Alternatives Access: Capturing the Private Infrastructure Supercycle

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Good morning, everyone, and thanks for joining us. My name is Jasmine Green. I'm an alternative investment specialist here in New York, and I'm thrilled to be joined this morning with two partners, where we're going to dive into the Prime Infrastructure super cycle. It continues to dominate headlines, I think, for good reasons. And I have partners joined with me from Ares and Macquarie two of fabulous partners to the JPMorgan Private Bank. And really going to leave us with some great insights. We're going to take you through five ideas in the next 25 minutes.

So with that, I'd love to introduce my colleagues and friends. Steve Porto, co-CEO of the Ares Core infrastructure fund, and Harlan Cherniak, CEO of the Macquarie infrastructure income fund. There's no better partners to spend time on this topic today, so thank you so much for your time.

Thank you for your partnership.

Thanks. Great to be here.

We're going to dive right in because we've got 24 minutes left. So with that being said, Steve, one of the things that I would love to start with is sometimes infrastructure isn't as intuitive as an investing asset class for clients. So I'd love for you to talk about what is privately held infrastructure and what are some of those initial benefits clients can think about when investing in the asset class.

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Text: Steve Porto

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Yeah, sure. We think that there's a handful of those benefits. First being it provides access to central assets. So these are power plants, data centers, midstream natural gas pipelines that produce the goods and services that really enable our everyday life. So

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Text: What is private infrastructure and why is it important? Illustrative Private Infrastructure Sectors and Assets. Energy & Energy Transition, Digital Infrastructure, Transportation and Mobility. A graphic on the left shows a venn diagram with three circles.

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private infrastructure is a way for investors to access those assets and either lend to them, in Harlan's standpoint, or invest and own them in the equity standpoint. So they also provide portfolio diversification.

So these assets really have very low or no correlation to public stocks or public debt, for example. They're generally producing what we refer to as defensive cash flows. So these assets because they're so large, they're so CapEx heavy, they need to secure long-term contracts with creditworthy counterparties in order to enable an investment like us into them. So that provides long-term relative predictability of those cash flows, at least in our investing experience and history.

They also provide in part because of that defensive cash flow nature. We think some protection against market cycles, some recession resiliency. What's happening right now, today in the world and the volatility around public markets, geopolitical risk, regulatory changes, they're generally not having an impact on whether that essential service asset is producing whatever infrastructure it's serving, whether that be electrons in a power plant or again, compute capacity for a data center. It's producing that and it's selling that under a long-term contract with a creditworthy counterparty.

So really has low to no correlation to some of the volatility we're seeing on the market. And then in some cases that underlying contract can have an escalator actually explicitly tied to CPI and providing that direct inflation protection. So those handful of attractive attributes in our mind are what make infrastructure, particularly private infrastructure and attractive investment for individuals.

And I think really to sum up what you've laid out for us. And we try to get cute here within the private bank, we have an acronym for it of DIY, diversification, inflation protection and ultimately potential for yield. I think what's nice about that is really what you've laid out is the case that institutions have always thought about private infrastructure. And I think because of the changes in structure and the accessibility of the asset class, you're now seeing private clients and families think about adding this to the portfolio.

Yeah, I think if there's two major things happening in infrastructure right now. The first is very simple. It's growth. US private infrastructure deal volume was $160 billion in 2018. Last year it was close to $600 billion. So there's incredible growth happening, creating lots of unique investment opportunities. That's one.

The other thing happening is the investor base, where is that capital coming from. This sector has been dominated by institutions for decades. We're starting to see investment structures, different types of funds that are opening up the sector to individual investors, whereas it's been dominated by institutions, really for the last few decades.

That's right. And for a lot of our clients who have institutional like balance sheets, while their goals and their objectives may be different of that than an institution, there are some of these benefits you laid out that make sense for a family's balance sheet. And so you can explore that with your JPMorgan team.

Harlan, I'd love for you to take a minute to bring it to life. You and I have had a number of conversations about private infrastructure over the past few months, and you made a really great example of just my morning and bringing infrastructure to life. So idea 2, we're going to press forward one slide to bring it to life. But walk us through this example.

I think oftentimes, clients have thought about infrastructure being bridges and toll roads and your grandfather's infrastructure, if you will, and it's so embedded in our daily lives.

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Text: Harlan Cherniak. Head of Infrastructure and Investment Grade Credit, Macquarie Infrastructure Income Opportunities

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I think that's a great point. We've talked about it a number of times. I like to say the perimeter for infrastructure has and will continue to evolve.

Sure.

Your

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A graphic notes morning activities. Text: Providing liquidity in an illiquid market. 6:30, Brushing your teeth, powered by water and energy systems. 7:15, Getting to work, powered by transportation networks. 7:45, coffee shop, powered by energy and logistics. 8:00, arrive at work, powered by critical facilities. 8:30, Morning video call, powered by digital infrastructure. The infrastructure powering your morning: Energy & Utilities, Transportation, Digital Infrastructure

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point. Roads, bridges, tunnels, water, gas, electric utilities. And today, those utilities are invisible. So your morning routine, the three hours from the time that you wake up, from the time that you log into your Zoom at your desk, that's infrastructure at work, brushing your teeth, getting to work, getting on the subway, listening to Spotify on the train, logging into your Dunkin' Donuts app to purchase coffee, arriving to work, swiping into the turnstiles, logging into your wallstreetjournal.com, talking to Siri or Claude, and now logging into Zoom for the morning hoot. That is the infrastructure ecosystem at work. Those are the essential assets, the essential services that are driving the backbone of our economy.

And I think too, what you've laid out is, one, the embeddedness of all of these assets. But I think too-- and I'll have both of you spend time on bringing infrastructure to life here shortly. But I think this idea that infrastructure has changed. We'll spend some time on digital infrastructure in particular, but I think that's something that when our clients are thinking about, maybe I'm not adding the next incremental dollar to the hyperscalers in public markets, but I still want to invest in some of these tailwinds. I think infrastructure can be a natural place to think about pursuing that part of the market.

I'd

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A line graph appears that shows growth increasing steadily for Private Infrastructure, Public Equity and Public Infrastructure from 2004 to 2025. Text: Historically consistent, uncorrelated growth in private infrastructure equity.

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love to press forward to the next idea. And Steve, I want to spend a moment with you. Historically, what we've seen in infrastructure as the asset class and on the equity side investing has been really bringing consistent returns to a portfolio. And it's for all the reasons you actually started the conversation with and some of the potential benefits to portfolios. But I'd love for you to bring to life the last 20 years of investing in this asset class.

Yeah, sure. So when we look back historically and as we've laid out in this slide here, you see that across different cycles, you've seen relative consistency and uncorrelated growth in the returns for equity investors. And so that includes navigating just like other investment classes major cycles like the GFC and COVID. And generally, as you can see here, historically back to 2004, the returns have been 9% annualized for infrastructure equities.

So we think that that's quite attractive. It can potentially reduce volatility in investor's portfolio. And as we were talking about before, diversify across different asset classes.

And I think too, one of the things that's interesting about being an equity investor in infrastructure assets is you typically are a control owner of the asset and how it's operated. And you alluded to some of the potential benefits of high-quality underwriting, really strong counterparties and operators across the asset classes. Will you just spend a moment on the why for diversification, the why for potential inflation buffers in the portfolio, and what that looks like from a long-term contract perspective.

Yeah. So again, these are very large essential service assets like a power plant, a data center, a midstream pipeline. We were talking about transportation and toll roads earlier generally that have those long-term contracts in place. And so that can create a relative lack of volatility around the cash flows that come from that creditworthy counterparty. And as owners of those assets, we can move to optimize their operations, find ways to potentially reduce expenses that all drops to the bottom line, and has the potential to increase cash flow and distributions from these assets.

So being an equity owner, versus, of course, a debt entry point, we have some levers that we can try to pull to take what we think should be a base relative low volatility, at least historically. And what we've seen in the cash flows of these assets, again, driven by that long-term contract and try to enhance them further. That can be again through operations. It also has the potential to take that initial contract. Let's say it's 20 years and work with that counterparty and extend it and hopefully, even more attractive environments for selling infrastructure, goods and services.

And maybe just spend maybe another 20 or 30 seconds on bringing to life the difference between being a value add or an opportunistic investor in infrastructure versus what a core investor would be looking for in a particular asset.

Yes. So generally those are terms of art within the industry. When I hear core, think of an investment strategy that's focused on core investing in infrastructure, it means investing in assets versus companies and platforms. It's investing in assets that are stabilized and cash flowing today. So the nice thing about core investing is when you're thinking about underwriting that project or that opportunity, you don't have to take a leap of faith on things that haven't happened already.

It's already operating. It's already built. It's already cash flowing. Contrast that with value add or opportunistic, where you are taking development risk, you're taking construction risk. And generally, you're doing that because you think there's a lot of value in that. It's taking your expertise or your team's expertise, adding value to an asset, getting it stabilized and then trying to sell down to core investors.

And I think a little bit of what you're describing or alluding to also is really making the case for having both ends of the spectrum, both equity and debt potentially in a portfolio can be interesting one, because you want it actively managed. These are not projects that I'm going to go out and invest in myself. You need strong operators to do so, but also investors who are focused on the fundamentals. So I think that's super helpful, bringing the historical context to life for us.

Harlan, I want to transition to you to bring the debt piece of this to life. Historically, we actually have had to bifurcate in between private credit and infrastructure equity investing. If we wanted to have a flavor of both in a portfolio. Today, you see new structures, new opportunities in the space to really bring both into a single investment opportunity. So I'd love for you to bring to life what are the actual benefits, and maybe also highlight some of the risk across the spectrum that clients should be thinking about before jumping into an opportunity like this.

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Text: Infrastructure debt can provide lenders with additional risk mitigation. Essential Asset Financing, Tangible Collateral, Contracted Revenue Profiles, Robust Lender Agreements. A bar graph at bottom left shows Credit Quality, Default and Recovery Rate for Infrastructure Debt, Direct Lending, Leveraged Loans, High Yield Bonds. A graph at bottom right shows the Historical expected loss rate.

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Sure. I think some of the points that Steve was making were really clear, and I think there's a lot of parallels between the equity and the credit opportunity and infrastructure, largely because of the inefficiency, the magnitude and the supply and the demand imbalance between the capital formation and the opportunity set.

Sure.

We like to say infrastructure credit today is where middle market direct lending was 17 years ago coming out of the GFC. So whether you're looking at infrastructure credit and parallel to other pockets of asset-based finance or pockets of corporate credit or middle market direct lending, the infrastructure space does provide those idiosyncratic opportunities, and it's an opportunity to really lean into some of the things that we as infrastructure credit providers, can control.

Sure.

From your perspective, you're controlling the board management, capital allocation and management compensation. What we can control through these bilateral originated transactions are covenants and credit agreements. And so through that structure and through that complexity premium and going directly to the borrowers, we're able to put in an embedded early warning, monitoring and surveillance system that, in addition to the asset level protections, gives us the ability to both step in when there is a problem. And to the extent that we see opportunity to extract additional economics, we have those controls, that information and that corporate governance.

And you can see it in the historical credit quality. Infrastructure credit, if you look back over a long period of time, has a low probability of default and a high recovery. And so as a result of that, the p times q economics imply infrastructure debt has a low loss rate relative to other pockets of credit. And in today's environment, where you're seeing large pockets of various industries going through significant amounts of volatility, whether it's software or insurance brokerage, and the potential risks within those sectors that represent significant amounts of the overall asset class, infrastructure is immune from a lot of those risks, and it provides a shelter from the storm for many of those investors and a very stable, idiosyncratic opportunity set.

And you started here. But for clients who may be joining us for the first time and diving into the asset class for the first time, I'd love for you to define covenants first and foremost, and then also what does it look like for someone to be on the debt side, looking for financing for an infrastructure project. Bring to life what that may be. Because Steve alluded to the space that he has spent most recent time in on the core side, assets that are already up and running and producing earnings. On the debt side, what's the financing potentially look like and who's looking for that?

So these are often projects or assets or operating companies that are either owned by sponsors or operators or strategics. Think of it as the mortgage layer to the development of a house.

Sure.

And the bank is coming to you to best understand who's going to be building that house. What does that house look like when it's completed? What is the paydown schedule of that mortgage look like or that infrastructure credit loan look like over time? And what are the potential risks around changes in the neighborhood, your neighbors, the environment, and all of the potential first, second, and third order risks around that core nucleus of the development of a project in the infrastructure ecosystem.

The covenants are the rules of engagement. These are financial reporting information that you have to provide and certain tests that you have to meet along the way to make sure that the financial health of who you're lending the money to is similar to what it was when you originally underwrote the loan. Think of it as the equivalent of FICO score if you're borrowing money from the bank to lease a car from your credit card company.

So those are the types of protections and the controls. In infrastructure debt, they're highly bespoke. And that's why we're able to extract the type of credit spread plus illiquidity premium that we're earning in these infrastructure credit loans. And that is an attractive risk adjusted return.

Both of you have done a really great job of bringing to life what is the asset class. I think what I'd love to do is spend time on the sectors across the entire asset class at large. If we press forward and really this is a two for one on idea 5, because I want both of you to spend time in maybe a favorite sector, a favorite asset class. But again, today, it's not just utilities and power. It's social infrastructure. It's digital infrastructure, it's renewables, transportation and the likes. It spans, again, to your earliest points, the backbone of our society and our economy.

And

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Text: Private infrastructure represents a compelling opportunity set with material tailwinds today. Digitalization, Modernizing assets in the move to the digital economy. Decarbonization, Facilitating the transition & evolving energy mix. Demographics, Meeting the needs of communities & driving growth. Deglobalization, Resharing supply chains & domestic infra resilience. Transportation, Digital Infrastructure, Renewables, Utilities and Power, Social Infrastructure, Economic Infrastructure

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so one, Steve, I'd love to start with you. Earlier you and I were chatting and I think you one gave a couple of great examples, but maybe bring to life a favorite of yours, maybe even something you've invested in recently.

Yeah. So I think we're all aware of and hearing about the digital boom and the build out of data centers, there's around 30 gigawatts of data centers today. By 2030, projections are we could go to around 100 gigawatts. That itself creates a massive investment opportunity in the digital ecosystem data centers, fiber and so on. What we find also attractive is what are the knock-on effects of that. We're of course, seeing that in power demand. And we think that needs to be in all of the above strategy. Wind, solar battery storage, natural gas fired power generation, other technologies because the demand is so strong.

And then, of course, as more natural gas fired power plants get built, you need to build out more natural gas infrastructure. So one of the interesting investments we've made recently is in an interstate natural gas pipeline. We own 40% of the equity interest in that, or we invest in 40% of the equity interest in it. And that's structured as a triple net lease. So we get monthly lease payments from our counterparty, who in this situation is investment grade rated, one of the biggest operators of natural gas infrastructure in the US.

That's a great profile for us. All the benefits of infrastructure we've been talking about. And as on the equity side, what we think is quite unique is as the equity owner of an asset like that, again, very large assets that are depreciating, you can create a structure where the dividends that are paid out to the individual ultimate investors in whatever fund or investment vehicle we're talking about have the potential to be classified as return of capital.

And so I live in New York. I'm paying New York State income tax and federal income tax. If I was earning, let's just, say a net 10 yield on an investment, on an infrastructure equity investment strategy, there's the potential that I don't have to pay federal or state income taxes on those dividends, which creates a pre-tax equivalent yield of over 20% for somebody like me. So that I think you have all the benefits we've been talking about. There's actual steel in the ground, concrete in the ground to invest in, and it's tangible. It's got long-term contracts. And then you also have this potential benefit around tax advantages.

Sure. And I think too you sharing that example one, I think everyone perks up when they hear about an asset class where there are potential tax advantages. People get a little nervous when you think about a depreciating asset over time. But I think what's helpful here is we all understand the dynamics of depreciation over a natural life of an infrastructure asset. And so to your point, when you can build a structure where those two things combined can be advantageous for an investor, it makes a lot of sense.

Yeah.

Harlan have a favorite of mine. You and I have talked about this. You gave me some stats just on the backlog or the weights around some of these infrastructure assets today, and I'm surprised power generation and AI wasn't more of a topic amongst us today over the last 20 minutes. But take us through the most recent example that you and I chatted about just on the turbine front.

Sure. So similar to Steve, I think I have almost 25 years of investing across the power and utilities landscape. I think we probably even worked on a few transactions back when you were at GE. Nobody thinks about the picks and the shovels or the significant logistics and supply chain challenges of building a power plant or building a data center. And similar to my wife and who built a home during COVID, it took us about 61 weeks to get a subzero refrigerator. It's about five times the average length of ordering a basic good for your Kitchen. And the number one source of scarcity today when building a power plant or data center, is the combined cycle gas turbine engine itself.

Generally speaking, there's only three manufacturers Siemens, GE, and Mitsubishi. And if the three of us were to walk into any one of those headquarters in Japan and North America or in Germany today, we'd probably be told to come back in sometime in the early 2030s. And so we've been really excited about taking a more agnostic view to both power demand and the development of GPU or GPU as a service for these artificial intelligence or large language learning model opportunities.

We helped a power developer in Texas finance the equipment, and we're doing so at very attractive double-digit type rates, where the assets themselves are irreplaceable. They have an incredibly attractive loan to value. And if we needed to step in or foreclose on the collateral, we can easily move those turbines from Texas to California or into Pennsylvania markets. And we love investing behind and lending into that type of a supply demand dynamic, where there's a significant amount of demand and price inelasticity.

And we've talked about it before, most people don't get excited about electricity, but during winter storm Hernando or thinking about all the power challenges that you've had over this winter here, particularly in New York, which was a real challenge. Historically, electricity only grew at about 40 basis points. It was a certain percentage of GDP. And as a result of all the coal-fired power plant retirements, nuclear power plant retirements, cloud-based computing, fiber and 5G, electricity growth is now about 4.5%. That's a 10-fold increase in electricity.

And when we think about what we like to invest in, we're always trying to find the inefficiency and thus the opportunity on the market. And when we can earn these low double-digit type yields with very significant amounts of hard assets or collateral behind it, it generally presents a really unique opportunity. So that gas turbine and the analogy to that subzero refrigerator are very similar and very tangible and relatable to anyone who's ever built a project.

And I'm thrilled that you and your wife finally got that subzero refrigerator. And I hope you're getting a lot of great use out of it. You both manage to make infrastructure very exciting, which was my only goal for today. So thank you both for the examples. But more importantly, thank you both for your time.

For those of you who joined us for the episode this morning, I'm thrilled that we got to spend some time with you all. Hopefully, we said something that resonates. We will be back next month with another episode of alternatives access. But Steve, Harlan, thank you guys so much.

Thank you.

And thank you, JPMorgan.

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Key risks of investing in alternatives. Additional risks. There may be additional risks inherent in the underlying investments within funds. Currency risks and non-United States investments. Investments may be denominated in non-u.S. currencies. Accordingly, changes in currency exchange rates, costs of conversion and exchange control regulations may adversely affect the dollar value of investments. Dependence on manager. Performance is more dependent on manager-specific skills, rather than broad exposure to a particular market. Event risk. Given certain funds' niche specialization (e.g., in an industry or a region), market dislocations can affect some strategies more adversely than others. Financial services industry risk factors. Financial services institutions have asset and liability structures that are essentially monetary in nature and are directly affected by many factors, including domestic and international economic and political conditions, broad trends in business and finance, legislation and regulation affecting the national and international business and financial communities, monetary and fiscal policies, interest rates, inflation, currency values, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of customers and counterparties, and the volatility of trading markets. Financial services institutions operate in a highly regulated environment and are subject to extensive legal and regulatory restrictions and limitations and to supervision, examination and enforcement by regulatory authorities. Failure to comply with any of these laws, rules or regulations, some of which are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties, fines, suspension or expulsion, and termination of deposit insurance, which may have material adverse effects.

General/Loss of capital. An investment in private equity funds involves a high degree of risk. There can be no assurance that (i) a private equity fund will be able to choose, make and realize investments in any particular company or portfolio of companies, (ii) the private equity fund will be able to generate returns for its investors or that the returns will be commensurate with the risks of investing in the type of companies and transactions that constitute the fund's investment strategy or (iii) an investor will receive any distributions from the private equity fund. Accordingly, an investment in a private equity fund should only be considered by persons who can afford a loss of their entire investment due to its high degree of risk. Investors in the private equity fund could lose up to the full amount of their invested capital. The private equity fund's fees and expenses may offset the private equity fund's profits. Past performance is not indicative of future results. J.P. Morgan's role. J.P. Morgan generally acts as a placement agent to the funds. The investment managers or general partners (or the equivalent) may pay (or cause the funds to pay) J.P. Morgan an initial fee and/or an ongoing servicing fee in connection with its services. In addition, where J.P. Morgan acts as placement agent, an origination fee of up to 2% will be paid by investors in the funds (including those investing through a conduit vehicle and in the Vintage Funds) to J.P. Morgan at the closing and will be in addition to, and not in reduction of, capital commitments to the applicable fund. The origination fee is in addition to fees charged by a fund. J.P. Morgan also provides investment advice and/or administrative functions for certain private investment funds (including the Vintage funds and funds serving as conduit vehicles investing in the funds); J.P. Morgan receives a fee for providing these services in some cases (including with respect to the Vintage Funds). Lack of information. The industry is largely unregistered and loosely regulated with little or no public market coverage. Investors are reliant on the manager for the availability, quality and quantity of information. Information regarding investment strategies and performance may not be readily available to investors. Leverage. The capital structures of many portfolio companies typically include substantial leverage. In addition, investments may be consummated through the use of significant leverage. Leveraged capital structures and the use of leverage in financing investments increase the exposure of a company to adverse economic factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the company or its industry and make the company more sensitive to declines in revenues and to increases in expenses.

Limited liquidity for private equity. Investments in private equity funds are intended for long-term investors who have the financial ability and willingness to accept the risks associated with making speculative and primarily illiquid investments. Interests in the private equity funds are generally not redeemable. An investor in such a fund may not freely transfer, assign or sell any interest without the prior written consent of the fund manager. An investor may not, save in particular circumstances, withdraw from a private equity fund. Interests in private equity funds will not be registered under the U.S. Securities Act of 1933, as amended or any other securities laws in any jurisdiction. There is no liquid market for such interests and none is expected to develop. Consequently, a commitment may be difficult to sell or realize. Limited liquidity generally. Interests are not publicly listed or traded on an exchange or automated quotation system. There is not a secondary market for interests, and as a result, invested capital is less accessible than that of traditional asset classes. Also, withdrawals and transfers are generally restricted. Potential conflicts of interest. Investors should be aware that there will be occasions when a private equity fund's general partner and its officers and affiliates may encounter potential conflicts of interest in connection with the fund. Fund professionals may work on other matters and, therefore, conflicts may arise in the allocation of management resources. The payment of carried interest to the general partner may create an incentive for the general partner to cause the private equity fund to make riskier or more speculative investments than it would in the absence of such incentive.

Risks associated with infrastructure investments generally. An infrastructure investment is subject to certain risks associated with the ownership of infrastructure and infrastructure-related assets in general, including: the burdens of ownership of infrastructure assets; 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; 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, and planning laws and other governmental rules; environmental claims arising in respect of infrastructure assets acquired with undisclosed or unknown environmental problems or as to which inadequate reserves have been established; changes in the price of energy, raw materials and labor; changes in fiscal and monetary policies; negative developments in the economy that depress travel; uninsured casualties; force majeure acts, terrorist events, underinsured or uninsurable losses; sovereign and sub-sovereign risks; contract counterparty default risk. Risks of certain investments. The securities of portfolio companies and the ability of such companies to pay debts could be adversely affected by interest rate movements, changes in the general economic or political climate, or the economic factors affecting a particular industry, changes in tax law or specific developments within such companies. The securities in which a private equity fund will invest generally will be among the most junior in the portfolio company's capital structure, and thus may be subject to the greatest risk of loss. Most of a private equity fund's investments will not have a readily available public market, and disposition of such investments may require a lengthy time period or may result in distributions in kind to investors. A private equity fund's manager generally has a limited ability to extend the term of the fund, therefore the fund may have to sell, distribute or otherwise dispose of investments at a disadvantageous time as a result of dissolution. Speculation.

Alternative investments often employ leverage, sometimes at significant levels, to enhance potential returns. Investment techniques may include the use of derivative instruments such as futures, options and short sales, which amplify the possibilities for both profits and losses and may add volatility to the alternative investment fund's performance. Taxation considerations. An investment in a private equity fund or hedge fund may involve complex tax considerations, which may differ for each investor. Each investor is advised to consult its own tax advisers. Changes in applicable tax laws could affect, perhaps adversely, the tax consequences of an investment. Valuation. Because of overall size or concentration in particular markets of positions held by the alternative investment fund or other reasons, the value at which its investments can be liquidated may differ, sometimes significantly, from the interim valuations arrived at by the alternative investment fund.

Private investments are subject to special risks. Individuals must meet specific suitability standards before investing. This information does not constitute an offer to sell or a solicitation of an offer to buy.

As a reminder, hedge funds (or funds of hedge funds), private equity funds, real estate funds often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum. Securities are made available through J.P. Morgan Securities LLC, Member FINRA, and SIPC, and its broker-dealer affiliates. Hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum. Liquid alternative funds are registered funds that seek to accomplish the fund's objectives through non-traditional investments and trading strategies. They differ significantly from both hedge funds and traditional mutual funds because they can be redeemed on any business day, they are said to be "liquid." Such funds do not follow the typical buy and hold strategy of a traditional mutual fund and generally hold more nontraditional investments and use more complex trading strategies than a traditional mutual fund, which may make an investment in a liquid alternative fund riskier. Non-traditional investments may include, but not limited to private equity, derivatives, commodities, real estate, distressed debt and hedge funds. While investments in private equity funds provide potential for attractive returns, access to opportunities not available in the public markets and diversification, they also present significant risks including illiquidity, long-term time horizons, loss of capital and significant execution and operating risks that are not typically present in public equity markets. Private equity funds typically have a 10-15 year term and will begin to monetize investments after holding them for 4-5 years.

Hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; are not required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any hedge fund. Economy, currency, tax and market conditions, including market liquidity, may increase the risks of these investments and may impact performance of the funds. The views and strategies described herein may not be suitable for all investors, and more complete information is available which discusses risks, liquidity, and other matters of interest. Hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; are not required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any hedge fund Any investment associated with leverage will include additional risks such as implied volatility, exposure to rising interest rates (borrowing costs) and margin calls, which may occur if the underlying investment declines below its minimum lending values. Leverage will have the effect of magnifying losses or gains. Please note that lines of credit are extended at the discretion of J.P. Morgan, and J.P. Morgan has no commitment to extend a line of credit or make loans available under the line of credit. Margin calls may include sale of the asset serving as collateral if the collateral value declines below the amount required to secure the line of credit. In exercising its remedies, J.P. Morgan will not be required to marshal assets or act in accordance with any fiduciary duty it otherwise might have.

KEY RISKS. This material is for information purposes only and may inform you of certain products and services offered by private banking businesses, part of JPMorgan Chase & Co. (*JPM"). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information. GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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