Too big to invest May 22, 2012 at 7:49 am
Perhaps tediously, I want to go back to the size of JPMorgan’s surplus liquidity. Bloomberg has some new data:
About half of the $381.7 billion in JPMorgan’s chief investment office portfolio is in company bonds, asset-backed securities and mortgage debt not backed by the U.S. government, according to a March 31 filing. That compares with 7.7 percent at the end of 2007. The amount, $188.1 billion, is more than the holdings of such securities by its three biggest competitors combined. It exceeds the total assets of Atlanta-based SunTrust Banks Inc., the 10th-biggest U.S. lender.
There is an ideal size for an investment vehicle: $50M is too small; $500M is perhaps ideal; $10B is getting to be too large. This is because you want to be big enough that people will take you seriously, sign ISDAs with you and so on, but you want to be small enough that you are nimble and that your positions don’t move the market too much. Very large funds find it very hard to invest themselves anywhere near as profitably as smaller ones.
Now look at JPM’s CIO. They are a thousand times bigger than the ideal size. Simply finding a reasonably safe home for that $400B is quite difficult. Making a meaningful change to asset allocation is very difficult. This isn’t expiation for the losses – just another sign that JPM, along with its peers, is too big.