Firing lineMay 25 2022

JPMAM's Patrick Thomson: 'I found financial jargon completely alienating'

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JPMAM's Patrick Thomson: 'I found financial jargon completely alienating'
Patrick Thomson, chief executive of EMEA at JPMorgan Asset Management

Patrick Thomson was trained to be in charge, but on his first day at JPMorgan Asset Management 25 years ago, he was wondering if the training was helping him at all. 

Now chief executive of JPMorgan Asset Management for the EMEA regions, Thomson joined the asset management behemoth straight from the army, and on his first day remembers feeling “lost and confused”. 

His army career began at the officer training school (Sandhurst) where he was taught to think, act, and behave like a leader. After completing a five-year stint in the military he left for JPMorgan, and his main memory of that first day is of “the jargon.”

He says: “What I remember is feeling lost and confused. I found the jargon completely alienating. The financial services industry doesn’t help itself with technical terms and we do not help our customers by using them.

"On my first days at the firm I heard terms that were then utterly baffling to me, like correlation matrices and duration adjusting. It probably doesn’t matter if we use terms like that internally, but customers don’t need to hear them.

"They want to know, in simple terms, what they are invested in, why they are invested in it, and what they can expect from the investment over the long term.”

One of the initiatives he has focused on at the business is the recruitment of people he calls “school leavers with no financial background”. He says such folk have little tolerance for the jargon: “They will ask what convexity means and why do we use that term, and that is incredibly valuable.” 

Thomson says improvements in diversity and inclusion are the biggest changes he has seen in the industry in 25 years, "and the reality is that not only does having a more diverse workforce mean we are more representative of the markets in which we operate, it means we are increasingly more representative of our clients".

He adds: "I was fortunate enough to live and work in Asia for five years, and I think that for anyone to think they can invest in Chinese assets without any experience or knowledge of that culture is ludicrous. We hire people from the regions we invest in, and it definitely does produce better outcomes for our clients when we do that.”

The financial services industry doesn’t help itself with technical terms.

He reels off the stats around how the majority of the board of the asset management business, and also the board of his operating committee, are female.

The latter tends to be a more useful measure of a business's commitment, as it strips out the impact of hiring non-executive directors to tick a box. 

In terms of where he sees growth in future, he cites investment trusts and private markets as two of the areas where he hopes to expand. 

That expansion would follow in the wake of a rather Darwinian approach to funds, which in 2017 led to the company closing dozens of mandates.

He says: “I think firms are very quick to launch funds but very slow to close funds. And that is because investment professionals see a niche, an opportunity, but the realisation isn’t always there that some of the investment opportunities which come along are finite in time.” 

All about scale 

At the same time as many perceive there to be too many funds in UK, Thomson says the trend is for there to be fewer clients, as a consequence of consolidation in the wealth management industry and more outsourcing by advisers. 

He says the answer in the first instance is scale. "There will always be advantages to scale, and every single basis point matters. Clients want a choice of all the options, including passive, active, ETFs, open-ended funds and investment trusts.

"When I took on this role, fee pressure was a thing then, and it is now. Scale allows firms to be more operationally efficient both in terms of the client interface and the investment processes."

He says his division is spending “more on technology than ever before. We are using, for example, machine learning to scan information for key words and themes to see if they can generate an investment idea”.

Scale allows firms to be more operationally efficient.

Of the areas of growth he is targeting, Thomson says the growth in private companies relative to publicly listed ones is a long-term trend and not just a function of lower interest rates.

He says the regulatory obligations placed on listed businesses means it has become relatively less attractive to be a listed company. 

Thomson says the growth in interest from clients he is seeing in this area is at present “mostly institutional”, due to the time horizons involved, but he expects that in time more products offering exposure to this area will happen in future.

He is adamant that this should not happen through the creation of open-ended daily dealing funds, as such investments are inherently illiquid, so investors risk being unable to access their cash, as has happened with both the Woodford Equity Income fund and many property funds in recent years. 

That desire to grow in the private markets space also feeds into his other area of focus, which is the investment trust market.  

While there has been consolidation among fund houses and this is starting to lead to under-performing funds being jettisoned, the same has not really been true of the investment trust world, although that has changed in the last year or so, as trusts have switched managers or begun to merge. 

Included among these was the merger of the Scottish Investment Trust with one run by JPMorgan, to create a vehicle with assets of comfortably more than £1bn.

He expects such mergers to continue into the future and regards his business as having “a very strong position” in the market, as the second largest operator of such vehicles.

I think more mergers will happen, and that is an opportunity for us.

Wealth managers and financial advisers often say the reason they cannot buy investment trusts for clients is that the volume they are purchasing could move the share price, and so change the investment case for an investment trust almost before the client owns the investment.

Thomson says this will cause more trusts to merge, in order to become larger and offer the liquidity the consolidated wealth managers need. 

He says: “Fundamentally this is a problem for us as trust providers to solve. So I think more mergers will happen, and that is an opportunity for us.

"Also, technology will solve the problem; 80 per cent of our trading now is computerised and that enables greater levels of price discovery. It’s all about operational efficiency.”  

The asset management world has been diverging between boutique businesses and behemoths. Thomson is at the helm of the one of the giants, employing around 1,000 investment professionals, but is unabashed in his ambition to grow further. 

If the scale of a giant like JPMorgan really does succeed in lowering fees and increasing the range of investment products, the former army man will have done advisers some service.

David Thorpe is special projects editor of FTAdviser