FUND BANKING GROUP

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A line of metallic gold ink curves against a dark background, forming a signature. Logo: J P Morgan

A panel of speakers sits at a desk with the J P Morgan signature logo on the wall behind them.

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Welcome to the Fund Banking Group Insight web series. I'm Jeff Kaveney, the head of the Fund Banking Group at JPMorgan's Private Bank. Today, we're going to discuss fundraising, capital deployment, and general market trends. I'm joined by two of my great partners here at JPMorgan. And I'll turn it over to them to introduce themselves. Patrick, over to you.

Sure. Well, very great to be here. Thanks for having us, Jeff. Patrick McGoldrick, managing partner of Private Capital. We sit within the asset management alternatives business focused on discrete VC and growth equity investing across sectors of consequence, so technology, consumer, and life sciences. We're a $1.6 billion of assets under management, about a 30 person team all based here in the US and actively deploying our capital.

Love that. Kristin Kallergis Rowland, I am part of the Global Alternative Investment Solutions Group that has brought together both wealth management and asset management, especially where we invest in non JPMorgan's portfolios, JPMorgan's funds like private capital, and lots in between. Of the just over $240 billion that we oversee, about 186 of that comes from the wealth management side.

Within that it breaks down across about $65 billion is in private equity-- core private equity managers. About $20 billion or so is in hedge fund strategies. About $25 billion is in real asset strategies. That's growing. And then about 35 is in private debt.

That didn't all add up because some of the structures are different or do crossovers, but we have just over-- just over 200 professionals actually as part of this. And the roles vary from our investment diligence and operational diligence to our structuring capabilities, where we keep everything in house, and then our specialists that are our go to market with clients as well. And lots in between, portfolio managers, diligence specialists across each strategy and subsector. And we've been doing this since the 90s.

I love it. I did not hear one other key class that we work with which is venture. And so when you think about the venture space and what that growth looks like, both in the marketplace but also within the purview that you oversee, how do you think about venture? And we're going to talk about fundraising. But let's just say, where are you and your team on venture?

Yeah, I would say I put that in the equity bucket. So it's part of that almost $65 billion. I would say, in our portfolios, we've done an incredible job through our private equity group of allocating to venture as a core part of those portfolios for 40 plus years. A lot of our clients, we do suggest that they allocate to venture in a more funds to funds like approach because, one, it's hard to get access to. The access is limited, and three dispersion is high in that substrategy.

I would say starting six years ago, we got more serious about understanding how strategic our capital could be to those GPS. We also think the industry has just continued to emerge and evolve. There's a lot of people that used to be venture managers, and now they're multi-stage managers. So we hired in some specialty about seven or eight years ago. When it comes to clients outside of portfolios choosing a la carter, we hired someone that came from a family office background before that was in banking and private equity but has really helped us expand the ecosystem within venture.

And so a lot of what we sometimes prefer in that space are really fund managers between 50 and $500 million that are very specialized or focused in an area. And then other than that, in places where we feel like we have a firm advantage, we actually do invest with Patrick's group, especially in places like health care or in places like anything that touches the bank, so whether it's cybersecurity or fintech that we also partner with as well.

So it's certainly evolved. I think our access has increased over the last six or seven years, and I do-- there's a lot of our venture managers who said, understanding how important JPMorgan was to the ecosystem following things like SVB and First Republic, et cetera have changed the game for us. And it's, certainly, a place where we're focused on a go forward basis with this innovation economy.

Love that. Thank you. All right, let's talk a little bit about money in motion. I sit in front a lot of funds, have a lot of conversations. And at the beginning of this year, I think everybody was very excited, new administration, potentially deregulation, potentially green shoots, potentially a lot of exits and/or advisory deals that are going to happen whether they're public or private. And obviously, we've seen some things around tariffs, we've seen some things that have not really brought that kind of prediction to market as much.

So just would love to hear from both of you as you think about the fundraising, how LPs are thinking about things, what are you seeing. So Patrick, just when coming from running a fund, how do you think about how your fundraising has looked and then how are you talking to LPs about just the marketplace either slowing down or speeding up, and what are you guys looking for?

Sure. I think, the best way to frame this is just look at the tops down view first before we get to the bottoms up. So tops down, our industry, private markets have grown significantly over the last call it five years, frankly, and even more so over the last decade. But back in 2020, the total allocation of capital to real estate infrastructure, real assets, private equity, and venture was about 10 trillion. That's grown to be just a touch under 19 trillion and is expected to grow another six trillion by 2029.

So it's not quite the same compounded annual growth rate over the next five as the last five, but it's still an increasingly important part of portfolios. I think the dynamics have certainly shifted. So the mix shift within that $19 trillion has changed quite a bit. So secondary's five years ago was a much smaller part of the overall industry. Now, that's 15% of all capital raised in 2024.

The LP Dynamics has shifted greatly. So if you go back about a decade-- and our strategy is while we have the privilege of being at JPMorgan, we're still very much defined as an emerging manager, so three vintages or fewer under our belts. Emerging managers tend to be about 50% of total capital allocated going back to 2015, '16, or '17, there has been a flight towards established. And that's about-- and you should weigh in on this too, KK, but that is now about 2/3 of the managers. If you just look at the space I operate in, venture and growth, over 50% of the capital was raised in 2024 from nine managers.

Wow.

Just nine. So it shows you that--

Long-established managers, many, many vintages, multiple billions of dollars.

Exactly. And I mean, even within that nine, four of them represented 35% of the capital. And so you're seeing allocators who are a little bit caught with this conundrum of, OK, distributions aren't outpacing contributions on an annual basis. How do I think about where I re-up? And in a very uncertain paradigm with funds closing, which we should talk about too in a moment, that just has become a trickier equation to make work.

Yeah, I'm glad you started with Patrick because he has the details. I'll give you at a higher level, I'd say the two shifts that are taking place, one, when you look at the difference between these drawdown funds versus an evergreen fund, those are two totally different dynamics in the industry. For the last three years, the drawdown industry has had declining fundraises.

If you look at the evergreen universe, which is still a pretty early ecosystem-- I think there's just over 500 funds available-- but you'd see a year on year increase in the teens from a percentage compounding growth. So one is structurally the numbers still look really strong, but the makeup of it has shifted. Number two, the actual LPs has also shifted.

So if you look at the traditional institutional investors, those allocations have been stable or come down the last three years. When you look at individuals, there's stats in the industry that say anywhere from the average retail investor portfolio makes up-- has an allocation of alternatives between 2 and 1/2 to 5%, and that's expected to double in the next five years. Part of that's because the access is opening up, but part of it is also just trying to meet long-term needs and where you're going to be able to access that in your portfolio.

So I'd say money is, certainly, emotion some, and then, sorry, the third part of that is so one is structure of the underlying. Two is structure of the LPs. And then the third piece to Patrick's point is the flight to core diversified buyout, which we hadn't seen in five years is the number one place.

The second is where clients can build portfolio resiliency, so things like infrastructure, real asset type exposure. And then the third is really trying to think through when some of those-- I think people in places like growth and venture forgot that there was like a J-curve for many years because things would go to direct listings or SPACs or IPOs, et cetera.

And then following the tech wreck, I think duration certainly extended in the industry, but I do still think it's happening at a time where people need to be thinking about what AI mean and all the reset that we've seen in some of these valuations. So the third component of it that we're starting to see clients leg back more into is growth and venture. But you're right, it's probably a fifth of what it was five years ago.

All right, you said a lot of key terms there. We hit on evergreen versus drawdown. And then you hit like the ultimate AI. And I'm going to work those into to one other question, kind of, around the idea of if I'm trying to fundraise, there's always that, hey, I'm running a first time fund. And that's interesting. But then the other is the world, especially in the technology space, is moving more toward AI. And even in general corporate earnings, you want to hear people talk about how they're using AI to create more efficiency.

But if I'm an established manager and I'm going out and thinking about a first time strategy-- not a first time fund, but I'm going to move into another sector or do something new, how do you think about that from a third-party fundraising perspective or from a due diligence perspective. And then Patrick, you guys have multiple strategies. How did you guys go about determining where to go and how to think about, OK, this is we're going to have best traction because we are going to be a first time manager in that space.

That was like a lot of questions in one, but we'll try to tackle them. So one, I would say if it's an established manager but with a first time strategy, we want to make sure that they have a right to win in that space or some type of-- that it matters to them strategically. Too often we see fund managers launch, sort of, a sidecar vehicle or these newer strategies, and three to seven years later, it's shut down. Because it takes a long time to build these businesses.

What is a right to win? What does that mean?

Just that there's something structurally in how they've set up or a track record or an ecosystem that they're in that allows them deal flow and sourcing on a go forward basis in a pretty strategic way. So that's like part-- I always say what is your-- we'll pick JPMorgan. We have a right to win in some of these cyber deals because we spend $800 million a year in cyber technologies as a firm. It gives us a right to win on the deal side as one example.

So to the extent-- Patrick doesn't have a cyber specific strategy. It's part of a broader strategy. But if that was something that he came to us with, it would be really interesting for us to look at because we think he has a right to win in that space.

So one, is that right to win or have that strategic advantage. And then the second biggest thing I think we look for is alignment. So there's a lot of people that start a strategy, maybe even hire a couple people on a team, but they're not aligned the same way. From an economics perspective. Those are two of the most important things I would say that we look for when we're thinking about underwriting someone in that space, but I'd be interested to how you think about it from a strategy perspective.

No, I think that's right. And you hit on the exact term I was planning to use, which is what is that right to win, that differentiated edge that you have as a team. I think as we thought about our business, it very much stemmed from on the technology side, we spent $18 billion a year in technology spend. We have 63,000 technologists who are-- to your point about the AI, Jeff, we're targeting $2 billion of AI efficiency gain per year. Harvard recently did a study on JPMorgan being at the frontier of AI deployment across financial institutions.

People don't think of JPMorgan that way, but yet we engage with technology vendors as early as the seed stage. And imagine how formidable it is to have that name on your cap stack as an investor in the company where JPMorgan is deploying it across 65,000 technologists, for example. So technology was a core area of focus, whether it's cyber, AI.

Fintech, same thing, we move $10 trillion a day. So we see these vendors that are dependent on US from an infrastructure perspective. Life sciences, it's interesting. It's a little bit less intuitive. You don't think of JPMorgan and immediately think of health care. But it started with the notion that we're the number one health care investment bank, number one health care conference. We have 500,000 covered lives from an insurance perspective, which gives us interesting data.

But then it's the team. Team is right there with your right to win. It's embedded in the statement itself. But we've been privileged to attract luminaries in their fields to take our CIO of health care, just started two of the most iconic companies in Regeneron and Alexion, was a lead partner at OrbiMed helping lead some of their most successful deals in history. And then on the technology side, Paris and Topher from Index Ventures and Goldman, some of the best companies over the last decade. So I think that is tied into one.

But for the audience, as you're thinking about new strategies, it is what is your right to win, where is their market cap. I think that is definitely structurally important as you think about where can you fill a need in portfolios. And then it's really engaging your investors, your LPs.

And that-- we talked about the consolidation in the industry. I mean, there's 25% fewer VC firms than there were three years ago. Literally 25% have closed their doors. The ones that are emerging that have done the best job are in front of their LPs and prospective LPs on a regular basis, showing them their intellectual capital, co-invest things that are just a little bit different than the average.

Yeah, and you mentioned the piece on technology too, which is if you can be in the JPMorgan ecosystem, but the reason you look at seed is because a lot of companies can't at first, but it's how do they scale those businesses. Because scaling is one of the hardest things within the seed and series. They stage a lot of these companies. And then figuring out, do you have the right management team, do you have the right everything else when it comes to getting to the size where you can come into JPMorgan, which is important.

If I just bring this back a little bit to the audience at hand, which is, OK, if I'm thinking about fundraising, you, obviously, have a distinct advantage being a core part of JPMorgan. But if they have a core LP or if they have a seed round with a major corporate, how do you talk to LPs about the advantage that you have that they might also have when they're talking to future fundraising around the access that they get because of some of their early stage investments that might be with bigger companies.

I think there's embedded in that is both a structural dynamic, which is worth touching on, which is institutional allocators have changed over the last five to 10 years. So to your point about the emergence of corporates or strategic LPs, that can be clearly differentiating. If you have for example, in the health care space, Fortune 500 companies, which were privileged to have in our fund, they can be a huge area of guidance to where they're acquiring assets, what they're thinking about from an innovation standpoint, their pipeline.

On the core, institutional allocators take a sovereign wealth fund or a pension that may take a chance in anchoring you, again, It's finding that right marriage where the most sophisticated allocators in the world have woken up to the fact that their capital, it goes well beyond that as an advantage. They want to feel like your partner, whether that's shared economics, differentiated co-invest discounting on that front, or just sharing ideology back and forth on deals that you're looking at, what you're seeing in the ecosystem.

So I think it's how do you leverage that to your advantage. We, certainly, are privileged to be at JP Morgan. So we get a wide diversity of that. Naturally, we have to work just as hard to access it. But that's how we think about it if I were not part of the four walls of JPMorgan if that answers your question.

Yeah, no, absolutely.

I do also think there's a lot of people that might come to me and say, hey, we want a more diversified LP base. We're willing or wanting to go into the retail sector. And they don't realize two things, one, that there's a lot of choice in that space, so like making sure that your capital is mutually beneficial. Like, I always say, don't come to me just because you want to raise dollars. Come to me because there's a partnership. You want to help us. You want us to help you see strategies. There's some mutual benefit. And that's probably the same with you and the strategics you like to invest, which I think is important.

And number two is understanding everyone assumes that if you go beyond just institutional that there's everyone else is all like retail. And the reality is there's a difference in how you fundraise from a wirehouse versus an RIA versus a JPMorgan Private Bank. And there's a lot of clients of ours who are institutional in nature. So we have, I think, one of our superpowers that we can help GPs think through fundraising for is that we bank 1,400 to 1900 billionaires in the US. We bank a large percentage of those outside of the US, and then we also have data from one and two households in the Chase branches.

And so having that wide distribution allows us to understand preferences and where risk appetite and so forth. And so I do think for most GPs, as they start to think about maybe diversifying their LP base, especially if they're in the venture or growth sector and they want to get beyond that fund three and you might need to start kicking out some of those family offices but really thinking about how to institutionalize your LP base, I do think thinking through what those mutually beneficial dynamics are is one of the most important things for the next three fundraisers.

Yeah, and I love the idea of partnership. When we sit with our clients, we talk every day. This is a partnership. It's not a service-oriented conversation. We're here to make sure that strategically, you're doing the right things, that we're doing the right things, and we're trying to build something that's going to over the next several decades. We want to continue to build our platform to be the best platform for funds in the world.

KK, you, kind of, just walked into this one because you started talking about how we work with funds. So I'm just going to ask you the question that a lot of people ask us, which is how do I get on the JPMorgan platform and then what is the JPMorgan platform. Like, am I too small? Do you have other channels? How do you think about club deals?

Like, how do you think about a number of the different, kind of, impacts that we can have with a client, whether it is, hey, let me find you a strategic partner or let me do a mass fundraise. Like, how do you break down your platform, how do explain it. And then what are the key components when you're looking to partner with somebody on the fundraising side.

OK, so there's a lot of components of that. But we'll start with there is a self-directed platform that we have for our clients, where clients can choose al le carte fund by fund. And that in core private equity is four to six ideas a year. It's been maybe a little bit more concentrated with some of the larger institutions, more recently, as that flight to quality has come in the last couple of years, even though some might say that they have plenty of quality. They're just not as big or as diversified.

So let's just go-- like, let's put that to the side for a second. In venture and growth, it's looking at two to four ideas a year. In private debt, a lot of the direct lending strategies have moved into evergreen format. So when we offer a drawdown fund, we're looking for two to four choices in stress, distressed, opportunistic. And that could be anything from pure distressed private credit to royalties in health care, other places.

And then in real assets, we do a lot less in opportunistic infrastructure, but that's, certainly, a space or subsectors of that. So it could be energy power, some of those areas. And then I'm probably forgetting a category, but those are the broad strokes.

We're looking to launch 20 to 30 self-directed ideas a year for our clients. And that could be anywhere from having $75 million of capacity to over $1 billion of capacity. So not to say that we wouldn't do something that has less than $75 million of capacity, but that's just one of the markers that I look for. There is a part of our portfolio and platform that is for our larger, more institutional clients who are looking for something super specific. They want to invest in a fund that's less than $250 million. And if we can get $50 million of capacity, we're willing to do that, especially in places like venture or $30 to $50 million, I should say.

So it's, kind of, changing all the time based on client demand. But that's our self-directed portfolio. We also have discretionary pools of capital. That's about 20% of our overall assets. And that's where we're trying to fill portfolio needs. So that's a place where we might end up taking a 15% to 25 or 15% to $50 million allocation because we're trying to plug a hole in Asia middle market or--

So a very specific sector or focus that you're saying, like, this niche I'm really trying to fulfill. And that's probably something that's in the discretionary bucket as opposed to doing a lot of legwork, due diligence, partnership to go and try to raise $10 million.

Yeah, And so I just gave a very wide variety of it. But the reality is that it's whether clients-- it's whether a GP wants it to be a little bit more self-directed or be in a portfolio of sorts of thinking through what the capacity looks like. But we do-- we try to do quick no's and then longer yeses. So a lot of it's just letting your fund banker know, hey, we're open or wanting to learn more about this channel. Help us think through this.

And we could very quickly say, listen, you need to fix these couple of things before it became realistic to scale in a fundraising perspective. Or listen, you can do this, but we offer global opportunities to people. And so if over 40% of our capital is non-US, you got to figure out the structures or the blockers in place to make sure that you can attract non-US capital. So we're willing to work and help through all of those things.

And then if it is a smaller manager where they just don't have enough capacity, we might say, hey, bring us a couple co-invests or direct deals as we get to each other before the next fundraise. The thing that doesn't work is when someone says, hey, we're either in the middle of a fundraiser or we're launching this quarter. Like, do you want to be a part of it? We try to have those conversations-- the best time to have those conversations is right when you finish fundraising and you're really thinking strategically about the next fundraise.

Yeah, so when you're thinking about timing, you're thinking short timeline is like six months out. Long timeline is 24 months out.

Yeah, you can always do something quicker.

You can drive a truck through that but.

Yeah. Yes, that's fair. And then on the evergreen side, we've been helping a lot of fund managers more recently think about do you have the right to win and the right to build an evergreen strategy within your ecosystem. And let us help you structure that and determine that and maybe even anchor it. So that's probably taken up more than half the conversations over the last 12 months is helping our GPS, who we've long time worked with in a drawdown structure figure out do they want to pursue this evergreen strategy and access a different part of the market. Absolutely.

OK, why don't we move to some capital deployment conversations. Patrick, did a great job telling us, setting the market for where fundraising was, the ecosystem that you play in. But I'm going to start with you from a capital deployment perspective. We've seen a lot of deals that have just, kind of, paused right now, right. A lot of the conversations that I'm having are I had this thing almost inked and ready to go, and everybody is just saying, I don't what the impact is going to be because the market hates uncertainty. And right now there's a lot of uncertainty.

So I mean, how do you feel your funds and your strategies are looking at deployment? And then in this environment, how are you thinking about helping the PortCos that you've already invested in because they're facing some of the same uncertainty that all of the fund managers are?

Yeah, absolutely, I think it's the two parts of that story, so starting with the focus on how are we thinking about deployment. Its sector specific, certainly, so we operate principally in technology. So series B through pre-IPO, a little more of an established business all the way through its last round of financing and then on the early stage biotechnology side and then some of the growth life sciences opportunities.

I'd say across the board, 2024 is a more active year for us, for sure. In 2022 and 2023, we took a bit of an unconventional approach. Frankly, if you look at the data, we had deployed about 18% of our strategy, which was raised in 21 and 22. Peers were about 50% to 60% of total fund distributed. We didn't really see the risk reward trade-off there. Last year, we were aggressive, so we deployed about $250 million of capital. We saw, particularly at the later stages, Jeff, deals that were priced at a discount to public markets when adjusted for their growth rate. So some of the most iconic growth names that very well could be public and bankers would love to take them public, we were active there.

So that's like 25% in a single year.

That's right. 25% of the strategy. We're on pace to do that again on the technology side this year, which is terrific. There is a distortion though. So there's AI and everything else. AI at the earlier stages, they're commanding a 20% to 25% premium. Later stages, it can be as much as 200%.

Now, part of that is well-deserved. If you look at the data, these companies are scaling at a 25% faster rate than non-AI companies and an often less employee headcount. Now, margin structure is still being proven out, but AI companies are just there's an infinite amount of capital, it seems, available to them. Non-AI, one in five rounds are a down round. So you're seeing opportunities at healthier valuations.

And then on the health side, to me, this is the under spoken about opportunity set because you have a space that's a $10 trillion market. 90% of the companies in health care are private. There's 2 trillion of M&A in the last five years, which again, probably surprises most people. And the investor protections you're getting, the terms you're getting on deals are very attractive, so participating preferreds, enhanced downside protection. The world of tech participating in preferred having gone together for a really long time. So I'd just say it's shifted there.

And on helping PortCos, It's focusing on efficiency, focusing on preserving your cash runway, ensuring that there's the right mix shift of growth and profitability or path to profitability, customer introductions. It's key strategic advisors to help them think through where to be aggressive. And then, importantly, it's consolidation. We're seeing companies, especially at the later end, one of our portfolio companies has made three acquisitions in the last six months. We love that. They're getting them at heightened discounts. So that's a little bit about where we've been focused.

And when we think about the broad platform of all the funds that we work with across your world, how are you thinking or seeing even in the larger cap space, how are they thinking about deployment? And has that deployment slowed down?

It's slowed down a little bit. I would say it is so manager dependent and some of the sector dependent as well. I would say for some-- like, one of our longest term partners in North American buyout has had capital distribution exceeded capital contributions for three years in a row, which is counter to the industry trend.

So that's why I say, if there's 14,000 people raising money in private markets today and we invest in 25 to 30 a year and then a number of GPS-- we try to concentrate the number of GPs if we think that they have great strategies underlying those. So call it 150 GPS. I would say we haven't seen what the industry says, which is that we're at the lowest point of distributions in the last since the GFC, I think.

In growth and venture, that's certainly the case. But again, a lot of that money came in 2020 and 2021. So you shouldn't have expected to see a lot of that anyways for--

Is that more of just a return to a normal fundraising and distribution life cycle rather than the quick turns that we were seeing previously?

It's for sure part of it, but I also think a lot of tech companies realize that they are better off staying private. I think a lot of people said survive till '25. And now people are thinking some of the best companies really won't choose to go public until '27, '28 if not beyond that. I don't what you're seeing on your side.

I think that's right. I think you see the [INAUDIBLE] of the world, the Stripes of the world, Canva, for example, that are just electing not to go public. They absolutely could. Their quality of the businesses are clear.

And is that-- earlier you talked about secondaries being a much bigger piece of the pie. So I forget what your stat was. 30% to 50% of funds raised are now secondary funds. Does that just mean because there's so much more happening from recycling of capital into secondaries. I think a few things there. One, LPs are getting tired of continuation funds.

Yeah, and that continuation of continuation funds.

That's right. Two, I think companies are, again, if they're electing to stay private longer, they have to deal with RSUs and grants of options that they've given that might be at a 10 year period where the tax advantages start to shift. And so you'll do organized tenders for the company to clean up some of that challenge. A lot of big companies have done that. And then those with capital are buying from those who need distributions. We've done that twice from funds who are at the end of their life cycle. They're willing to sell at pretty sizable discounts in companies that we and really like. And so we've tried to be aggressive on that.

But you are right. The number of exits has more or less returned to the average. It's just how it's distributed. So KK nailed it. In tech, it feels like a heightened drought. We've had a couple of things go out this year in the public markets, but I mean, single digit IPOs. 2020 and 2021 were just so anomalous though, right. It was 2X the volume of exits and I mean 7x the number of IPOs. There were 1,000 IPOs in 2021.

There were almost like 50 to 75.

150 to 250 across all sectors, not just tech. And so it just shows you the change in thinking for people.

Right, the volume.

KK, if we go and we switch sectors a little bit, we talk a lot about tech. We talk a lot about AI. But what are you seeing in infrastructure? I just-- I feel like infrastructure is another place where we actually haven't seen a slowdown.

There's a lot of opportunity, there's a lot of things happening. But that might just be from conversations I'm having. How do you guys see it? How do you think about it.

No, I think it's two things have shifted. One, the access point for individuals has shifted. And two, there's a lot of people that the fixed income in the last 10 years they think is going to be different in the next 10 years. So when they think about something that's providing less correlated return streams, somewhat more of a stable yield in their portfolio, and you think about infrastructure assets, there's a lot of clients that understand infrastructure.

They understand how monopolistic the water that goes into their home is or the electricity bill, all those things. One, it's very few providers that provide it to them. Two, it's something that you're always going to pay, at least I am. I always need my water and my electricity, et cetera.

There are some shifts that are taking place in the digital infrastructure side. That's a market that's also opening up. But I would say if you look at the spending that takes place on infrastructure globally, I still think there's a $3 trillion gap in spend that happens every year. So it's one of those market it's opening up, it's changing, and there's not as much capital in that space. And so for all those reasons, the people that are great operators by background can understand the dynamics, have those relationship-oriented boots on the ground places, I think are the ones that are winning from a return perspective.

But then the demand is just increasing massively as people think of other ways to provide portfolio resiliency in there-- or to provide portfolio resiliency, which I think is important. So I think for our clients-- we do a family office survey every year. We survey our top 200 global families, and the average allocation in a family office report that we do put out-- we just updated it. This year we'll come out with that in probably the next month or so.

45%, 45.6% of their portfolio allocations went to alternatives, 17% was in private equity, 15% was in real estate. That could be funds or directs. 5.85% was in hedge fund-oriented strategies, less than 5% was in private credit increasing but still there, I think when we keep doing this over the next two to three years, I think you'll see infrastructure be its own separate line item within that bucket, which will be really interesting. And I do think we talked about drawdown versus evergreen.

For a tax-paying individual in the US to lock up your capital for 10 to 15 years to try to achieve 10% to 14% returns has been really tough for the taxpaying individual. Now, the rise of these evergreen funds where you can get invested, you might-- some of these strategies might target 8% to 10%, but you're compounding 100% of your capital. And you're putting it in a REIT like structure where you can think about depreciation, offsets, et cetera.

I do think the rise of the evergreen access points for infrastructure funds, even though JPMorgan's had one that's been around for a long, long time, but that rise of those type of funds, I think, is attracting a lot more capital to test it out and figure out is this providing the portfolio resiliency that I need to compound on a go forward basis.

Otherwise, in infrastructure, it's really the people that take a private equity like approach. So infrastructure has a lot in the value add space. I think that's tough for taxpaying individuals. If you could take a similar strategy but put it in an evergreen format, it's working. Otherwise, I think you've got to take more risk, lock up your capital and go for higher returns.

I love it. All right, we're going to try and wrap up in the next couple of minutes. And we've hit a lot of market trends throughout. So we don't need to spend a ton of time just talking about the general market trends. But if most-- not most, if there is an outsized IPO that happened in '20 and '21, if there was a ton of capital that was being raised for new funds, and now we're seeing a lot of funds close their doors after not having the right returns or IRR, what is the market trend that you're seeing today, Patrick? What is the one thing that you would say to me this is a trend that is either short term or long term over the next couple of years.

Across the whole industry.

Just what he's seeing.

You get to answer the whole industry.

You go first.

It gives you time to think. I mean, I'd point to maybe two things quickly on the investing side, one on the allocator side. The investing side, you hit it. AI, this is very much a transformational moment in history. Just think about, it's remarkable, two weeks ago, I was having a conversation with my mom. She said, imagine if AI could do X. The thing that she was describing, they had released a new model that could do it that day.

The cycles we are going through in transformation are huge. I think it is possible that it is underappreciated. Yet people like Eric Schmidt arguing at Capitol Hill, that this moment in time is one like none other we've experienced in our lifetime. So I'm particularly enthused about that.

Not the internet. Not the iPhone.

It should be bigger. I mean, it touches not just knowledge workers, but it's touching industries that are blue collar and that have, historically, been technology averse or resistant or just less adopting. Not to say that there won't be some carnage there. Of course, there will be. We've seen some early signs of that.

Health care people are living longer. There's transformation in medicine. You understand the body better. And then AI should help accelerate that. To me, I really do think that's just-- It's so complicated that for a non-healthcare person. They just choose to ignore it for a better way of saying it. It's so clear to me that the number of devices we'll use, the medicines that will keep us alive longer, or understanding the human genome, it's ripe for disruption.

On the allocator side, I think, we have the privilege of being at JPMorgan, but I'd for emerging managers, it really is patience and partnership. Those are the two words. Timestamp yourself with each allocator. Understand the challenges that they're going through. Take foundations and endowments.

Three years ago, four years ago, they were your best friends. Now, they're going through quite a bit of political uncertainty. How do you share your thought leadership, how do you think creatively around structure, I think is going to be critical to building an enduring relationship, even though you may not see the fruits of that labor for 10 years.

Fair enough. I would say on the investment side, the energy ecosystem, which includes power and things like that I think people gave up on after losing a lot of money in the private space for almost a decade, I think is now coming back. You need certain specialists in the space. I think a lot of the debt structures have been fixed with a lot of these companies, and it's coming at a time where demand is just nothing but increasing.

So whether folks access that through a power fund, an energy fund, or infrastructure more broadly, I think is a trend that's going to keep going for the many years to come. I think the second-- I'm going to pick two since you picked two. The second one, I would say, that JP Morgan's been pretty heavily involved in is the sports ecosystem. So a lot of our clients think about what are the places where AI, Artificial Intelligence, is not going to have as severe of an influence. And it is things like live content, in particular, in sports and experiential.

And so we're doing-- we have an incredible sports advisory business within the Bank. And they've helped me over the last several years get up to speed. There's a lot of fund managers that we're looking at, both on the debt side of the equation, as well as the equity side of the equation. And it's a part of the market that I think is allowing institutional capital come in a way that it hadn't before. So I would say like energy power plus sports for different reasons are the investment side. And then I think from an LP side, I think this trend of the rise of these evergreen funds is not going away anytime soon.

And I think in any part of the market where you're solving problems for LPs, like, not having to manage your uninvested cash or having to think about how to reinvest your cash flows, there's little things like that or putting it in a structure where non-US Investors don't have the same impact of effectively connected income and private debt are real asset strategies, it's not just that it's rising because it's increasing the access. The increase of appetite is rising because it's solving problems for LPs.

And I think it's been a while since we've thought about those things because the private equity industry is a bit antiquated, where 40 years ago institutions would say, I'll give you the money but at the very last minute, and I want it back the second you sell it. Like it doesn't totally make sense for individuals who want to commit to a fund manager to have to reunderwrite every two to three years when they're making a long-term allocation. So that's from the LP side.

And the thing that we never touched on today, but I think will be a future topic of conversations is tax aware alternatives for individuals. I think that's a big--

I think that's a great one for a future webcast.

Just guaranteeing your spot coming back.

Yeah, exactly.

One of the things that I would touch on is that we are seeing when we're talking to funds and GPS, we're actually seeing a lot of the large funds buy into a lot more GP stakes in middle market. And so for me, it's, kind of, an interesting trend where I'm seeing how are these smaller funds or even middle market funds growing, and a lot of them are going through a non-traditional route of partnering with a large cap core type of fund, who then they've bought into the GP.

So I think that that trend is only continuing to say this is going to get bigger and bigger because the major players are also saying, hey, like, that's a great place for us to be investing our capital as well. So I think that that's an interesting trend that I'm excited to see if it continues over the next couple of years.

Because it might not be good or bad. Like, I meet a lot of middle market firms, and I'm like you shouldn't want to go to the large cap. If you can sustain your current business plan, generate great solid returns and maybe instead of getting that typical institution to come in and buy your GP stake, there's plenty of families that we're working with right now that are seeding some of these strategies for these mid-market firms that I think are super important. Because we always say bigger isn't always better. It gives us the resources, but it's not-- it'll certainly be a tailwind for the next couple of years.

Yeah, absolutely. OK, a couple of minutes to just close out. Patrick, any last words? Anything you want to talk about on your fund side or anything that comes top of mind.

No, I think for us, KK hit on it. It's where do you find the opportunity to stick to your structural advantages. We're benefiting from being patient the last few years and now being aggressive. And then on the capital raising side, which I know that's a core topic of today's discussion, it really is about those creative ways, just how do you find the value to be a thought partner and structural partner. And so those are the key things we're focused on.

Excellent.

We're always looking for great ideas and great partnerships. So I would say part of being a JPMorgan client is knowing our whole ecosystem across lines of business and functions. So the more you engage with fund banking, the more, hopefully, you engage with our team and understanding what we're looking for and understanding how we can have that mutually beneficial relationship. So we're looking forward to it.

Absolutely. Well, thank you both for coming. We appreciate the time. And thanks, everybody, for joining us.

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KEY RISKS OF INVESTING IN ALTERNATIVES. 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.

KEY RISKS OF INVESTING IN ALTERNATIVES. 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 iliquid, 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 public markets and diversification they also present significant risks including lliquidity, 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 lliquid; are net 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.

KEY RISKS OF INVESTING IN ALTERNATIVES. 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 lliquid; 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.

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