Below, we excerpt from this month's November MFI fund "profile," a piece entitled, "Going Global w/Liquidity: JPMAM's John Donohue." The article says: In the latest Money Fund Intelligence, we speak with John Donohue, J.P. Morgan Asset Management's Head of Global Liquidity and Chief Investment Officer. Donohue shares his thoughts on market trends, portfolio strategies and the pending proposals for new money fund regulation. Our Q&A follows.
MFI: Tell us about JPMAM's history in money funds. Donohue: J.P. Morgan has been a provider of money market funds since 1987, which covers quite a few market cycles. In 2003, we decided to globalize the business and significantly bolster our investment platform, client service and fund management infrastructure. Back then, we had funds in just three currencies (USD, EUR, GBP). Now we have 30 different money market funds in eight currencies (including JPY, AUD, RMB, SGD, CNH) across 28 countries. J.P. Morgan is the leading global liquidity manager, managing more than $450 billion in assets, with a 15% share of the institutional funds market. Just 15 years ago, the business had only $5 billion in assets, less than a 1% market share.
In times of market stress -- including the financial crisis of 2008-09 -- investors in a 'flight to quality' have widely seen our funds as a safe haven. Our U.S. institutional market share saw 5% growth during this time period. In just 2008, our 100% Treasury Securities Money Market Fund and U.S. Treasury Plus Money Market Fund collectively had net inflows of over $25 billion.
MFI: What about your personal history and recent changes? Donohue: I joined J.P. Morgan as a vice president in 1997. I was hired from Goldman Sachs to help build out and expand the short term portfolio management team at J.P. Morgan Asset Management. In early 2013, Bob Deutsch, the former head of Global Liquidity distribution, took on a new role leading the build-out of our ETF strategy and platform. Bob and I had been the two key architects of our global liquidity businesses, so it was only natural that, following Bob's appointment, we decided to bring together both the Global Liquidity investment and client teams. We encourage continued partnership and leverage the best insights and ideas from across the group. I lead this integrated team and oversee all aspects of the business, including product development, portfolio management, sales and marketing.
MFI: How Bob's new role going? Donohue: As you know, ETFs are one of the fastest growing areas of asset management. ETFs present an exciting growth opportunity for us to leverage our strong active investment management platform. J.P. Morgan Asset Management has built a dedicated team of experienced professionals who are working to develop and launch ETFs. We took a big first step in that direction on Oct. 21 when J.P. Morgan filed a registration statement with the SEC to launch a Global Equity ETF.
MFI: What about the recent SEC proposals for new money fund regulation? Donohue: J.P. Morgan Asset Management supports regulatory change that works to achieve the optimal balance of reducing systemic risk and preserving money market funds as an efficient and viable tool for investors. Recent reforms by the SEC, along with voluntary disclosures of certain fund-specific data by J.P. Morgan Asset Management as well as other money market fund sponsors, have worked to reduce risk, improve liquidity and disclosure and ensure the continued stability for short-term fixed income markets.
That being said, more can be done. We believe that the best option for achieving the SEC's objectives is a variation of the fees and gates alternative, "Alternative Two". Under this proposal a board, in its discretion, may impose a gate, and potentially thereafter a liquidity fee, among other options. We believe that a gate is the only way to effectively stop mass redemptions ("runs"). In our judgment a fund's board should determine the appropriate threshold for imposing a gate.
MFI: What about the floating NAV? Donohue: If the SEC pursues "Alternative One," the floating NAV proposal, we believe that the Commission should not distinguish between retail and institutional investors. In addition, we have identified a number of significant operational and transitional challenges that a transition to a floating NAV would pose to investors, the industry and the financial markets.
MFI: Your offshore platform is extensive. What markets do you serve? Donohue: JPMorgan Global Liquidity Funds are sold in 19 countries across Europe, with 11 specialist sales people dedicated to the platform. We also have investors from South America, the Middle East and Asia. As of Oct. 25, the assets in the offshore platform stood at $121 billion. In 2004, we expanded our business into Asia. Since then, we have pioneered the development of a consistent platform of domestic currency money market funds across key markets in the region. Most of these funds were the first or only AAA-rated money market funds in their respective markets (which includes China, Japan, Singapore and Australia). [Look for more excerpts next week, or see the November MFI for the full interview.]
