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JPMorgan Chase has attracted more than $15 billion in assets from wealthy clients for its emerging tax strategy arm, according to people familiar with the matter, as the U.S. bank looks to acquire a larger share of the business from Goldman Sachs and Morgan Stanley.
Over the past two years, JPMorgan has stepped up its efforts to attract more clients seeking lower tax bills by selling shares at a loss as a write-off against other gains, a tactic common to separately managed accounts (SMAs), known as tax loss . harvest. In addition to lowering tax bills, investors use SMAs to own individual securities and express specific preferences, such as favoring environmental, social and governance factors.
“It may be the fastest growing part of asset management in the past 18-plus months,” said a JPMorgan banker. JPMorgan declined to comment.
Wealthy investors are increasingly turning to SMAs in an effort to reduce their tax bills. Assets in SMAs rose nearly 30 percent from $1.7 trillion in 2022 to $2.2 trillion in 2023, according to data from Cerulli Associates, a consulting firm.
Tax loss harvesting is also becoming standard in the asset management industry. Its popularity has soared in recent years as investors took advantage of declines in the stock and bond markets to offset years of strong returns and the associated tax burden. Asset managers surveyed earlier this year told Cerulli that 45 percent of their assets were subject to tax management, up from 33 percent in 2022.
SMAs, which offer the ability to recognize losses through the sale of individual securities, have gained popularity among wealthy clients largely because the highly customizable portfolios offer generous tax benefits. These portfolios typically require high minimum account balances, making them more suitable for wealthier investors.
“Customers want to continue to expand that space as they want to dictate the future of their investments,” said Daniel Gamba, president of Northern Trust Asset Management, one of the 10 largest SMA issuers.
Despite JPMorgan’s growth in SMAs, the bank still lags behind Goldman Sachs Asset Management, which has about $280 billion in tax-conscious strategies, and Morgan Stanley’s Parametric platform, the market leader in direct indexing , in which customized indices are based on customer data. preferences.
Goldman last year launched a tool for direct indexing clients, allowing them to diversify from concentrated stock positions over a decade. Parametric, meanwhile, has built its ability to harvest tax losses in multi-asset portfolios within SMAs.
Morgan Stanley acquired Parametric in 2021 as part of its $7 billion purchase of asset manager Eaton Vance, which JPMorgan had also been trying to buy. Shortly after missing out on that deal, JPMorgan bought 55ip, which is now the foundation of its tax platform.
BlackRock, after buying SMA shop Aperio in early 2021, closed a deal this spring to acquire SMA specialist SpiderRock Advisors, citing “growing demand from asset managers for personalized, tax-efficient portfolios.” Vanguard made its first-ever acquisition in 2021 with the purchase of Just Invest, a direct indexing boutique.
Less established players are also making moves. Following a 66 percent increase in its custom retail SMA assets in 2023, Invesco recently launched two tax-conscious SMAs, including one based on its flagship $291 billion QQQ ETF.
Asset managers have said for years that they see SMAs for institutional clients as one of the best opportunities for growth, competing with the fast-growing exchange-traded fund industry, which like SMAs offers investors tax benefits compared to mutual funds.
“We want to diversify the business, and I think because we don’t have ETFs on the platform yet, we see this as the next group,” said Manju Boraiah, co-head of custom SMA investments at Allspring Global Investments. a 146 percent increase in the number of SMA platform users in the first quarter of 2024.