JPMorgan Chase & Co. (JPM:US), the largest U.S. bank, plans to break off its private-equity unit as an independent firm as the business raises a new fund backed by outside investors.
One Equity Partners will still make direct investments on behalf of JPMorgan for an “interim period” and continue to manage the bank’s existing group of portfolio companies, the New York-based company said today in a statement.
The business eventually will be split off as those investments mature, according to a person with direct knowledge of the plan. One Equity manages about $4.5 billion for the bank, according to the statement.
“The One Equity team has produced strong returns over the years,” Matt Zames, JPMorgan’s chief operating officer, said in the statement. “The time is right for them to seek new capital to strengthen their global strategy, as they continue to manage our existing portfolio to maximize value to the firm.”
Banks are expanding businesses overseeing client money as they seek more stable forms of revenue, such as management fees. JPMorgan’s private-equity results have been uneven in recent quarters, swinging from a $50 million profit in the fourth quarter to a $182 million loss in the first three months of this year, according to the filings.
Earnings within the unit will likely be volatile and “influenced by capital-markets activity, market levels, the performance of the broader economy and investment-specific issues,” the company said in a May 8 filing with the Securities and Exchange Commission.
One Equity typically invests from $50 million to $250 million per transaction, the firm said, concentrating in North America, Europe, Asia and South America.
Federally backed banks face restrictions in how much they can invest in private-equity and hedge funds under the so-called Volcker rule, a provision of the 2010 Dodd-Frank law. The rule limits investments to no more than 3 percent of the fund or 3 percent of the lender’s Tier 1 capital. JPMorgan had about $7.7 billion in total private-equity holdings and $163.8 billion in Tier 1 capital as of March 31, according to regulatory filings.
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