real assets workshop – cipfa scotland
DESCRIPTION
TRANSCRIPT
1
George L. Ochs, Managing Director
March 2009
REAL ASSETS Workshop –CIPFA Scotland
1
Disclaimer
This presentation sets out a brief overview of the investment opportunity (“Real Assets Strategy”). The information in this presentation, which is for background purposes only, is preliminary in nature and is subject to change, verification and updating. It does not constitute an offer or solicitation to any person in any jurisdiction to purchase or sell any investment. Definitive investment decisions should be based solely on the prospectus or similar admission document which may be issued at a later date in connection with the Real Assets Strategy and not on this presentation. No information in this document should be construed as providing financial, investment or other professional advice. This information contained herein is for the sole use of its intended recipient and may not be copied or otherwise distributed or published. No final decision has been made to proceed with an offering. Such a decision will be taken only after assessing market feedback and prevailing market conditions. No orders are being taken at this time.
This presentation is only directed to persons believed by JPMorgan Asset Management (UK) Limited to be investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, high net worth companies, unincorporated associations and other persons as defined in Article 49 of that Order and to others to whom it can lawfully be distributed or given, inside the United Kingdom, without approval by an authorised person. Persons who do not have professional experience in matters relating to investments should not rely on it and any other person should not act on such information.
This document is issued in the UK by JPMorgan Asset Management (UK) Limited and has been approved solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 by JPMorgan Asset Management (UK) Limited which is authorised and regulated in the UK by the Financial Services Authority. This presentation does not constitute or form part of and should not be relied on in connection with any offer or invitation to sell, underwrite or solicit any other offer to purchase or subscribe shares or any other securities, nor may it or any part of it, nor the fact of its distribution, form the basis of, or be relied upon in connection with, any contract.
The proposed issuer has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition, the securities of the proposed issuer (“Securities”) have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"). Consequently, the Securities may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from the registration requirements of the Securities Act to persons who are “"qualified purchasers”" (within the meaning of the Investment Company Act) and under circumstances which will not require the proposed issuer to register under the Investment Company Act. No public offering of the Securities is being made in the United States.
Investment Risks: All investments are subject to risk, including the loss of principal amount invested. The value of the Securities, if and when offered, may go down as well as up. Past performance is no guarantee of future returns. Individual erformance, portfolio exposure and other data included herein may vary among the strategies managed. An investment in the proposed issuer is speculative and involves a substantial degree of risk, including the risk of total loss. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.
2
2
DisclaimerInvestment in the strategy is intended for experienced investors who are able to understand and accept the risks involved. Persons considering investing in the strategy should read the risk disclosure which will be included in the prospectus.
The strategy may utilise gearing (leverage) which will exaggerate market movements both down and up in the underlying strategies and assets into which they invest and which could mean sudden and large falls in value. Investors could get back nothing at all. For further details please refer to the Prospectus, on its publication. The strategy may have warrants in issue, which if exercised may have an effect on the net asset value per share.
Copyright and Other Rights: The copyright, trademarks and all similar rights of this presentation and the contents, including all information, graphics, code, text and design, are owned by JPMorgan Asset Management (UK) Limited or its affiliates. Information contained in this presentation must not be reproduced, copied or redistributed in whole or in part.
While all reasonable care has been taken to ensure that the facts stated in this presentation are accurate and that any forecasts, opinions and expectations contained in the presentation are fair and reasonable, JPMorgan Asset Management (UK) Limited has not independently verified the contents of the presentation and no reliance whatsoever should be placed on it.
Limitation of Liability and Indemnity: JPMorgan Asset Management (UK) Limited and its representatives do not warrant the accuracy, adequacy or completeness of the information and data contained herein and expressly disclaims liability for errors or omissions in this information and data. No warranty of any kind, implied, expressed or statutory, is given in conjunction with the information and data. JPMorgan Asset Management (UK) Limited does not accept any liability for any loss or damage arising out of the use or misuse of or reliance on the information provided including, without limitation, any loss of profits or any other damage, direct or consequential.
Any opinions contained in this presentation may be changed after issue at any time without notice.
JPMorgan Asset Management (UK) Limited’s registered address is 125 London Wall, London EC2Y 5AJ, United Kingdom. JPMorgan Asset Management (UK) Limited is authorised and regulated in the UK by the Financial Services Authority.
3
Real Assets
3
4
The 2001–2002 equity market correction: Investors’ portfolios hit a wall
The traditional stock / bond portfolio fails
Tech bubblebursts
Equityvalues drop
Fixed Income
yields fall
2001–2002
Equity allocations grew in ’90s bull market
Fixed Income allocations declined
5
2003–2007: Investors clear the wall by focusing on diversification
The broadly diversified portfolio takes hold
Tech bubblebursts
Equityvalues drop
Fixed Income
yields fall
2001–2002
Equity allocations grew in ’90s bull market
Fixed Income allocations declined
2003–2007
Allocations increase to “Alternatives”:Private Equity, Real Estate and Hedge Funds
The only common element in these alternatives is they are not stocks and bonds
4
6
2008: Investors hit the second wall when risk gets repriced
The troika of “Alternative Investments” is dismantled
The need for more diversification and more return intensifies
2009–The quest for returns & diversification intensifies
New asset classes & sectors emerge
Geographic diversification expands
Focus on defensive & tangible assets
Capital preservation a priority
Credit crisis
Oil
Inflation
Volatility
Equity values fall
2008
Tech bubblebursts
Equityvalues drop
Fixed Income
yields fall
2001–2002
Equity allocations grew in ’90s bull market
Fixed Income allocations declined
2003–2007
Allocations increase to “Alternatives”:Private Equity, Real Estate and Hedge Funds
The only common element in these alternatives is they are not stocks and bonds
7
What do we mean by Real Assets?
RealAssets
CommoditiesGood hedge against unexpected inflation often drivenby the energy sector. Exposure provided through futures or direct investments in oil & gas, timber, mining or agriculture
Real EstateVia the cost of construction materials and labourCaptured through lease escalations and operating cost “pass throughs”
InfrastructureVia the tolls and rates of regulated industries
ShippingDirectly tied to global growth and the movement of inputs and final products across the globe
Operating assets, “hard” assets and financial securities that provide an implicit and/or direct hedge against inflation
5
8
How do investors clear the second wall? “Real Asset”allocations will grow to 25% or more over the next 10 years
Private Equity becomes an extension of public equity
Hedge Funds become absolute return investments
Real Estate is part of a large new portfolio allocation called “Real Assets”
Reductions in Equity and Fixed Income allocations
Real Estate 10%
Infrastructure 6%
Commodities 3%Timber/Agriculture 2%Shipping/Transport/Other 2%
2008 and beyond
Other assets75%
Real Assets25%
9
Real Assets are all linked to globalisation & urbanisation
Real Assets are linked to inflation
Real Estate — Infrastructure — Shipping — Commodities
Iron ore mined in Brazil
Placed on ship to China Ship enters port in China
Ore loaded on rail
Ore processed in China steel plant
Steel on ship from China to the U.S. and
EuropeSteel is used to construct
new buildings, bridges and tunnels
6
10
Geographic diversification:OECD vs. Emerging Markets
Emerging Markets
OECD Countries
Canada
United States
Australia
Germany
France
Italy
UK
Contrasting “developed” versus “developing” markets
Spain
Sweden
11
Why the focus on real assets/inflation sensitive assets?
3 billion good reasons – most of them in India and China
Massive economic and social transformations are underway in Asia and elsewhere
Urbanization occurring rapidly and on a very large scale
Environmental concerns driving demand for efficient global infrastructure
Competition for the world’s resources is rising
Demands on the world’s infrastructure will strain capacity and stimulate construction
Source: United Nations Population Division.1Added by 2050.
Largest Countries By PopulationIn 2050 (millions)
India 1,658
China 1,409
USA 402
Indonesia 297
Pakistan 292
Nigeria 289
Brazil 254
Bangladesh 254
Rep. of Congo1 187
Ethiopia1 183
7
12
The 12 Dominant Economies
864201.4Spain12
1.6Mexico11
1.8Italy10
2.0Brazil9
2.1France8
2.2Russia7
2.8United Kingdom6
2.9Germany5
3.3India4
4.5Japan3
7.8China2
14.6United States1
Real GDP Growth, 2008 estimated (Percent)
2008 GDP(US$ trillions)
CountryRank
Largest Economies as Measured by Gross Domestic Product
Source: International Monetary Fund; CIA, World Fact Book 2009.
13
Chinese and Indian middle classes are forecasted to expand rapidly
The evolution of the middle class in China and India
77
22
110
79.4
11
0102030405060708090
Lower Middle Upper
20052025
In both China and India, the upper middle class is growing rapidly as poverty is reduced, greater investment in infrastructure is required
China’s middle class is growing by almost the size of California every year
Sources: Global Insight, McKinsey Quarterly, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat
China
54
45
1
22
68
10
0
10
20
30
40
50
60
70
80
Lower Middle Upper
20052025
India
8
14
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 1995 2000 2005 2010 2015 2020 2025
India China US
In the developing world…Urbanisation is driving demand for infrastructure, housing and commercial real estate
Between 2000 and 2025, the urban population in China will double to almost 1 billion people
The urban population of India in 1990 was 200 million and by 2025, it will be over 500 million
Sources: Global Insight, McKinsey Quarterly, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat
% of urban population
Urban population as a % of total
China’s urban population to grow from 26%...
…to 63% of total population
0
100
200
300
400
500
600
700
800
900
1,000
1990 1995 2000 2005 2010 2015 2020 2025
IndiaChinaUS
mill
Total urban populationChina
459 to 914m2000 – 2025
(CAGR of 2.8%)
USA225 to 301m2000 – 2025
(CAGR of 1.2%)
India281 to 513m2000 – 2025
(CAGR of 2.4%)
15
What is infrastructure?
Waste water collection and processing systems
Water distribution
Electricity and gas distribution
Oil and gas pipelines
Electricity transmission
Regulated Assets
CourthousesSatellite networksRapid transit links
Social Infrastructure
Communications Assets
Transportation Assets
Airports, Seaports
PrisonsCable systemsRailroads
HospitalsWireless towersToll roads
SchoolsRadio/TV broadcast towersBridges and tunnels
Essential facilities and services, upon which the economic productivity of a community depends
Assets involved in the movement of goods, people, water and energy
Transportation and regulated assets offer the best protection against inflation
9
16
State of America’s infrastructure
Airports
Bridges
Roads
Dams
Drinking water
Wastewater
Transit
Energy (national grid)
Overall
D
C
D-
D
D-
D-
D
D+
D
Subject 2009 Grade
ASCE estimates that the U.S. needs to spend $2.2 trillion over the next five years to modernise the nation’s infrastructure.
Age
Deferred maintenance
Increased demand– population– usage
Key Drivers
ASCE report card for America’s infrastructure*
*Sources: American Society of Civil Engineers
17
Three sources of capital for “publicly owned”infrastructure
Raise Taxes
Issue Bonds
Employ Private Capital
Comments
Immediate taxpayer burden
No political will to do this
Shifting the burden forward
Many states/municipalities at credit limit
Two means:– privatisation of mature assets
– Public Private Partnership (P3) for new asset construction/operation
Effective where returns appropriate for risk
10
18
Infrastructure demand is non-discretionary and has low volatilityUsage volatility of infrastructure sectors versus volatilities of US real retail consumption and equity returns, July 1998 to June 2008
Annual volatilities based on monthly data
Sources: Bloomberg, Economy.com, US Energy Information Administration (EIA), US Bureau of Transportation Statistics, Eurostat, J.P. Morgan. Electricity, natural gas and water usage is based on residential and commercial sectors only.
ReturnsConsumption in dollarsUsage in units
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
SP 500
MSCI Worl
d
FTSE 100
MSCI Euro
pe
Groceri
es
Clothin
gDrug
s
Electric
ity (U
S and E
U-15)
Wate
r (US)
Miles d
riven
(US an
d UK)
Enplan
emen
ts(U
S and E
U-15)
Natural
gas (
US and E
U-15)
Equity markets
Non-discretionary consumptionInfrastructure usage
Highly correlated with weather
19
Investment characteristics of core plus infrastructure
Long-term, quasi-monopolistic assets with low risk of obsolescence– Stable, predictable cash flows– Relatively insensitive to economic cycles– Relatively price inelastic
Potential to achieve favorable risk-adjusted returns through the use of leverage
Real return asset with inflation-protection
Low correlation of returns with other asset classes and between infrastructure sub-sectors
11
20
Infrastructure market outlook
Credit crisis – infrastructure represents a safer loan than most!– less leverage available, with tighter covenants– prices are moderating, therefore returns are increasing– opportunities available for disciplined investors
Political considerations– infrastructure and clean energy are focuses of the Obama administration– federal funding will only be the tip of the iceberg in terms of addressing capital
requirements for infrastructure maintenance and expansion– government budget shortfalls and greater awareness will lead to more
opportunities for PPPs
The economy– Infrastructure is relatively recession resistant– Real assets are attractive if global stimulus causes future inflation
*Sources: American Society of Civil Engineers
21
Why investors should focus on “real assets” now?
Population growth
Urbanisation
Competition for resources
Environmental concerns
Demand for Infrastructure
The world is changing rapidly, investors must keep pace!
Source: United Nations, World Urbanisation Prospects: The 2005 Revision, http://esa..un.org/unpp
Urban vs. Rural Populations
Largest 20 urban areas will grow by 75 million
2006-2020
Source: City Mayors, www.citymayors.com
Urban
Rural203040506070
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Demographic drivers
12
22
Risk Factors relating to the StrategyThe following summarises certain key risk factors, as may be set out, along with other risk factors in any prospectus that may be produced in relation to the strategy. Prospective investors should carefully consider the summaries below in conjunction with the risk factors sections in any prospectus to be produced in relation to the strategy and should consult with their own financial, legal and tax advisers before deciding whether to invest in the strategy.
General: There can be no assurance that the strategy will succeed in meeting its investment objective or target return or that there will be any return on capital or of the original capital invested.
Leverage: The use of borrowing by the strategy or strategies into which it invests may create a greater potential for loss than the available assets of the strategy. The assets invested in the strategy may be insufficient to meet repayments and the strategy may not be able to refinance existing borrowing on equal terms or at all.
Risks associated with real estate investments: An investment in the strategy will be subject to certain risks associated with the ownership of real estate and real estate related investments. These risks include, among others, adverse changes to national or international economic conditions; increase in competition; changes in interest rates, property taxes and other operating expenses; legal fees and expenses incurred to protect the strategy’s investments; changes in planning laws and other governmental rules and fiscal policies; casualty or condemnation losses; uninsured damages from natural disasters and acts of terrorism and limitations on and variations in rents. These factors could give rise to fluctuations in occupancy rates, rent schedules or operating expenses. In addition, investments in real estate tend to be long-term and illiquid. The strategy may also invest in real estate related securities and other real estate-related investments, which will involve risks in addition to those set out above.
Risks Associated with Infrastructure Investments: Investing in infrastructure assets involves a variety of risks, not all of which can be foreseen or quantified, and which include, among others: the burdens of ownership of infrastructure; local, national and international economic conditions; the supply and demand for services from and access to infrastructure; the financial condition of users and suppliers of infrastructure assets; risks related to construction, regulatory requirements, labor actions, health and safety matters, government contracts, operating and technical needs, capital expenditures, demand and user conflicts, bypass attempts, strategic assets, changes in interest rates and the availability of funds which may render the purchase, sale or refinancing of infrastructure assets difficult or impracticable; changes in environmental laws and regulations, investments in other funds, troubled infrastructure assetsand planning laws and other governmental rules; changes in energy prices; negative developments in the economy that may depress travel activity; force majeure acts, terrorist events, under-insured or uninsurable losses; and other factors which are beyond the reasonable control of the strategy or the strategy’s investment adviser. Many of these factors could cause fluctuations in usage, expenses and revenues, causing the value of the Investments to decline and negatively affecting the Fund’s returns.
Environmental risks: The strategy may become liable for substantial costs arising from remedying environmental problems associated with the properties it holds. The costs of any such remediation may exceed the value of the relevant property and/or the aggregate assets of the strategy. Environmental problems may also affect the use and operation of such properties.
Currency risk and hedging: The base currency of the strategy will be the US Dollar. Investors with a national currency other than the US Dollar will therefore be subject to fluctuations in currency exchange rates. While under no obligation to do so, the strategy may enter into transactions or investments in relation to any or all of currency exchange, interest rate, inflation rate, commodity or other risks in connection with Investments. It may not be practical or cost-effective to hedge such risks precisely, especially where the magnitude and timing of future cash flows are not known with certainty. Accordingly, there can be no assurance, in such cases, that (a) such hedges will (i) be available, (ii) be available at a reasonable cost, (iii) be sufficient to mitigate the relevant risk or (iv) actually eliminate the risk of fluctuation in rates being hedged or (b) counterparties to any hedging transaction would perform as expected. There is also no certainty that any hedging transaction will prove beneficial to the strategy.
Diversification: A possible limited degree of diversification means the performance of the strategy may be more susceptible to a single economic, political or social event.
Changes in Tax Regimes: Changes in tax legislation, administrative practices or understandings in any of the countries in which the strategy invests or in which the investor resides, or changes in tax treaties negotiated by those countries, could adversely affect the returns from the strategy.
Lack of operating history: The Strategy and a number of the strategies into which it invests will, when formed, will have no operating history. The past performance of other investments made by the investment adviser or its affiliates is not an indication of the future results of an investment in the strategy.
Conflicts of interest: JPMorgan Chase engages in activities in the normal course of its investment banking, asset management and other businesses that may conflict with the interests of the strategy, the underlying strategies into which it invests and/or their respective investors.
23
Risk Factors relating to the StrategyThe Target Return is Subject to Market Conditions: The strategy’s target return is based on current available investment opportunities and predictions of the real estate and infrastructure markets and economic conditions generally. Because the strategy has an indefinite term and current estimates of market conditions are likely to change over time, prospective investors should note that the actual realized return over the term of the strategy may vary materially from the strategy’s target return. The investment adviser reserves the right to amend the strategy’s target return without the consent of investors in the event the investment adviser determines, in its absolute discretion, that such amendment is warranted by a material change in circumstances.
Appraisals and Valuations: Most of the strategy's investments will be highly illiquid, and will most likely not be publicly traded or readily marketable. The investment adviser, therefore, will not have access to readily-ascertainable market prices when establishing valuations for the investments, and the investment adviser and the stratgy can provide no assurance that any given investment will be valued or sold at a price equal to the value ascribed by the investment adviser to such investment.
Future Investments; Inability to Invest Committed Capital: The investments that will be acquired by the strategy have not yet been identified. The activity of identifying, completing and realizing attractive Investments is highly competitive and involves a high degree of uncertainty. The strategy will be competing for investments with other infrastructure and real estate investment vehicles, as well as financial institutions and other institutional investors. No assurance can be given that the strategy will be successful in obtaining suitable investments
No offer: This presentation is being communicated solely for the purposes of ascertaining levels of interest for the strategy. Accordingly, this presentation is not, and should not be construed as an offer to accept investment in the strategy.
Basis for any investment in the strategy: Any investment in the strategy will be accepted solely on the basis of any prospectus to be produced in relation to the strategy. Accordingly, this presentation, in whole or in part, will not form the basis of and should not be relied upon in connection with any subsequent investment in the strategy (when established and offered). To the extent that any statements are made in this presentation, they are qualified in their entirety by the terms of the to be produced prospectus.
No reliance: No reliance may be placed for any purpose whatsoever on the information contained in this presentation or on its completeness. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. No person has been authorised by JPMorgan Asset Management (UK) Limited or its affiliates to give any information or to make any statement or representation concerning the strategy other than as set forth in this presentation. This presentation should not be considered as a recommendation by JPMorgan Asset Management (UK) Limited or its affiliates that the strategy represents a suitable investment for any recipient of this presentation.
Forward-looking statements: The statements contained in this presentation that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which the strategy will operate, and JPMorgan Asset Management (UK) Limited’s and its affiliates beliefs and assumptions. Words such as “expects”, “targeted”, “anticipates”, “should”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “forecasts”, “projects”, variations of such words and similar expressions are intended to identify such forward-looking statements. For example, the Target Return to investors noted herein is a forward-looking statement. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and returns may differ materially from whatis expressed or forecasted in such forward-looking statements. Among the factors that could cause actual results to differ materially are: the general economic climate, inflationary trends, competition and the supply of and demand for property investments in the target markets, interest rate levels, the availability of financing, potential environmental liability and other risks associated with the ownership, development and acquisition of property, including risks that tenants will not take or remain in occupancy or pay rent, changes in the legal or regulatory environment, or that construction or management costs may be greater than anticipated.
13
24
Risk Factors relating to the StrategyOwn investigation: Potential investors should make their own investigations and evaluation of the strategy. Prior to the acceptance of a potential investor's application to invest in the strategy, investors will be given the opportunity to ask questions and receive answers and additional information concerning the terms and conditions of the strategy and other relevant matters. Investors should inform themselves as to the legal requirements applicable to them in respect of interests in the strategy, and as to the income and other tax consequences to them of holding such interests.
Past performance and projections: The information set out in this presentation has been prepared by JPMorgan Asset Management (UK) Limited and its affiliates and is based upon valuation methodologies and calculations which JPMorgan Asset Management (UK) Limited and its affiliates believes reasonable and appropriate. Moreover, with respect to unrealised investments referred to herein, the calculations are based upon projections of future net cash flow and other factors, which have been determined in good faith by JPMorgan Asset Management (UK) Limited and its affiliates. There can be no assurance that such projections will prove to be accurate. Past performance cannot be a guide to future performance and due to the higher risk/return profile in particular with respect to the investments made by the Peabody Fund as an opportunity fund, there is no certainty its past performance will be indicative of how the strategy will perform in the future. This presentation was prepared exclusively for the benefit and internal use of the recipient in order to indicate, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure to any other party. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by JPMorgan Asset Management (UK) Limited or its affiliates. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of JPMorgan Asset Management (UK) Limited. The information in this presentation is based upon management forecasts and reflects prevailing conditions and our views as of this date, all of which are subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the strategy.
The strategy may be listed and traded on the London Stock Exchange: If launched, the strategy will be enacted via a listed closed end investment company who’s shares shall be listed on the London Stock Exchange. There can be no guarantee that the price at which these shares trade reflects the net asset value attributable to the shares. Share in listed closed end investment companies frequently trade at a discount to net asset value and this discount may mean that selling investors receive proceeds which are materially lower than the net asset value attributable to their holding. There can be no guarantee that there will be sufficient liquidity in the stock market to accommodate a potential investor’s buy order or a selling investor’s sell order at the indicated market price in a timely manner. Liquidity in the shares of closed end funds may be limited to such an extent that buy or sell orders may not be able to be filled.
The success of the strategy is dependent on the investment adviser: The successful enactment of the strategy shall be highly dependent on the investment adviser and its performance. The departure of members of the investment adviser’s team could have a material effect on the performance of the strategy. The investment adviser’s liability is limited and the Listed Fund has given indemnities in its favour, meaning that the Manager may be inclined to take greater risks when making investment-related decisions.
25
This document is intended solely to report on various investment views held by JPMorgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are not available for actual investment. The information contained herein employs proprietary projections of expected returns as well as estimates of their future volatility. The relative relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
Infrastructure and real estate investing may be subject to a higher degree of market risk because of concentration in a specific industry, sector, or geographic sector. Infrastructure and real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers.
The value of investments and the income from them may fluctuate and your investment is not guaranteed. Past performance is no guarantee of future results. Please note current performance may be higher or lower than the performance data shown. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made.
The deduction of an advisory fee reduces an investor’s return. Actual account performance will vary depending on individual portfolio security selection and the applicable fee schedule. Fees are available upon request.
The following is an example of the effect of compounded advisory fees over a period of time on the value of a client’s portfolio: A portfolio with a beginning value of $100 million,gaining an annual return of 10% per annum would grow to $259 million after 10 years, assuming no fees have been paid out. Conversely, a portfolio with a beginning value of $100 million, gaining an annual return of 10% per annum, but paying a fee of 1% per annum, would only grow to $235 million after 10 years. The annualized returns over the 10 year time period are 10.00% (gross of fees) and 8.91% (net of fees). If the fee in the above example was 0.25% per annum, the portfolio would grow to $253 million after 10 years and return 9.73% net of fees. The fees were calculated on a monthly basis, which shows the maximum effect of compounding.
Illustration showing impact of investment management fees: An investment of USD $1,000,000 under the management of JPMAM achieves a 10% compounded gross annual return for 10 years. If a management fee of 0.75% of average assets under management were charged per year for the 10-year period, the annual return would be 9.25% and the value of assets would be USD $2,422,225 net of fees, compared with USD $2,593,742 gross of fees. Therefore, the investment management fee, and any other expenses incurred in the management of the portfolio, will reduce the client’s return.
All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not necessarily indicative of the likely future performance of an investment.
Any securities mentioned throughout the presentation are shown for illustrative purposes only and should not be interpreted as recommendations to buy or sell. A full list of firm recommendations for the past year is available upon request.
JPMorgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., JPMorgan Investment Advisors Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.
Copyright © 2007 JPMorgan Chase & Co. All rights reserved.
JPMorgan Asset Management
14