Wealth management: The richest go for JPMorgan

"Clients can tolerate you getting it wrong, but they will not tolerate you hiding things from them. It is their money after all" Doug Wurth, JPMorgan

Unlike many of its peers, JPMorgan has not suffered from management turmoil and its future was never in doubt, even at the height of the financial crisis. The mantra "we therefore could focus on clients" is now being repeated by all those private banks that avoided near-death experiences but Doug Wurth, chief executive of JPMorgan’s international private bank, insists there is a great deal of truth in it. "It really has been difficult for clients to trust advice from a bank that cannot manage its own investments," he says.

Wurth adds that advisers have benefited from being part of a bank that is not dealing with changes in management or constant questioning of its economic viability, as valuable time has not been taken up fielding client concerns about anything other than investments. "The last 18 months have been one of the hardest investment periods that clients and private bankers have known," he says. "It has been essential to stay on top of the game." Wurth discusses how JPMorgan Private Bank has tackled the demanding investment period, and where the next opportunities lie for the bank and its clients.

It was a year that started off looking like Armageddon but ended on a reasonably positive note. What kind of challenges did that bring?

We were always on the edge of our seat. Liquidity was key for clients, and while they were very cautious at the beginning of 2009, they wanted the ability to move assets quickly – be that moving into cash immediately or moving aggressively out of cash into new opportunities. Investments with more than a one-year lock-up period were unpopular most of the year. That is a very difficult mindset to deal with, given that portfolios are supposed to be managed on a long-term basis with a long-term view.

Cash was clearly king for the first few months of the year. What were the first investment opportunities you did see for clients?

Equity markets were far too volatile in the first quarter of the year, so credit was the initial move. Leveraged loans, CMBS, convertible bonds, RMBS – markets that had been oversold. Those markets offered equity-like returns. We focused on investing in the top of the capital structure, which means clients were being paid yields while they – and we – waited for greater certainty as to where the markets were heading.

Were clients happy to take this advice?

The fear for most clients was simply the unknown. They wanted to fully understand what they were investing in, and last year – and we suspect this will be the case from now on – they wanted a better sense of what the risks are, a better stress-testing of their portfolios. Essentially, while we give advice to the best of our abilities we still need to be honest about what would happen if we were wrong. No client wants to be surprised. Our chief investment officer sends out an e-newsletter called Eye on the market every week to clients, but during the most difficult market periods last year we were sending out two or three a week. We organized conference calls and brought managers out in front of clients. We also initiated a series of white papers looking at opportunities. Clients can tolerate you getting it wrong, but they will not tolerate you hiding things from them. It is their money after all.

JPMorgan Private Bank has $40 billion in alternative assets under management, and invests in third-party hedge funds and its own hedge fund, Highbridge Capital. Did clients turn away from hedge funds because of concerns about transparency, and how did you manage that?

Wealthy individuals globally were concerned that some managers invested in areas outside their remit or stayed in concentrated positions instead of being diversified. However, managers often have wide discretion in their mandates. That’s why we dedicate so many resources to our hedge fund platform. And we also diversify managers in portfolios in order to mitigate risk. But keeping our clients informed and being honest about things going right and wrong kept us as a trusted partner, and led to over $7 billion of new hedge fund flows in 2009.

Performance was also a problem for hedge funds during the early stages of 2009 when they had promised returns in down markets. Do you feel clients’ appetite for hedge funds has been permanently harmed?

No. To say that hedge funds have lost their touch is incorrect. It is now clear which funds were just levered beta and riding up the market. Yes, there was a performance crisis for hedge funds but the conclusion that hedge funds cannot perform in declining markets as promised is wrong. In the first quarter of 2009, hedge funds were actually up while the S&P and the MSCI World Index were down 11% and 12% respectively. It was frozen markets that crippled hedge funds, not declining markets.

Are there any investments that stand out in 2009 as being particularly suited to high-net-worth clients?