The short-term investment market is in a state of flux as central banks and other national and international bodies seek to influence its direction. With cash-rich corporate investors looking for risk-appropriate opportunities to add yield, a bank needs scale, imagination and investment expertise in equal measures if it is to differentiate itself from the pack. Treasury Today talks to Jim Fuell, Head of Global Liquidity for EMEA, J.P. Morgan Asset Management, about what it takes to be a leader in this dynamic space.

What influences are having the greatest impact on the short-term investment market?

Actions by central banks have had a substantial impact on short-term investors. For corporate investors, the challenge increasingly relates to the management of the high levels of cash that many continue to carry, in an environment where returns on that cash continue to be relatively low. This increases their overall cost of carry.

These factors are driving the need for a manager who is prudent and looks for appropriate opportunities to add yield, while continuing to focus on the elements that remain critical to them – capital preservation, risk diversification and the availability of liquidity. The implications of aiming for additional investment income need to be extensively assessed, and we feel well positioned to work with investors in this regard.

So in meeting the needs of the short-term market, what do you feel are the key differentiators of a global leader?

A manager in a leadership position has to have true commitment to this business combined with the ability to take a long-term view. J.P. Morgan Asset Management (JPMAM) fits this profile. A number of the issues being faced right now by clients have been seen before, and our long history in this space gives us a perspective not held by many of our peers. Providing liquidity solutions are also a core business and primary focus for us — it is not simply a conduit for other parts of our asset management business.

Beyond this and underpinning everything that we do is our credit, risk management and investment expertise. We have a highly-resourced group of experienced credit analysts and portfolio managers spanning the world, and a global team of client advisors, which fully engage with our clients to ensure we are providing best-in-class solutions. Working together, the teams can deliver investment alternatives across a diverse array of currencies, strategies and jurisdictions, with the flexibility to also manage bespoke portfolios to suit a client’s risk and return preferences.

How does the make-up of your team of credit analysts reflect these differentiators?

We have a total of 30 people driving our credit process, with an average of 12 years’ experience with us and 16 years of industry experience. We have an extremely low turnover and there is a good reason for this: in a research-oriented organisation such as JPMAM, credit analysts have a highly valued role. They are career analysts specialising in short-term markets and that commitment is clearly exemplified by the experience they have within JPMAM and across this industry.

Is specialisation an important part of portfolio management and client servicing?

Very much so! We have portfolio management teams based in London, New York, São Paulo, Shanghai and Hong Kong, each with a level of specialisation helping them to understand the markets in which we are invested, and to offer clients the attention and advice they need. We also provide an integrated approach to client servicing, which is seen most clearly in the way we support our bespoke investment or separately managed account (SMA) relationships, with each new client assigned a client service team consisting of a client advisor, a client portfolio manager and a client service manager. I believe we offer an unrivalled level of expertise, which ultimately serves to underscore our focus and commitment to truly delivering liquidity solutions.

What about the client experience?

As a true global leader, we listen to clients and work with them to understand the specific challenges they face locally, and then work to develop solutions to mitigate these same challenges. In addition to specific client engagement plans, we hold annual client investment forums around the world. Events like these provide our investors with regular direct exposure to our portfolio management and credit and risk management teams. As a leader in this market, people also expect thought-leadership from us and to this end we have developed our Liquidity Insights series. As well as the global investment forums I just mentioned, the Liquidity Insights series also encompasses ad-hoc investor roundtables, focused client web-conferences and numerous topical white papers.

Why do your managers do the trading as well?

Our experienced managers are part of an investment desk strategy that sees the managers act as both portfolio managers and traders on our funds. This enables the managers to be fully apprised of all market developments as they happen, and at the same time be able to follow a streamlined decision making process with rapid execution in the market when opportunities arise. We see this alignment of the portfolio manager and trading roles as an important strength in the way we manage portfolios at J.P. Morgan. The systems used by the team are also specifically designed for money market portfolio management, decision making and trading. Our IT applications allow the portfolio managers to model quickly a trade in terms of tenor, dollar limits, percentage exposure and duration, and in turn make timely investment decisions within the fund.

How does your product portfolio meet the needs of investors?

The evolution of our product palette is aligned to the needs of our clients and is aimed at meeting and solving the challenges they face. On the short term side, we’ve grown from a core money market fund provider to a manager of a comprehensive series of short-term pooled investment fund solutions. Our product range includes both government and traditional credit-style money market funds alongside a product like our Managed Reserves Fund, which targets a level of return above that typically achieved by money market fund investors. Where some clients may wish to operate a customised portfolio, we have also continued to build out our ability to offer and support bespoke investment accounts. These enable a client to define specific parameters for security, returns and liquidity according to their own risk tolerance and cash flow needs.

Recently, the money fund industry has encountered some difficult markets and challenges never seen before – recent events in the Eurozone are a prime example of this, where actions by the central bank present a challenge for short-term managers and potentially for our underlying clients. For us, the key focus has been to create optionality for our clients, so that they have a range of solutions for the challenges they face. As an example, we were the first manager in Europe to launch a new type of share class – the Flex Dist. share class – in response to potential negative yields. In a positive environment it has similar characteristics to traditional distributing classes. If a negative yield environment prevails a mechanism can be applied to stabilise and maintain the Net Asset Value (NAV) per share at €1/$1/£1.

Alongside the product portfolio itself we have also maintained a focus on providing our investors with the tools and transparency to understand their investments. In this regard, we were the first manager in Europe to disclose daily market-based NAVs per share for our core liquidity funds, giving investors further valuable insight into the funds in which they are invested. We also recently introduced a new enhancement to our online client trading platform, the Global Cash Portal (GCP). In addition to the GCP’s existing features, which allow our clients to execute trades online and receive intraday trade notifications via email, we’ve also introduced a new portfolio analytics tool that allows investors to review the underlying investments within each of our funds in a more robust, dynamic way.

How do you approach credit and risk management? How can you be different?

In an environment where central bank rates are low across multiple currencies, it is arguably easier to see the distinction between ourselves and our peers. Sometimes there’s an inference that all AAA rated funds are created equal, but they are not. Some of the differences reside in the manager’s approach to credit risk management and appetite for risk.

Our Global Liquidity investment process is built on the following three core objectives:

• Preservation of principal.
• Maintaining adequate liquidity.
• Offering a competitive yield.

These are achieved through the combination of our dedicated portfolio implementation, world-class credit research and exceptional liquidity and risk management. Our credit research team evaluates credits within their particular sector and identifies investment opportunities by utilising a variety of information sources, including reports by the major rating agencies, fundamental data (including company financial statements) and external fixed income analysis reports. The team also extensively uses Bloomberg and the Citigroup Yield Book Analytics Programme, as well as several other specialised systems, to analyse securities. Analysts independently assess issuers, using both qualitative and quantitative inputs. Qualitative research involves evaluating each issuer’s ability to avoid credit problems and event risks; assessing operating trends, cash flows, industry or product dominance and relative performance, compared with a peer group. For corporate credit, the key fundamental factors considered by the team include capital, asset quality, management, earnings, liquidity, industry and operating trends and alternative repayment options.

Client reporting is a key service requirement; what are you doing to meet client needs?

At a high level, we appreciate our clients’ desire for greater transparency, and have evolved our business to meet that need. In addition to the disclosure of daily market-based NAVs, we also make our pooled-investment vehicle factsheets available more frequently and readily available via our dedicated global liquidity website, and our monthly client portfolio holding reports can now be received daily if required. Clients can also use the analytical tool within the GCP to analyse and dissect their data. All of this is aimed at giving clients an increased level of transparency around the investments that we are managing for them.

As a further measure, we have partnered with Clearwater Analytics to develop a web-based platform for reporting on the bespoke investment vehicles within SMAs. It’s a user-friendly but comprehensive reporting tool that’s ready for all constituencies including treasury, senior management, tax, audit, accounting and financial reporting to clients.

I believe these are all revolutionary steps in providing greater transparency to help investors make more informed decisions.

What should a client expect when establishing a bespoke investment account with JPMAM?

When establishing a bespoke investment account, our teams work closely with the client to set a clear mandate. The client service manager, working with our legal staff, will review and prepare an Investment Management Agreement, which outlines the responsibilities of JPMAM as a discretionary manager of the portfolio. The portfolio management team will hold detailed discussions with the client to establish the desired investment objective, benchmark, expected risk/return characteristics and other requirements of the new account. Based on these conversations, an investment strategy is developed, as well as a set of investment guidelines. These guidelines will be closely followed at all times so that the team can successfully execute the investment strategy on the client’s behalf.

Are you really so different?

One of the things that clients really must consider when choosing an investment manager is the level of support and ongoing relationship management and client servicing each firm has the capacity to deliver. As a leading manager, we are constantly evolving. This is why we have the capabilities and product line-up to support client needs in a market that continues to present an increasing level of challenge. It’s a commitment to the business which includes a level of resources that we don’t see replicated by most of our peers.

We also lead from the front. Sometimes being a leader is not easy. Being first can present more challenges. But, we choose to set ourselves apart and responsibly anticipate the needs of the market place and regulators. For the client, this means we can continue to present them with the best options in the market.