MIAMI, Fla. -- Used to be that a mutual fund was a pretty easy product to launch. Line up a set up securities. Buy. Hold. Mix occasionally. Now, managing products such as target-date funds present serious operational challenges, said George Gatch, chief executive officer of J.P. Morgan Asset Management Americas.
Creating a “glide path” for customers through funds that are designed to invest in more conservative assets over time – read: bonds over stocks – is not an easy task he said in a luncheon address on innovation at the National Investment Company Service Association 2011 Conference & Expo.
“Although this creates a more systematic and disciplined approach for 401(K) participants, it’s obviously created some significant challenges for us,” he said.
Managing the process of record-keeping of day-to-day activity has become much more multifaceted and much more complicated for the mutual fund industry.
“We need to have more advanced back-office systems that track all these activities, including striking the net asset value, transmitting the data, allocating the cash, settling trades across dozens of asset classes and thousands and thousands of individual securities,’’ he said.
“Ten years ago, this model didn’t exist. And the level of expertise and resources to manage it weren’t necessary,”’ Gatch said.
Investments were standardized. Portfolios were essentially one-size fits all. And suited for relatively stable markets and much longer market cycles.
Moreover, a firm only required a nominal time frame to develop and launch a product.
“Today launching a fund is an entirely different ball game,’’ he said. “The level of expertise and resources required to research, develop and launch new products has grown exponentially.’’
A good example: the Highbridge Dynamic Commodities Strategy Fund that the firm launched in 2010.
This is an “actively managed commodity fund designed to minimize volatility with a unique draw down facility that reduces exposure to commodities with high volatility or that are underperforming relative to the market,’’ he said. Got that?
Managing the fund requires a team of advanced degrees in mathematics, quants or in this case someone with “knowledge of high- and low-frequency exchange rate volatility dynamics,” Gatch said.
“I’m not sure what that means,’’ he said. “But fortunately for us, we had someone on the firm with exactly that type of expertise.”