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Friday, April 04, 2014

Regarding Dimon and Reynolds' Big Play

News summary by MFWire's editors

Well, if you haven't been hiding under a rock, you'd know that Bob Reynolds, chief executive of both Great West Lifeco U.S. and Putnam Investments, buying the retirement system business of J.P. Morgan.

Good coverage to read on the subject would include stories from sister publication 401kWire such as this story outlining Reynolds' plans to build "America's Retirement System", and this one analyzing the impact of this sale on the DC I-O space.

Other good coverage can be found in Reuters; Bloomberg; the Wall Street Journal; P & I, and RIABiz.com.

Now, what are some big points to take from this news the day after?

Well, first off, never underestimate Bob Reynolds. a 401k guru who developed many of his tricks during his tenure at Fidelity and has been steadily working his magic in the DC i-O space since taking the helm of Putnam, and now at Great West.

Also, never underestimate the importance of the 401k space to asset management. It should be no surprise that over the past two years asset managers have promoted 401kers to senior leadership roles. Look at the successes of Fidelity and Putnam for instance. It is a powerful distribution channel that is only going to get more important as time goes along.

It is also important to consider what this sale may mean for J.P. Morgan chief executive Jamie Dimon, who remains under significant pressure from regulators and investors simplify the onerously complex and broad-spanning operations of his giant bank.

First off, this sale is a proof-of-concept that J.P. Morgan can pull off an asset management spinoff, assuring buyers that Dimon is willing to trim cuts to suit customer taste.

It may also up the pressure to sell off the funds business.

Consider this, J.P. Morgan's RK business, like its bank branches, was a vital channel for selling funds. Now that this channel is in someone else's control, and given the fact that the bank is still under scrutiny for how it sold its products at its branches, selling J.P. Morgan funds may well become problematic.

Over the past month, MFWire has spoken with mutual fund C-suiters on the subject of J.P. Morgan. The consensus of these fund presidents and CEOs was this: if Dimon were to sell off J.P. Morgan funds or any other asset management arm, an I.P.O. would seem most likely.

The business is probably worth at least $2 billion. While that is not Dell-buyout humungous, it is unwieldy for many private investors, although Dimon's investment bankers could facilitate the deal, or even scratch up the financing.

There are only so many fund firms that would have the will and wherewithal to pull off such a purchase.

At any rate, what they do next is worth watching. 

Edited by: Tommy Fernandez


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