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JPMorgan Eyes Top-Five Status for Fund Unit

Being owned by a bank has handcuffed many mutual fund units. Just don't tell that to JPMorgan Chase & Co.'s J.P. Morgan Funds.

The unit increased its assets under management 6.97% last year to $445 billion and now has its sights set on developing more assets through banks to move up the rankings from the 10th-largest fund company to become one of the top five.

The company has just hired John Holcombe Boyd, the director of wealth management services for T. Rowe Price's third-party distribution division, as a senior relationship manager who will focus on increasing distribution through banks and trust departments.

Boyd will report to Jed Laskowitz, the managing director of J.P. Morgan Funds in charge of sales through broker/dealers, insurance companies, banks and registered investment advisors. The unit increased its long-term assets under management, which includes equity and fixed income products, 71.5% to $92.6 billion last year.

"We had a strong 2009, and we have a lot of momentum for 2010," Laskowitz said. "In the fund business, we were third in net flows behind PIMCO and Vanguard last year. We want to be able to sustain that position."

J.P. Morgan Funds had $26 billion of inflows into long-term funds last year, according to Strategic Insight, and it had $2 billion in inflows in January, again trailing both PIMCO and Vanguard. J.P. Morgan Funds closed January as the 10th largest long-term mutual fund provider, according to Morningstar, with $95 billion in fund assets under management.

Laskowitz said the goal is to reach the top five and increasing sales through banks is a big part of that initiative.

"We work with the bank market today, but most of our assets are housed in a lot of different channels," he said. "As the bank market grows and our share grows, we want to put a lot of focus on developing sales through banks and expanding in that space."

Laskowitz said it is hard to pinpoint how much of J.P. Morgan Funds' assets are in the bank channel because "a lot of firms that are banks now, weren't banks two years ago," but 29% of JPMorgan Chase's total net inflows last year came from third-party channels, including banks-up from 23% in 2001, according to Cerulli & Associates. "That is a trend that we expect will continue," Laskowitz said.

Analysts said it remains difficult for most banks to sell proprietary investment products through their own bank-much less competitors.

"Things haven't changed," said Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I. "JPMorgan is a retail bank, and it is very hard for banks to sell proprietary investment products through their own retail bank. All of JPMorgan's funds are branded as J.P. Morgan Funds, and that makes it even more difficult to sell them through other banks. In the end, performance is ultimately the decider. If they can deliver strong long-term performance they will get the sales or at least some visibility."

Laskowitz disagreed. "I think that that attitude has changed. As a lot of large banks get out of the asset management business, they still need to find quality third-party asset mangers whether those are affiliated with a competing bank or not," he said. "We just haven't had any challenges partnering with other banks."

JPMorgan Chase's fund unit was able to withstand the difficult market environment of the past two years thanks to its lined up of fixed income funds, Laskowitz said. "Those products helped us compete well at a time when the industry had significant challenges," he aid. "We took the momentum of that product line and navigated through the crisis well."

Over the pat two years, Laskowitz said J.P. Morgan Funds built out its sales force and plans to add more people this year. He said that he wants to use a similar approach in the bank channel that has helped it gain sales through registered investment advisors.

"We have developed a good reputation in the RIA market because we have been able to focus on that market since the mid-90's," he said. "We put a lot of effort in that space beyond just products, in terms of research and building capabilities. We want to take that same time and focus to the banks."

For RIAs, J.P. Morgan Funds launched an inflation-protected municipal bond strategy in 2005 that has already accumulated $3 billion to $4 billion in assets. Laskowitz said he thinks that that product can also be sold to banks. The fund unit has also been successful with alternative products. It has two of the 10 largest market-neutral funds in the industry, according to Morningstar.