For professional investors only
Liability–Driven Investment solutions
Strategies to stabilise and improve your pension scheme’s funding position
Better insight + Better process = Better results
JPMorgan Asset Management is one of the world’s six largest investment
managers with over £515 billion under management.
Employing over 670 investment professionals across 20 investment centres
worldwide, JPMorgan Asset Management is known for its breadth and depth
of expertise across equities, ﬁxed income and alternative asset classes such as
managed currency, real estate, hedge funds and private equity.
In recent years, the ﬁrm has become particularly well known for its innovation
in multi-asset products, offering pioneering concepts in portable alpha, tactical
asset allocation, total return and absolute return solutions. Today, 10% of assets
under management are in the balanced/multi-asset sphere.
JPMorgan Asset Management is part of JPMorgan Chase, the global ﬁnancial
Source: JPMAM as at 31 December 2006.
Simple, effective answers
to the funding challenge
Using JPMorgan Asset Management’s skills across multiple asset
classes, defined benefit pension schemes of any size can now create
transparent liability-driven investment strategies
The new pension challenge Achieving the balancing act Selected pooled solutions
Deﬁned beneﬁt pension schemes are At JPMorgan Asset Management Through a select range of pooled
coming under unprecedented pressure we recognise that addressing these strategies, we can help your pension
to make the right investment choices pressures is a difﬁcult balancing act. scheme achieve two key aims:
and manage their risks more effectively.
On the one hand, pension schemes 1. STABILISE your funding position
The move to International Financial need to align the nature of their assets by giving your scheme’s assets a
Reporting Standards (IFRS) means that more closely to their liabilities to similar duration and inﬂation proﬁle
any volatility in a scheme’s funding reduce funding volatility. But they also to its liabilities.
position now directly impacts its need to retain the potential to generate
sponsor’s balance sheet. additional investment returns to guard 2. IMPROVE your funding position
against deﬁcits. and reduce asset volatility through
At the same time, increased life diversiﬁed return-generating strategies.
expectancy, falling bond yields and Whilst many complex liability-driven
lower real returns from stock markets investment (LDI) strategies have Using the strategies we’ve highlighted
have made it harder for pension been devised to achieve these aims, here, we believe a wide range of
schemes to ensure that their assets we’ve looked to offer a simpler pension schemes can manage their
keep pace with their liabilities. approach that any scheme and its biggest risks – and target the
advisers can implement. investment returns they need to meet
their pension promises.
The JPMorgan range of LDI solutions We believe that equities and
We offer a broad range of pooled strategies that can help reduce funding risk alternative asset classes will
and/or increase your investment returns relative to your liabilities. On the provide the best long-term returns.
following pages, we have proﬁled three of these offerings in depth. However, we also recognise that
Return vs many schemes are under
increasing pressure to manage
Reduce Funding Risk Diversify Equity Risk
their duration risk and hence have
developed a range of strategies
which can help pension schemes
achieve both of these aims.
JPM High alpha strategies
JPM Diversified growth fund
JPM Duration & Alpha funds JPM Hedge funds
*Value at risk of the asset class vs typical liability. **The value of assets at risk assuming a 99% confidence level.
Trust JPMorgan’s experience
When it comes to delivering an appropriate LDI solution, proven expertise is essential
The expertise to keep it simple Trusted in derivatives Respected in asset management
Putting together the right liability- We have deep understanding of the best Meanwhile, as one of the world’s top
driven strategy can be daunting for any way to integrate derivatives into an LDI ﬁve asset managers, we generate sources
pension scheme. Which is why at strategy, such as using swaps to mitigate of investment return across the risk
JPMorgan Asset Management, we’ve interest rate risk. spectrum, using the skills of more than
looked to keep our LDI offering simple. 670 investment professionals.
Within our investment management
We’ve pared it down to the key essentials business alone, we are responsible for Of course, any of our investment
that we believe the majority of pension around 200 interest-rate positions strategies can be used to help pension
schemes require to put their funding across four major currencies, and at scheme assets work harder. However
strategy on the right track. any one time we have around 800 credit for LDI we have focused on a small
derivatives outstanding. number of return-generating ideas that
This simpliﬁed approach is only possible between them can allow a pension
because of our longstanding expertise We assess the whole market for the best scheme to target its speciﬁc risk tolerance
in this market. Globally, JPMorgan terms – whilst restricting our very precisely.
Asset Management has more than transactions only to the most highly-
25 years’ experience in helping pension rated counterparties. In short, by taking some of the complexity
funds manage their assets against out of liability-driven investing, we
their liabilities. hope we can offer your scheme a more
attractive and effective LDI solution.
What JPMorgan offers as your LDI provider
• Over 25 years’ experience in asset-liability modelling.
• Leading expertise in swaps and derivatives structuring.
• Pooled life funds to minimise complexity and administration.
• A simple ﬂexible choice of LDI solutions that can effectively address most
pension schemes’ key risks.
JPM Life Duration & Alpha Funds
An innovative range of pooled funds to manage interest-rate and inflation risks –
and generate additional investment return in a risk-controlled way
A transparent, familiar approach Achieve two aims with one fund Four ways to match duration
JPM Life Duration & Alpha (D&A) Funds JPM Life D&A Funds are only possible There will be four JPM Life D&A Funds
have been created as a straightforward because of JPMorgan Asset to choose from, offering 15-year or
way for pension schemes of any size to Management’s extensive experience 30-year duration exposure, either on
match their liabilities and generate both in derivatives management and a nominal basis or linked to the Retail
potential excess return. alpha generation. Price Index (RPI).
As pooled life funds, JPM Life D&A By buying units in a JPM Life D&A Rather than using traditional ﬁxed
Funds offer the reassurance of a familiar Fund, a pension scheme gets access to: income instruments, we achieve the
and tax-efﬁcient vehicle. In addition, 1. Long duration or inﬂation exposure targeted duration and inﬂation exposure
by taking a pooled approach, pension to match liabilities. using swaps arranged with leading
schemes can avoid many of the 2. Potential excess return to help reduce investment banks. Swaps are arranged
complexities of a segregated liability- funding deﬁcits. with a number of banks to reduce
driven investment strategy – such as counterparty risk, and each counterparty
dealing with derivative counterparties. The funds are innovatively structured is carefully assessed for its credit quality.
using swaps so that both these aims
However, the ﬂexibility of JPM Life can be met using the same ‘cash pool’. The innovative structure of JPM Life
D&A Funds still allows them to This can make JPM Life D&A Funds D&A Funds means that the end-
accommodate each scheme’s proﬁle ideal for pension schemes with limited investor is never called upon to meet
and adapt whenever a scheme’s funds at their disposal, including collateral calls for the swaps. Instead,
liabilities or risk tolerance change. schemes with signiﬁcant funding these are met by using cash and
deﬁcits. Government bonds integrated into
each D&A strategy.
JPM Life D&A Funds
• Designed both to stabilise and improve funding levels;
• Flexible enough to match most pension schemes’ duration;
• Leveraged structure ideal for cash-strapped pension funds;
• Innovative total return feature to generate return over liabilities.
Tailor to your risks Addressing the funding gap Aim for steady growth potential
By blending the four JPM Life D&A Funding deﬁcits mean that few pension By using LIBOR as its benchmark, the
Funds in appropriate proportions, schemes can afford only to perform total return strategy is designed to
pension schemes can match the in line with their liabilities. Instead, experience far less volatility than
duration of their liabilities. This can most need to generate additional traditional equity strategies – with the
help to ensure that assets and liabilities investment return. potential to deliver steady performance
have approximately the same sensitivity throughout the market cycle.
to changes in real interest rates. This in Potential for generating additional
turn can reduce funding volatility and return within JPM Life D&A Funds is It may therefore be effective in helping
help limit the risk of a widening deﬁcit. provided via exposure to a ‘total return’ to reduce funding volatility – particularly
strategy managed by JPMorgan Asset the risk that deﬁcits will widen during
JPM Life D&A Funds are designed to Management’s highly-regarded Global market downturns.
keep pace with a pension funds’ changing Multi-Asset Group.
risk proﬁle. Please note, the total return strategy
Using ﬂexible asset allocation across is allowed a maximum equity exposure
Working with their advisers, a pension cash, bonds, convertibles and equities, of 40%. This can help to protect against
scheme can agree targets for movement this total return strategy is designed losses in a falling market. However,
around the maturity of liabilities. with the aim to deliver consistently in a rising equity market, it means the
Allocation between the four JPM Life positive returns. The target return is fund will have lower growth potential
D&A Funds can then easily be 2% p.a. above one-month London than one that is allowed higher levels
rebalanced as and when required. Interbank Offer Rate (LIBOR) over of equity exposure.
three years – net of fees.
D&A: duration and alpha
Long duration Replicates the liabilities.
fixed income Stabilises funding status.
potential using Offers potential for out-
performing the liabilities.
Improves funding status.
JPM Life Diversiﬁed Growth Fund
A uniquely diversified strategy to help to address significant funding deficits
by aiming for 8-10% p.a. returns, net of fees
Access to six asset classes Three kinds of diversification A solution to industry demand
JPM Life Diversiﬁed Growth Fund offers JPM Life Diversiﬁed Growth Fund is We launched the JPM Life Diversiﬁed
a pioneering pooled solution for pension designed to offer exceptional risk Growth Fund speciﬁcally in response
schemes looking for high levels of long- diversiﬁcation. At any one time it may to schemes and their consultants asking
term growth to address funding shortfalls. include 30 or more different funds and us to develop a pooled global strategy
strategies. It therefore not only offers that could help reduce portfolio
Using a fund-of-funds structure, it diversiﬁcation by asset class and market, volatility through long-term exposure
provides exposure to six asset classes but also by investment methodology. to multiple asset classes.
chosen speciﬁcally for their high-return
potential and low correlation: Active risk/reward management We believe the fund offers one of the
Allocation across the different asset easiest means to gain exposure to
classes and strategies is actively managed alternative asset classes that may be
by the investment team. By increasing and too complex or too resource-intensive
high-yield bonds decreasing exposure to each asset class for many pension schemes to access
private equity in line with predicted risk/return levels, directly – including absolute return
commodities the portfolio managers are able to funds and private equity.
optimise the fund’s aggregate efﬁciency.
By including these assets, many pension
absolute return strategies The result is a fund that aims for a schemes can open up their portfolio to
return of 8-10% p.a. net of fees, while new sources of return. And by targeting
Exposure to these asset classes is predicted volatility is also around 8- higher returns than traditional
achieved primarily using JPMorgan 10% – a compelling risk-reward balanced funds, JPM Life Diversiﬁed
Asset Management’s proven expertise proposition in pooled investment. Growth Fund offers an ideal means to
in these areas. However external funds tackle funding concerns.
may be included if more appropriate.
JPM Life Diversified Growth Fund Six asset classes – low correlation
• Exceptional diversiﬁcation by The asset classes in JPM Life Diversified Growth have been specifically
asset, market and methodology; selected for their low correlation with one another
• Exposure to asset classes less
available to pooled investors; Global Absolute High Property Commodities Private
Equities Returns Yield Equity
• Targets higher returns than
traditional balanced funds; Global Equities 1.00
• Very attractive risk/return proﬁle, Absolute Returns 0.40 1.00
targeting 8-10% p.a. after fees.
High Yield 0.75 0.31 1.00
Property 0.57 0.41 0.40 1.00
Commodities 0.04 -0.11 0.06 0.10 1.00
Private Equity 0.82 0.31 0.57 0.50 0.06 1.00
JPM High Alpha strategies
For pension schemes that need to target very high potential levels of investment return,
we offer the JPMorgan Asset Management range of high alpha strategies
High conviction investing JPM Life Global Dynamic Fund Combined for outperformance
Pension schemes requiring high growth One of our key high alpha products is Our research has shown that growth
potential to address their funding levels the JPM Life Global Dynamic Fund. and value stocks each tend to
may need to consider aggressive outperform in 60% of time periods.
investment strategies as part of their This strategy brings together the most
return-seeking portfolio. attractive growth and value stocks we By combining the most compelling
have identiﬁed across world markets. growth and value stocks in one portfolio,
Typically aiming for an excess return we are able to deliver a strategy with
of 4%+ p.a. all these strategies are Growth stocks are companies that are the potential to outperform the market
aggressively managed. experiencing above-average share price 70-90% of the time.
and earnings growth, supported by
They use the same proven processes we strong newsﬂow. This approach has been validated by the
apply to our core products. However, fund’s performance. From launch, the
they have the freedom to deviate Conversely, value stocks are companies strategy* has outperformed in 78% of
signiﬁcantly from their benchmark index. that are fundamentally sound but quarters, leading to outperformance of
have fallen out of favour with the 5.7% p.a. over the last ﬁve years. Please
This allows each strategy to focus on market and are therefore trading remember that past performance is not
our best ideas and minimise exposure at cheap valuations. a guide to the future.
to less compelling stocks.
*Strategy launched December 2000,
launched as a life fund January 2006.
JPM High Alpha strategies High alpha performance from the JPM Life Global Dynamic Fund
• Bring together our very best
investment ideas across world 15.3 JPM Life Global Dynamic Fund**
markets; MSCI World (Net)
• Potential for high aggressive 8.8 9.2
returns without index constraints;
• Can be used as part of 5.3
a diversiﬁed LDI portfolio
to address funding deﬁcits.
1 Year 3 Year* 5 Year*
1 yr % 3 yrs % 5 yrs %
Geometric excess return 3.3 3.5 5.4
Source: Global Dynamic Composite JPMorgan, 31 December 2006. Gross of fees, £. Inception date is 1 January 2001. *Annualised.
**Composite performance prior to January 2006.
Glossary of terms The JPMorgan Life Fund Range
Absolute return investing – Investment
approaches that measure their success Cash funds Europe (ex-UK) equity funds
by their absolute performance rather • JPM Life UK Liquidity Fund • JPM Life Continental Europe
than their performance relative Equity Fund
to an index. Aims to deliver consistently Bond funds • JPM Life Continental Europe
positive returns by using tactics such
• JPM Life UK Bond Fund Select Equity Fund
as short selling, leverage and market-
neutral investing. • JPM Life UK Index-Linked
Long-Dated Bond Fund US equity
Alpha – Outperformance of a stock • JPM Life UK Long-Dated Bond Fund • JPM Life US Researched Enhanced
market or sector, generated by • JPM Life Global ex-UK Bond Fund Index 250 Fund
investor skill. • JPM US Equity
Dynamic investing – Investment that • JPM Life Cautious Fund Asia & emerging markets
is unconstrained by benchmark
• JPM Life Moderate Fund • JPM Life Asia Equity Fund
• JPM Life Balanced Fund • JPM Life Japan Equity Fund
Duration – The average life of a bond • JPM Life Japan Select Equity Fund
or bond-like investment – and Corporate bond funds
• JPM Life All-Emerging Markets
a measure of its sensitivity to changes • JPM Life UK Corporate Bond Fund Equity Fund
in interest rates.
UK equity funds
Duration matching – Giving assets the • JPM Life UK Equity Fund
same duration as liabilities so they will • JPM Life Diversified Growth Fund
• JPM Life UK Disciplined
experience similar changes in value if Equity Fund • JPM Life UK Property Fund
real interest rates rise or fall. • JPM Life UK Specialist Equity Fund
Duration & Alpha
Fund volatility – The tendency for the • JPM Life UK Dynamic Fund
• JPM Life D&A 15 yr/2%
difference between a pension scheme’s • JPM Life UK Small Cap Equity Fund
• JPM Life D&A 15 yr RPI/2%
assets and liabilities to ﬂuctuate.
Global equity funds • JPM Life D&A 30 yr/2%
Swap – A derivative contract that allows • JPM Life Global Equity Fund • JPM Life D&A 30 yr RPI/2%
a variable stream of payments to be • JPM Life Global ex-UK
swapped for a ﬁxed stream of payments Opportunities Fund
in order to create more payment certainty. • JPM Life Growth Fund
Total return investing – An investment • JPM Life Global Dynamic Fund
approach that aims to deliver consistently
positive returns by having the ﬂexibility
to invest across multiple asset classes. For more information on pooled LDI solutions from JPMorgan Asset
Uses a cash return (e.g. LIBOR) Management, call Simon Chinnery on 0207 742 5657.
as a benchmark.
JPMorgan Asset Management
20 Finsbury Street
London EC2Y 9AQ
Telephone calls are recorded for your security and you may receive a follow up call.
Past performance is not a guide to future returns. The value of investments and the income from them may go down as well as up. Exchange rates may also cause the
value of underlying overseas investments to go down as well as up. The level of tax benefits and liabilities will depend on individual circumstances and may change
in the future. The opinions expressed herein are those held by JPMorgan at the time of going to print.
JPMorgan Life Limited is part of JPMorgan Asset Management. JPMorgan Life funds are marketed by JPMorgan Asset Management Marketing Limited which is
authorised and regulated by the Financial Services Authority and is part of the JPMorgan Asset Management marketing group, which sells investments, life
assurance and pension products. Registered in England No: 288553. Registered office: 125 London Wall, London EC2Y 5AJ.
LV – JPM1178 03/07