Disclosure
J.P. Morgan halted allocations to mega-cap buyout funds in 2013
“So we made a decision in 2013 to stop investing in some of the mega cap buyout funds because we felt like returns were coming down.”
Prediction Held up
Direct lending returns will likely fall 200 basis points as banks re-enter
“As that market continues to evolve, and as the banks start to get back into some of these areas, we do think returns are going to come down. Probably by about 200 basis points on average.”
Insight
Wealth clients prefer 8-10% evergreen funds over 11-14% drawdown lockups
“For managers that are in the, what I call, no man's land, And this is what I mean by that. Your returns are somewhere between 11 to 14% net returns is what you've delivered, and you are looking to lock up your capital for 10 to 15 years, and no one ever ends o…”
Assertion Not checkable as stated
Return dilution in evergreen funds ranges from 200 to 500 basis points
“Return dilution is anywhere from two to 500 basis points.”
Insight
The optimal private markets portfolio contains between 22 and 27 funds
“And they've realized that in private markets, for example, the optimal number of funds in a portfolio should actually be between It's like 22 and 27 funds, where as we started shifting there and offering more choice, our clients were like, aren't you diluting …”
Assertion Supported
Multiple expansion drove half of private equity returns over the last decade
“So if you look at the private equity industry, the data tells you that over the last decade, half the returns came from multiple expansion.”
Prediction Not checkable as stated
Multiple expansion will no longer drive half of private equity returns
“That's not good or bad necessarily, but that's not going to persist.”
Opinion
Allocators are overweight direct lending and underweight opportunistic credit
“The market and most allocations are overweight direct lending and don't have enough of the opportunistic credit.”
Insight
Funding source for hedge funds completely shifted from equities to fixed income
“If you asked us 10 years ago, the funding source for most hedge funds was equity, and that's completely shifted. Even in our portfolios, the funding source is fixed income.”
Assertion Supported
Most private market evergreen managers hold 15% to 25% in liquid securities
“Most of these fund managers in the private market evergreen space, there's still less than 500 of them that exist today. Hold anywhere between 15 to 25% in liquid securities, and they do charge higher fees.”
Assertion Not checkable as stated
Private credit management fees fell roughly 25 basis points over three years
“Credit side, we definitely have. Even over the last three years, we've probably seen about 25 basis points lower on the management fee side, and on the carry, maybe down two and a half to five percent.”
Insight
Portfolios targeting 9% to 10% long-term returns do not need venture capital
“If you told me that your target return over the long haul was nine or 10%, which is going to be U.S. Large cap equities in long-term capital market assumptions, you don't need to venture in your portfolio to achieve that.”
Insight
Institutions fill asset buckets while individuals focus purely on absolute returns
“Most institutions fill a bucket. They say, I want to invest X amount in private equity or private credit. Individuals don't. They just want to know, What are the absolute returns?”
Insight
Mid-market PE uses two turns less leverage with more exit paths
“They use a little bit less leverage, maybe two turns less on average. They have more exit opportunities. They can potentially buy cheaper depending on what their skill set is.”
Disclosure
J.P. Morgan maintained 20% to 25% in growth and venture post-2021
“Same thing in growth and venture over the last two to three years. We were still making sure it was 20 to 25% of the portfolio, even though a lot of folks were digesting what they'd done in 2020 and 20 21.”
Disclosure
J.P. Morgan vets private equity managers by asking credit lenders for feedback
“If we invest with a private equity manager, we typically go to all the private credit managers and ask how they treat them.”
Assertion Not checkable as stated
J.P. Morgan's largest wealth clients hold less than 5% in venture capital
“If you look at our client portfolios, even for the largest families, venture allocations was still less than five percent. It was 4.85%.”
Insight
Fund rejections at J.P. Morgan's investment committee are intentionally rare
“The actual investment decisions, it's rare that you get to investment committee and something's a no because you've already worked on all these processes before then.”
Disclosure
J.P. Morgan rarely takes GP economics, prioritizing fee discounts via MFNs
“We rarely take GP economics. We do from time to time. But we're mostly focused on how do you generate the best net returns? If we're going to bring in institutional size capital, we want to make sure that we get most favored nations and that discount.”
Disclosure
J.P. Morgan favors tender offer funds over interval structures in private credit
“As the industry evolved in private credit, which is the main source of the interval funds, we preferred tender offer funds versus interval. We preferred the concept that in some of the worst market drawdowns that a fund manager could or a board could say it's …”
Assertion Supported
Private equity distributions to investors hit lowest level since 2008
“Especially at a time where distributions paid in from existing funds are at the lowest level they've been at since the great financial crisis.”
Disclosure
J.P. Morgan prefers evergreen funds for credit but drawdowns for venture
“So in places like direct lending, core plus real estate, and even value-add a little bit, and in infrastructure investment, the core core plus space, we prefer a lot of the evergreen strategies. And then in the more directional private equity, definitely growt…”
Assertion Not checkable as stated
Direct investing constitutes less than 5% of large family portfolios
“So direct investing, even of our largest families, is less than five percent of their portfolios, which surprises me because it takes up a lot of conversation because you get excited about those things.”
Assertion Supported
J.P. Morgan manages $178 billion in alternative investments
“It's not as significant as the portfolios that we manage on behalf of clients, which is almost a half a trillion dollars, but a lot of what we do in alternatives, which is about a hundred and seventy eight billion dollars, where we allocate to a lot of non JP …”
