the longer-term markets you are seeing that. So everyone from the institutional client down to as comfortably as they are in sort of lower end spectrum, and it’s a little bit more in private equity than it is in hedge funds. We generally have sort of a pretty even balance of the two and the interest rate environment and out of the gate for 2014, we haven’t seen as stronger flows, we still have very positive flows and so I am expecting that, that probably kicks in after some of these better numbers in May, will be realized when people see their May June statements for May.

Unidentified Analyst

This might not be as big an issue for you given your size and sophistication of your clients but just curious as the head of an asset management business regarding the confidence – investors’ confidence in the market what are your thoughts regarding Michael Lewis' book, "Flash Boys”, is high frequency trading even an issue for you, do you think any regulation could be done to ensure confidence in future flows, what are your thoughts on the impact?

Mary Erdoes

No, it’s important for everybody and I would just start with the fact that electronic trading low frequency or high frequency has been incredibly beneficial to every client around the world. Just look at the bid ask spreads and the trading costs from even two years ago, let alone five or 10 years ago and everybody has benefitted. As we have done that there are people that have taken their cut of the spread along the way and so you have some of the issues in high-frequency trading in terms of routing or bids that are put out and not executed on, that probably needs better regulation. It doesn’t mean it’s bad, it just means it needs to have tighter regulations so that you can know exactly where things are routing and how they are happening and I think you’re seeing it, and you see it very quickly, because it’s a pretty simple thing I think to be able to fix, it may be harder to monitor in some areas but for the end user, for the person that’s actually reading the book, it’s been very helpful to them, it’s been very beneficial to their bottom line. It doesn’t cost them as much to buy yourself stocks any more and I think that’s the most important takeaway that maybe isn’t in sort of the first few pages of the story.

Unidentified Analyst

All right. I think we are sort of out of time but would you guys please join me in thanking Mary for sitting up on stage and answering all these questions. We really appreciate it.

Mary Erdoes

Thank you.

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Source: JPMorgan Chase's (JPM) Management Presents at UBS Global Financial Services Conference (Transcript)
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