In a 2019 interview with Patrick Thomson, the CEO for Europe, Middle East & Africa at JPMorgan Asset Management, he highlighted company culture, liquidity and technology as some key areas that selectors and institutional investors should be focusing on when evaluating asset managers. In a recent interview at the company’s London headquarters, he was asked whether these are still the most important areas that differentiate one asset manager from another.
“The main thing is obviously performance,” he responds. “That goes without saying because we’re an active manager, but I think when trying to explain what distinguishes us, the culture really is at the heart of it.” He adds that technology is becoming even more important. “We will spend some USD 600 million on technology this year and I think that’s another key differentiator for us. It’s one of the great things about being part of the JP Morgan group. We can leverage their technology and cyber security,” he says.
On the theme of company culture, Patrick Thomson argues that the reason he is still with the company after joining in 1995 is because of the people he works with. “We have a fantastic leader in Jamie Dimon, who has run the company since 2004, and my boss George Gatch has been here some 37 years. Many of the leaders across the asset management business have been with the firm for more than 20 years or 30 years. This is a business that rewards consistency and continuity and I think that is particularly true when it comes to active asset management. You build your expertise and knowledge over decades and I think we’re well served by that,” he says.
When talking about the current state of the asset management industry, Patrick Thomson highlights the fact that there have been some 40 CEO changes at UK asset managers over the last two years and says that some of the reasons are the rise of passive, compression of fees, rising costs and regulation. “It’s an increasingly competitive business and if you can’t invest USD 600 million in technology, it’s going to become very hard to compete,” he says. He adds that scale is a really important differentiator. “It’s not scale for the sake of it, but because it allows us to continue to invest through the cycle. We continued to invest through the Covid years, and we could do that thanks to scale and because we’ve got a very diversified set of businesses,” he says.
Asked about active versus passive management, Patrick Thomson says that it is not as black and white today and rather more of a continuous spectrum “The way that we’re responding to passive is active ETF’s and that’s growing very fast,” he says. “We currently have some USD 40 billion in ETF assets in Europe and almost a 40 per cent market share. If you look at the US, we’re seeing a real transformation with significant outflows from mutual funds into ETFs. We’re not there yet in Europe for a bunch of reasons, but I would say that there are certain features to active ETF’s that for certain clients are very attractive.”
Turning the discussion to the regulatory framework for the industry, Patrick Thomson says that one should be very aware of potential unintended consequences of changing regulation, such as the upcoming retail investment strategy review in Europe that among other things look at retrocessions.
“I think the basic premise is that if you’re delivering a good service, you should get paid for it. In the UK, I think we made a mistake in 2012 when we introduced RDR, the Retail Distribution Review, which banned commissions. The result was that all banks stepped away from providing advice, so today 80 per cent of UK citizens get no financial advice. The result is that a lot of people have been sitting on cash since 2012, which is terrible compared to having the money invested in a balanced 60/40 portfolio over that same period,” he says.
He says that regulators should really be focusing on the fact that there is currently some EUR 2 trillion sitting in cash in banks that are really long-term savings. “The challenge for regulators and policy makers in Europe is to mobilise these savings into investments and I think they are taking steps in the right direction,” he says. Coming back to the discussion of active versus passive, Patrick Thomson says that one of the key arguments for active management is the fact that the world changes and that investors need to be aware of the consequences. “If you invested in a passive 60/40 portfolio 10 years ago and you didn’t make any changes you would be very overweight equities, very overweight the US and very overweight US tech. Now, maybe you want that or maybe you don’t, but I think you need to be engaged enough and active enough to understand the risks. Just because a company is successful and suddenly becomes very large in the index isn’t necessarily a predictor of future returns,” he says.
In a 2019 interview with Patrick Thomson, the CEO for Europe, Middle East & Africa at JPMorgan Asset Management, he highlighted company culture, liquidity and technology as some key areas that selectors and institutional investors should be focusing on when evaluating asset managers. In a recent interview at the company’s London headquarters, he was asked whether these are still the most important areas that differentiate one asset manager from another. “The main thing is obviously performance,” he responds. “That goes without saying because we’re an active manager, but I think when trying to explain what distinguishes us, the culture reallyIf you’re new to Tell Media Group, create an account.
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