Dynamic Cash Routing for Alternative Investment Managers

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1 Dynamic Cash Routing for Alternative Investment Managers Mitigate risks. Increase transparency. Simplify processes. Integrated Liquidity Management and Cash Investment Solutions

2 About J.P. Morgan Treasury & Securities Services A division of JPMorgan Chase & CO. (NYSE:JPM), J.P. Morgan Treasury & Securities Services is a global leader in transaction, investment and information services that support the needs of institutional investors and issuers, treasury, procurement, trade and supply chain departments. We are one of the world s largest cash management, trade services and securities servicing providers, with assets of $2 trillion and operations in more than 60 countries. J.P. Morgan offers an extensive range of services for alternative investment managers including financing solutions, securities lending, integrated prime brokerage and custody, and is well positioned to help clients respond quickly and effectively to the changing regulatory and market landscape. By bringing together expertise in research, sales, execution, operations and administration, technology, FX and cash management solutions, and a clearing and settlement platform for a broad range of investors around the world, hedge fund and alternative investment managers can strategically execute their investment strategies across multiple products and asset classes.

3 Market Background Alternative Investment Managers in the Aftermath The extreme financial market conditions of the last two years have underlined the extent to which Alternative Investment Managers (AIMs) can find themselves exposed to a wide range of liquidity management and cash investment related risks. The financial crisis placed severe stress on the sector, highlighting how access to liquidity and the management of counterparty risks can be make or break issues to a managers business stability. Some measure of order has returned, but this is not business as usual. Managers are following increasingly liquid strategies and holding higher cash reserves, and there are new regulatory and market changes that continue to impact cash strategy. At J.P. Morgan, we see four interrelated key themes that are relevant to liquidity management decision-making for AIMs in the near term: Two opportunities for funds to change their delivery model in order to gain new investors: The continuing growth of the UCITS brand fund wrappers for risk management, transparency and investor protection Market and investors showing an increased interest in managed accounts and onshore funds to increase control and transparency Two pressures that funds must respond to in order to retain existing investors: The European Commission Directive on Alternative Investment Fund Managers, likely to result in heightened regulatory attention to liquidity risk management practices Client demands (and competitive pressures) for best practice cash transparency, risk management and counterparty diversification 4 Key Emerging Liquidity Management Themes for Alternative Investment Managers REGULATORY DRIVERS MARKET DRIVERS OPPORTUNITIES TO GAIN NEW INVESTORS UCITS FUND WRAPPERS FOR RISK MANAGEMENT TRANSPARENCY AND INVESTOR PROTECTION INCREASING INTEREST IN MANAGED ACCOUNTS AND PLATFORMS ALTERNATIVE INVESTMENT MANAGER LIQUIDITY MANAGEMENT STRATEGY PRESSURES TO RETAIN EXISTING INVESTORS THE EUROPEAN COMMISSION DIRECTIVE ON ALTERNATIVE INVESTMENT FUND MANAGERS CLIENT DEMANDS AND COMPETITIVE PRESSURES FOR BEST PRACTICE J.P. Morgan is well positioned to help clients respond quickly and effectively to the changing regulatory and market landscape. Our extensive AIM cash management and investment expertise, global coverage and integrated product capabilities means that we have solutions for all types of cash balances from unencumbered cash in managed futures funds to subscription/redemption account residual cash balances.

4 Total Short-Term Cash Solutions Dynamic Cash Routing Our dynamic cash investment routing capabilities make it simple for managers to solve for their specific liquidity, risk, regulatory and efficiency requirements. We know that there is no one-size-fits-all approach to liquidity management, and that solutions depend on investment manager preference as well as the investment strategy of the fund. By working in partnership with our clients we can help to create a balanced cash investment strategy designed for all market conditions, while providing sustainable and acceptable levels of liquidity, capital preservation, return performance and operating efficiency. Integrated and Stand-Alone Easy-Access Cash Solutions for all Alternative Investment Managers CASH INVESTMENT SOLUTIONS CUSTODY, FUND ACCOUNTING AND ADMINISTRATION SERVICES ACCOUNT AND PAYMENT SERVICES HEDGE FUNDS UCITS FUNDS MANAGED ACCOUNTS AND PLATFORMS PRIVATE EQUITY FUNDS HEDGE FUND ADMINISTRATORS PRIME SERVICES J.P. Morgan has dedicated, experienced teams across our businesses that focus on clients in the alternatives sector and their specific challenges and needs. This enables us to bring a cohesive approach to providing a broad range of services to AIMs. All of our cash investment routes can either be integrated with other J.P. Morgan AIM services (Prime Services, Custody, Fund Accounting, and Administration and Payment Services such as Subscription/Redemption Processing), or delivered on a standalone basis via simple collection accounts. As our clients liquidity management strategies and preferred investment options evolve, we can help them to change investment routes seamlessly, without the need to open new accounts.

5 Cash Investment Routes 1 4 Route 1 J.P. Morgan Deposits Using J.P. Morgan cash deposits allows clients to take advantage of a banking partner with a strong balance sheet, capital and credit reserves. For larger, more stable balances, J.P. Morgan also offers special deposit accounts in the three major currencies that provide full daily liquidity and pay a premium return for an agreed target balance range. We offer cash accounts and payment processing in 41 currencies and can provide transparent, publicly quoted, overnight benchmark-linked returns for 10 of these currencies. All accounts can be accessed via our easy-to-use online banking platform, J.P. Morgan ACCESS. In addition, clients can benefit from direct access to our treasury desk, offering a convenient time deposit booking platform in 19 currencies for periodic fixed tenor balances. J.P. Morgan s Total Short-Term Cash Solutions Dynamic Cash Routing for Alternative Investment Managers MARGIN AND COLLATERAL CASH UNECUMBERED EXCESS FUND CASH INVESTOR CASH INFLOWS AND OUTFLOWS BROKERAGE SETTLEMENT ACCOUNT CASH COLLECTION ACCOUNT SUBSCRIPTION AND REDEMPTION ACCOUNT INVESTMENT ROUTE 1: J.P. MORGAN DEPOSITS INVESTMENT ROUTE 2: DIVERSIFIED DEPOSITS INVESTMENT ROUTE : MONEY MARKET FUNDS INVESTMENT ROUTE 4: COMPOSITE PORTFOLIOS Daily Cash: Overnight market benchmark-linked returns in 10 currencies Daily Cash: 1 month market benchmark-linked returns for larger stable balances in major currencies Term Deposits in 19 currencies Integrated access to a managed programme of diversified deposits with up to 50 third-party, actively credit-monitored banks Percentage or hard balance limits per counterparty set by client Flexible maturity profiles and overnight to term liquidity ratios Integrated access to the world s largest International money market fund provider, J.P. Morgan Asset Management Credit funds in currencies; Treasury, Gilt and Government funds in currencies Third-party provider money market fund sweeps Integrated access to a composite agency-traded portfolio Reverse repurchase agreements, CDs, TDs, commercial paper Guidelines and parameters (instruments, collateral and counterparty ratings, tenors, liquidity) set by client INTEGRATED DAILY REPORTING DELIVERED ON-LINE via J.P. MORGAN ACCESS

6 Cash Investment Routes 1 4 (cont) Route 2 Diversified Deposits J.P. Morgan s Cash Trade Execution programme is an automated, agency third-party bank time deposit investment service with the key goals of diversification, capital preservation and transparency. It trades with up to 50 credit-monitored financial institutions (minimum A1/P1 S&P/Moody s), providing the following benefits: Simple access via an automated intraday sweep with no counterparty or custodian relationships to maintain A dedicated, global trading and operations team providing round-the-clock access to markets to achieve the most favourable rates, managing all trade execution, confirmation, reconciliation and settlement activities and risks Clear, system-controlled parameters governing the credit quality of counterparties and the maximum maturity profile of the programme, with all trading executed according to client-nominated counterparty exposure guidelines Continuous oversight of all approved trading counterparties by a team of professional credit analysts Daily, scheduled, exportable balance, counterparty exposure and performance reporting providing total transparency of exposure and return Route Money Market Funds J.P. Morgan s flexible liquidity fund sweep platform makes it easy to automatically invest cash balances into a wide range of liquidity funds from the largest institutional money market fund provider in the world, J.P. Morgan Asset Management.* In addition to the traditional US Dollar, Euro and Sterling AAA liquidity funds, we also provide sweep access to a range of Treasury, Gilt and Government funds, and a select range of other third-party money market fund providers, as defined by the AIM s investment needs. * imoneynet, 2010 Route 4 Composite Portfolios J.P. Morgan also provides automated sweep access to composite, agency-traded portfolios. These can be tailored based on the AIM s liquidity, credit and interest rate risk, cash flow and investment horizon needs. Investment guidelines and parameters are highly configurable and defined by the AIM. Investment options include a wide choice of eligible short term cash instruments (e.g. time deposits, commercial paper, reverse repurchase agreements and certificates of deposit) and maintainable parameters include collateral and counterparty ratings, maximum tenors and weighted average maturities. Detailed and integrated daily reporting is available via our online banking platform, ensuring a high level of transparency.

7 Sustainable Liquidity Management J.P. Morgan is the recognised global leader in cash and liquidity management, providing a wide range of solutions to help clients develop a sustainable liquidity management strategy in any market environment. In partnership, we help our clients identify requirements and design a framework for managing liquidity against their key objectives. No matter which route our clients choose to build their sustainable cash investment strategy, they know that they are working with a strong partner with a long-term commitment to the market. Case Study Client Profile: Large hedge fund manager with a range of managed futures funds Client Goals: Decrease single provider exposure to prime brokers and quickly and efficiently diversify the unencumbered excess balances of the manager s flagship funds Define and implement a low-cost sustainable liquidity management strategy J.P. Morgan Solution: The client wanted to move fast, and was onboarded to J.P. Morgan s account platform within 7 days of initial contact Excess funds were immediately placed in a range of multi-currency cash accounts with overnight market benchmark-linked pricing for increased transparency (Investment Route 1) After assessing the desired liquidity, counterparty risk and return profile of the fund, and documenting investment parameters, balances were moved into our diversified deposit programme (Investment Route 2) After several months, as a result of continued stress in financial markets, the client made a policy decision to replace bank risk with government risk. The client selected the J.P. Morgan Asset Management AAA Treasury Funds for its unencumbered balances, investing only in government-backed securities (Investment Route ) With markets settling, the client was able to think about reaching for higher yields and moved their balances again, this time into the J.P. Morgan Asset Management AAA Liquidity Funds which can invest in a broader range of eligible money market instruments Client Benefits: J.P. Morgan s flexibility and depth of product capability enabled the client to respond quickly and effectively to a rapidly changing market environment In all cases, switching from one investment route to another was a seamless process without the need to open new cash accounts With all execution and reporting activities performed by J.P. Morgan, the client has been able to develop a long term liquidity management strategy without taking on new processing overheads

8 Key contacts Contact us today to learn more about how you can simplify your processes, increase transparency and mitigate risks using our cash investment services. For more information, please visit us at jpmorgan.com or contact: Sean Crooks, Executive Director EMEA Liquidity Client Solutions Henrik Lang, Vice President EMEA Liquidity Client Solutions JPMorgan Chase Bank, N.A. All rights reserved. This brochure contains a summary of the subject matter (and is subject to change without notice) and is provided solely for general information purposes. J.P. Morgan does not make any representation or warranty, whether expressed or implied, in relation to the completeness, accuracy, currency or reliability of the information contained in this brochure nor as to the legal, regulatory, financial or tax implications of the matters referred herein. This brochure does not constitute a solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful. Issued and approved for distribution in the United Kingdom and the European Economic Area by J.P. Morgan Europe Limited. In the United Kingdom, JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited are authorized and regulated by the Financial Services Authority.