prime brokerage perspectives barriers to entry: …€¦ · life insurance companies are subject to...

I N V E S T O R S E R V I C E S

Barriers to Entry: Permeating the Insurance Company Investor Segment

February 2015

PRIME BROKERAGE PERSPECTIVES

1

This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments. For institutional and professional investors only. For the intended recipient only.

IntroductionRelative to other institutional investor segments, insurance companies historically have had lower allocations to alternatives in general and to hedge funds in particular. Traditionally, insurance company general accounts have been weighted heavily towards fixed income and credit with lower allocations to alternative investments. This heavy fixed income bias stems largely from the stringent risk-based capital (RBC) frameworks to which insurance companies are subject. Those regulatory frameworks require insurance companies to hold large amounts of capital against investments in certain asset classes, including alternatives and equities.

The low interest rates and depressed bond yields that have characterized the post-financial crisis period have created a serious investment income problem for insurance companies, which face difficulty in meeting their portfolio targets given their traditional allocation patterns. That difficulty has in turn created challenges for insurers from an asset-liability perspective and, in many instances, has resulted in a squeeze on earnings. Consequently, insurance companies have been steadily raising their allocations to alternatives in a search for higher returns. Nonetheless, there remain real barriers that prevent insurance companies from increasing their hedge fund exposure beyond a certain level.

In light of the constraints that insurers face with respect to alternatives, the purpose of this Perspectives piece is to provide hedge fund managers with additional insights into the evolving allocation trends of such companies and to highlight how managers might target and permeate this investor segment with greater effectiveness. This report is based on industry data along with interviews with numerous hedge fund allocators and CIOs at U.S.-based insurance companies.

Constraints on Hedge Fund InvestmentsIn order to enhance relationships in the insurance investor segment, it is necessary to understand the strictures within which these companies operate concerning hedge fund allocations. There are several hurdles that insurance companies face in terms of their ability to allocate capital to hedge funds, the most obvious of which is the RBC regime to which such firms are subject.

Risk-Based Capital (RBC) Rules

Although the “low for long” yield environment of recent years has made alternative investments more attractive to insurance companies from a return perspective, the RBC framework renders alternatives very expensive – in some instances prohibitively so. In the U.S., the RBC rules are under the jurisdiction of the National Association of Insurance Commissioners (NAIC), which regulates U.S.-domiciled insurance companies. These rules stipulate that insurance companies must hold specified levels of regulatory capital and are based on several factors, including a prudential assessment of the risks of the investment holdings in insurers’ portfolios.1 Property and Casualty (P&C) firms are subject to RBC charges ranging from 10% to 15% for alternatives. Life insurance companies are subject to an even stricter RBC regime; capital charges for such firms range from 22.5% to 45%.

1 According to the NAIC, RBC is a way of measuring the minimum capital appropriate for an insurance company to support its operations relative to its size and risk profile. RBC limits the amount of risk a company can take and requires a company with a higher amount of risk to hold a higher amount of capital. Capital provides a cushion for a company against insolvency. See http://www.naic.org/cipr_topics/topic_risk_based_capital.htm.


2

Insurance companies based in Europe will be subject to a similar and even stricter RBC framework pursuant to Solvency II, which is scheduled to take effect in January 2016. Under Solvency II, hedge funds will be subject to a capital charge of up to 49%. However, for “black box” strategies without a “look-through” to the underlying assets, an even steeper capital charge shall apply.

As a safeguard against outflows, insurers typically hold higher levels of capital than the regulations require. In fact, in recent years, RBC levels among U.S. insurance companies have increased materially, largely as a result of greater regulatory scrutiny and heightened conservatism among insurers in reaction to the financial crisis. For example, as Figures 1 and 2 show, RBC ratios among the largest U.S. life insurance companies have increased noticeably since 2008, although the upward trend pre-dates the financial crisis.

Historical NAIC Risk-Based Capital ratiosFIG. 1

Based on statutory filings for life insurance companies in J.P. Morgan’s Large Company Composite as of year-end 2013

Source: J.P. Morgan Insurance Investor Client Management, SNL Financial LC


Historical NAIC Risk-Based Capital ratios (median)FIG. 2

Median for life insurance companies in J.P. Morgan’s Large Company Composite as of year-end 2013

ACL Risk-Based Capital Ratio/2 (%)

0

100

200

300

400

500

600

700

800

900

RBC

Ratio

s

AEG AFL ALL AIG AXA GNW HIG ING LNC MFC MML NFS NYL NML PAC PFG PL PRU TIA

1996Y 1997Y 1998Y 1999Y 2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y

ACL Risk-Based Capital Ratio/2 (%)

200

250

300

350

400

450

500

Med

ian

RBC

Ratio

1996Y 1997Y 1998Y 1999Y 2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Y

3


From 2006 through 2013, the RBC ratios for the largest life insurers (depicted in Figures 1 and 2) increased by an average of +19%, well in excess of the specified requirements. One might think that, because those companies are now holding substantially more capital on balance sheet, they would have more capital for hedge fund allocations, which could help in their search for yield. However, closer analysis reveals that, within the current RBC framework, the potential delta of additional capital for new hedge fund allocations among those companies totals only $1.2 billion.2 This example underscores the fact that there is a finite amount of capital available for hedge fund allocations among insurance companies. Understanding such limitations is paramount for managers seeking to grow their relationships in this segment.

Return Hurdles

The RBC requirements discussed above impose de facto return hurdles for insurers’ investments in alternatives. Consequently, insurance company investment committees face pressure to select investments that justify the attendant capital charges. That dynamic helps to explain why insurers traditionally have been larger buyers of private equity than hedge funds (see Figures 3-4). Historically, private equity is a higher-returning asset class. Over a three-year horizon, private equity firms generated an aggregate IRR of 14.5% versus a 4.0% annualized return for hedge funds; over a five-year horizon that spread was 17.7% versus 6.5% (See Figure 5).

Source: J.P. Morgan Asset Management Global Insurance Solutions, SNL Financial LC

Life insurance alternative asset investments3 FIG. 3

2 This figure was derived by calculating the median RBC ratio of J.P. Morgan’s Large Company Composite and the average alternatives allocation of the same group. For companies with above-median RBC and below-average alternatives allocations, we calculated the amount of additional investment that would be needed for those firms’ alternatives allocations to equal the average. That number is approximately $12 billion in aggregate. The average percentage of alternatives that are allocated to hedge funds among those companies was then calculated: 5.38% or $700 million. Companies with little or no hedge fund exposure were then removed from the average. It was then assumed that the goal among companies in this analysis would be to match the average hedge fund allocation of insurers with existing hedge fund programs, or 10.76%, which yields $1.2 billion.

3 Whereas Figure 1 is drawn from J.P. Morgan’s Large Company Composite, the data sets for figures 3 and 4 are drawn from the broader universe of listed life and P&C insurance companies, respectively.

0

30

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50

60

70

80

2008Y

Inve

stm

ent (

$bill

ions

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Hedge Fund Private Equity Real Estate Sch BA Fixed Income/Loans Other LPs Total

2009Y 2010Y 2011Y 2012Y 2013Y

20

10


4

Source: HFR, Cambridge Associates

Source: J.P. Morgan Asset Management Global Insurance Solutions, SNL Financial LC

P&C insurance alternative asset investmentsFIG. 4

Hedge fund and private equity returnsFIG. 5

Based on HFRI Fund Weighted Composite Index and Cambridge Associates LLC U.S. Private Equity Index

Hedge Fund AnnuAlized RetuRns PRivAte equity net iRRs

Jun-09 -10.1% -20.20%

Jun-10 9.1% 19.10%

Jun-11 11.5% 25.40%

Jun-12 -4.3% 6.50%

Jun-13 7.9% 16.80%

Jun-14 9.1% 22.40%

1 Year (6/30) 9.1% 22.40%

3 Year (6/30) 4.0% 14.50%

5 Year (6/30) 6.5% 17.70%

Volatility

Hedge funds can also present a challenge for insurance company allocators in terms of volatility. Because private equity investments are illiquid, insurers typically are able to hold them at cost until realization. By contrast, insurance companies tend to mark hedge fund assets to market. Consequently, any material volatility in an insurance company’s hedge fund holdings can exert a drag on earnings.

Investment WeightingsRegulatory constraints aside, insurance companies invest to meet their actuarially modeled future liabilities. Such firms therefore seek investments that mature close to when their liabilities are due and which are capable of earning at or in excess of the discount rate used for premiums. Consequently, insurance company general accounts tend to be weighted heavily to investment grade corporate credit and government

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15

20

25

30

35

2008Y

Inve

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Hedge Fund Private Equity Real Estate Sch BA Fixed Income/Loans Other LPs Total

2009Y 2010Y 2011Y 2012Y 2013Y

5

5


fixed income (see Figures 6 and 7). That pattern has changed little over time. Because life insurers typically have longer-dated liabilities than other insurance companies, they tend to weight their portfolios towards assets with lengthier durations. Accordingly, life insurers are well positioned from

an asset-liability matching perspective to invest in less liquid asset classes such as hedge funds. Nonetheless, life company alternatives allocations tend to be lower than that of P&C companies given the stricter RBC charges to which they are subject (see Figure 6).



P&C and life insurance company investment allocations (2013)

Fixed income as a percentage of select insurance company assets

FIG. 6

FIG. 7

TRV

2008 2012 2013

CNA ZUR AIG PRO USAAHIG SFLMCHU ALL NFS

89.083.6

78.9

68.973.5 74.2

69.8

60.4

70.1

59.156.2

90.485.3

82.6

70.365.2

58.7

49.5

86.6 85.382.4 80.2

72.8 71.3 70.064.4

47.6

84.7

70.0 69.664.5

81.1

88.588.7

55.1

66.3

0

30

50

70

90

100

20

40

60

80

10

Credit - 18% Structured Securities - 11% Treasuries & Agencies - 18% Munis - 9%

Equity - 27% Mortgage Loans - 1% Alternatives - 11% Cash & Other - 5%

Credit - 46% Structured Securities - 20% Treasuries & Agencies - 8% Munis - 1%

Equity - 2% Mortgage Loans - 13% Alternatives - 6% Cash & Other - 4%

2013 Life Insurance company allocations2013 P&C Insurance company allocations


6

“Low for Long” HeadwindsGiven their historic skew towards fixed income, insurance company portfolios have run into difficulty in recent years as a result of falling interest rates, which have reached new lows post-2008. Since the financial crisis, accommodative central bank policies have driven down the yields on government debt to historic troughs leading to tighter credit spreads among other results. The yield on the U.S. 10-Year Treasury,

for example, has fallen over 180 basis points since 2008 (through year-end 2014). In 2014, a year in which many market participants anticipated a rise in rates, the yield on the 10-Year declined by more than 80 basis points. For U.S. Treasuries, this decline is part of a trend that has been under way for some time (see Figure 8). This pattern has been fairly consistent across developed markets. Accordingly, there has been little opportunity for insurance companies to seek yield abroad.

Source: Bloomberg

Yield on the U.S. 10-Year Treasury (2000-2015)FIG. 8

Income on invested assets is a key driver of earnings for insurance companies. The declining rate environment has therefore presented a challenge for insurance company profitability, especially since insurers tend to hold their bonds until maturity. Moreover, in many of the asset classes in which insurers (particularly life companies) invest, credit spreads are either flat or have compressed. Consequently, new money yields in many insurance company portfolios have been declining in recent quarters as higher-yielding bonds roll off. Over the last year, for instance, new money yields in life company portfolios were down approximately 40 basis points and are far below portfolio yields.4 That pattern has presented another headwind for insurance companies’ investment income.5

Shifting Allocation PatternsNecessity begets action. Falling yields and tighter credit spreads have caused many insurance companies to increase their exposure to other asset classes in search of higher returns. On the fixed income side, insurance companies have been taking on more interest rate and credit risk by increasing their exposure to higher-duration bonds along with allocations to lower-rated corporate credits, including, in some cases, high yield.

Insurance companies also have been increasing their exposure to alternatives—which the NAIC classifies as “Schedule BA” assets—including hedge funds.6 From 2007 through year-end 2013, life insurers raised their Schedule BA

4 J.P. Morgan North America Equity Research, Life Insurance 2015 Outlook, January 5, 2015, available at https://jpmm.com/research/content/GPS-1586411-0. J.P. Morgan estimates that the prolonged low interest rate environment will pressure annual life insurance ROEs by approximately 10-20 basis points in the coming years.

5 J.P. Morgan North America Equity Research, Life Insurance 2015 Outlook. 6 The NAIC classifies non-traditional asset classes, including, but not limited to, alternatives, as “Schedule BA” assets. Schedule BA assets encompass

alternatives such as private equity and hedge funds along with assets such as surplus notes and secured and unsecured loans.

0.0

2.0

4.0

6.0

8.0

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

US 10-Year Treasury Yield

1.0

3.0

5.0

7.0

7


7 Source: A.M. Best, Schedule BA Investments – Behind Their Rising Trend, June 30, 2014. Part of that uptick was attributable to Berkshire Hathaway’s purchase of Burlington Northern Santa Fe.

8 Private equity and hedge funds are classified as “Common Stocks” on Schedule BA.

asset exposure by +23.3% while P&C companies increased such exposure by +38.8% (see Figure 9).7 Among life insurers, the most substantial increases in Schedule BA assets have been through greater exposure to private equity and hedge funds.8 Such exposure has risen +79.5% in absolute dollar terms since 2008 (see Figure 10).

With respect to hedge funds specifically, the carrying value of such investments—including year-over-year allocations—for U.S. domiciled life insurers rose from approximately $1.5 billion in 2008 to over $2.6 billion in 2013, or +73%. Among P&C insurance companies, there was a +71% increase, from $5.2 billion in 2008 to $8.9 billion in 2013 (see Figure 11). The upward trend is unmistakable.

Insurance company exposure to Schedule BA assets including alternativesFIG. 9

As a percentage of total invested assets

Source: A.M. Best, Schedule BA Investments – Behind Their Rising Trend, June 30, 2014

Life insurance company Schedule BA allocationsFIG. 10

Allocations reflect underlying investment holdings, not strategy of investment vehicle.

Source: A.M. Best, Schedule BA Investments

2

3

4

5

6

7

8

2006

Life Companies P&C Companies

2007 2008 2009 2010 20132011 2012

Common Stocks Real Estate Fixed Income Miscellaneous

0

20

60

100

120

140

160

2008 2009 2010 2011 2012 2013

40

80

US $

billi

ons


8

Carrying value of hedge fund investments among insurers FIG. 11

Source: J.P. Morgan

Importantly, alternatives exposure for both the life and P&C industries tends to be concentrated among the larger, better-capitalized—i.e., highest rated—companies. On average, 88.7% of life insurers rated “a-” or above hold alternatives exposure, whereas only 37.0% of life companies with ratings of “bb+” or below do so. Among P&C firms, 55% of the companies with “a-” ratings or better have investments in alternatives versus a mere 32.0% of firms with “bb+” ratings or lower (see Figure 12).9

9 A.M. Best, Schedule BA Investments.


BA Asset exposure among Life and P&C Insurance companies by ratingFIG. 12

RAting liFe & HeAltH insuReRs

P&C insuReRs

aaa to aa- 94.4% 67.2%

a+ to a- 82.9% 42.8%

bbb+ to bbb- 36.7% 20.7%

bb+ and lower 37.0% 32.0%

Life A�lated P&C A�liated

0

100

300

500

700

900

2008 2009 2010 2011 2012 2013

200

400

600

800

$mill

ions

Considerations for ManagersAs the preceding discussion shows, there are significant tailwinds driving insurance company allocations to hedge funds. We anticipate that this trend will persist as insurers continue to increase their exposure to the asset class. As an example, a major insurer with a large hedge fund portfolio that was interviewed for this piece anticipates

doubling those investments within the next three to five years. At the same time, though, the regulatory constraints that insurance firms face in making such investments are considerable. Therefore, as hedge fund managers approach this segment, they must be cognizant of the ways in which various strategies and structures can impact insurers’ portfolios and balance sheets.

Insurer hedge fund portfolios tend to be highly idiosyncratic relative to one another. Nonetheless, our conversations with insurance company investors and our analysis of various industry data revealed several common patterns across this segment, which may be additive for hedge fund managers:

Minimal Volatility and Correlation

Among insurance firms, hedge fund allocation patterns vary considerably from company to company. However, because insurers mark hedge fund investments to market, as a segment, they prefer strategies with lower volatility to avoid potentially negative balance sheet impact.

Generally speaking, therefore, funds with lower volatility and less correlation are better suited to such investors. Further, because investment yield is a key driver of earnings, particularly for life insurers, managers with steadier return profiles and track records of being able to mitigate acute drawdowns will find greater receptivity in this segment. In sum, funds and strategies with the following volatility/correlation/return profile may be potentially well-suited to such investors in the insurance segment:

9


Insurance Company Volatility & Correlation Matrix

Volatility 5% – 8%

Correlation 0.4 or less

Equity Beta 0.4 or lessSharpe Ratio 1.0 or higher

This is not to say that managers that do not fit these parameters precisely will be unable to make inroads with insurance company allocators. But, the more a fund deviates from the above-listed ranges, the higher the hurdle may be.

Existing Alternatives Exposure

Larger and highly rated insurance companies, both life and P&C, tend to have well-established alternatives portfolios and sophisticated teams of varying sizes to manage them. Among middle market and smaller insurance companies, by contrast, alternatives portfolios typically are much smaller or non-existent. That subset of the insurance company segment

is therefore underpenetrated with respect to alternatives generally and hedge funds in particular.

However, hedge fund managers seeking to deepen their relationships with insurance companies will find more receptivity among larger companies with existing programs than they will among middle market and smaller firms. Companies in the latter group tend to be unfamiliar with alternative assets and lack the in-house capability to analyze them. Accordingly, any dialogue with such firms likely would entail a lengthy, high-touch education process with only modest prospects for any actual allocations. Companies with existing alternatives portfolios—even those with only de minimis hedge fund allocations—generally have the capability to research and analyze non-traditional assets, are far more comfortable in the space and far likelier to allocate capital. Hence, hedge fund managers should target firms with existing alternatives allocations.

Top insurance companies by Schedule BA holdings10FIG. 13

u.s. liFe/HeAltH

COMPANY NAME

TOTAL BA ASSETS

(USd 000)

BA/INVESTEd

ASSETS (%)

BA/TOTAL CAPITAL

(%)

Metropolitan Life & Affiliated Cos

20,957,676 6.7 77.9

TIAA Gp 20,168,641 8.9 56.9

New York Life Gp 14,003,009 7.5 66.2

Northwestern Mutual Gp

11,332,646 6.1 55.1

AIG Life & Retirement Gp

11,103,554 5.9 60.4

Prudential of America Gp

8,887,395 4.6 66.4

MassMutual Fin'l Gp

7,439,514 5.9 50.3

John Hancock Life Ins Gp

5,575,739 5.6 77.0

Principal Fin'l Gp 3,056,770 5.3 64.5

Aegon USA Gp 2,952,173 3.5 32.4

u.s. PRoPeRty/CAsuAlty

COMPANY NAME

TOTAL BA ASSETS

(USd 000)BA/INVESTEd ASSETS (%)

BA/C&S (%)

Berkshire Hathaway Ins Gp

54,154,330 25.0 41.6

Liberty Mutual Ins Cos

12,057,784 20.7 68.0

American Int'l Gp 10,353,049 12.3 37.8

Nationwide Gp 3,885,136 12.3 27.0

Travelers Gp 3,524,069 5.5 17.3

Allstate Ins Gp 3,522,292 8.7 19.4

CNA Ins Cos 2,747,981 6.8 24.7

Zurich Fin'l Svcs NA Gp

2,506,370 10.1 32.0

State Farm Gp 2,279,662 1.6 3.0

Queen City Assurance Inc

1,968,523 99.9 107.1


10 Not all insurance companies that are Schedule BA filers currently maintain active hedge fund portfolios. Please contact the Capital Introduction Group for more information.


10

Multi-Strategy Appetite

Generally speaking, multi-strategy managers are well positioned with respect to the insurance segment for two reasons. First, interviews with CIOs and hedge fund professionals at the larger P&C and life companies indicate that, while such companies do still invest in funds of hedge funds (FoFs), their allocations to FoFs are stagnant or decreasing, as insurers prefer increasingly to invest directly. Multi-strategy managers have been and are likely to be beneficiaries of this pattern.

Second, insurance companies tend to prefer the diversification that multi-strategy offerings can provide. This preference is not only a function of portfolio theory but also because, by holding a wider array of underlying investments including fixed income and rates, multi-strategy offerings can mitigate to some degree the RBC impact for insurance companies.

Consequently, the carrying value of insurers’ multi-strategy hedge fund investments, including year-over-year allocations, have increased substantially in recent years, growing more than +58% from 2008 through year-end 2013 (see Figure 14).

Source: J.P. Morgan

Carrying value of hedge fund investments among life insurers by strategyFIG. 14

Parameters

Perhaps unsurprisingly, given insurance companies’ size, low tolerance for volatility and appetite for steady returns, they typically prefer larger, more established managers with built-out track records. More specifically, this means managers with AUM of $1 billion or more and a three-year track record. Again, these are not hard and fast parameters but new launches and emerging managers may find this segment challenging.

Life Insurers and Longer Locks

Unlike a number of other investor segments, insurance companies tend to have greater tolerance for illiquidity. This statement is especially true for life companies given their longer-dated liabilities. Accordingly, many life insurers will consider funds with lock-ups – hard or soft – of one to three years. Although insurance companies tend not to be

particularly fee sensitive, it is not uncommon for them to seek a fee break in return for longer-term allocations.

With managers across the strategy spectrum coming to market with longer duration structures as markets become increasingly illiquid and more volatile, life insurers may be a potentially fruitful investor sub-set.

Separately Managed Accounts (SMAs)

As discussed, limited partner interests in hedge funds or other alternative vehicles entail capital charges for insurance firms because of the RBC frameworks to which they are subject. Investing in hedge funds via SMAs may help to lessen those charges. In contrast to limited partner interests in hedge funds or other alternative investment vehicles, SMAs are not always deemed to be Schedule BA Assets subject to varying capital charges. Whether a hedge fund SMA will be subject

Distressed Emerging Markets Fixed Income Arbitrage Global Macro Equity Long/Short Multi-Strategy Equity: Sector-Specific

0.0

0.4

0.8

1.2

1.6

2008 2009 2010 2011 2012 2013

0.2

0.6

1.0

1.4

$bill

ions

11


to Schedule BA treatment depends largely on the underlying strategy and whether that strategy relies heavily on leverage and/or shorting. Because equities are subject to Schedule BA treatment, SMAs in equity-based hedge fund strategies also will be viewed as Schedule BA investments. By contrast, there may be more benefit for such strategies as macro and fixed income relative value where the underlying holdings include rates, futures and bonds, which typically do not entail punitive capital charges. Once again, though, a fund’s use of leverage and shorting may blunt such benefits so there are various nuances about which managers will need to be aware. But, as a general matter, SMAs may be additive for insurance companies with respect to non-equity strategies with less leverage. Managers that are equipped to run SMAs for their clients may therefore have some advantage with insurance company allocators.

Conclusiondespite the myriad constraints that insurance companies face in making hedge fund investments, there are various tailwinds driving an overall increase in allocations among this segment. The current and forecasted rate environment has brought into question the sustainability of the traditional insurance company overweight fixed income model. As a result, insurers are looking to alternatives, and hedge funds specifically, as a prospective component of the solution.

Understanding the strategies, structures and other attributes of hedge funds that are palatable for insurers is paramount for any manager seeking to permeate this segment. We welcome inquiries from managers interested in discussing these issues in more detail.

A special thanks to Bill Wallace and Jackie Krasne of J.P. Morgan’s insurance investor Client Management (iCM) team for their help and input on this report. Please feel fee to contact J.P. Morgan’s iCM insurance team (see below for details).

Contact Us:

Alessandra Tocco

[email protected]

212-272-9132

Kenny King, CFA

[email protected]

212-622-5043

Christopher M. Evans

[email protected]

212-622-5693

Jonathan Stark

[email protected]

212-834-2099

Bill Wallace

[email protected]

212-834-9339

Jackie B. Krasne

[email protected]

212-834-9478

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© 2015 JPMorgan Chase & Co. All rights reserved. All product names, company names and logos mentioned herein are trademarks or registered trademarks of their respective owners. Access to financial products and execution services is offered through J.P. Morgan Securities LLC (“JPMS”) and J.P. Morgan Securities plc (“JPMS plc”). Clearing, prime brokerage and custody services are provided by J.P. Morgan Clearing Corp. (“JPMCC”) in the US and JPMS plc in the UK. JPMS and JPMCC are separately registered US broker dealer affiliates of JPMorgan Chase & Co., and are each members of FINRA, NYSE and SIPC. JPMS plc is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK. J.P. Morgan Securities (Asia Pacific) Limited is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. Other investment banking affiliates and subsidiaries of J.P. Morgan in other jurisdictions worldwide are registered with local authorities as appropriate. Please consult http://www.jpmorgan.com/pages/jpmorgan/investbk/global for more information.

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