J.P. Morgan focuses on private equity in its wealth management for affluent clients. „We manage family wealth intended for long-term preservation, which comes with a typically long investment horizon. Thus, our clients can accept the illiquidity associated with private equity“, says Ulrich von Auer, Managing Director and Head of Investments at J.P. Morgan Private Bank in Germany, in an interview with Börsen-Zeitung. „We have a dedicated group within the bank that caters to families investing a significant portion of their wealth in private equity, similar to large US university endowments.“

J.P. Morgan advises clients to diversify their private equity investments across themes, geographies, managers, and vintage years. Typically, capital is committed to projects or investments over a period of five years, with returns anticipated after ten years. Distributing committed capital across different vintages is crucial. If done with discipline, the capital returns will suffice to meet new capital calls.

The structures chosen by J.P. Morgan are designed to comply with distribution regulations and tax requirements, usually utilizing Luxembourg vehicles like Sicav-Raif (Reserved Alternative Investment Fund). Diversification occurs across buyouts, growth capital, venture capital, private debt, and real assets like real estate and infrastructure, including data centers.

„Two-thirds of our clients invest in private equity“, says von Auer. The investments are based on long-term capital market assumptions from J.P. Morgan's strategists, focusing on returns, volatility, and the correlation between asset classes. The bank considers these assumptions a well-established market standard.

In private banking, deposit and lending services are also vital. „In addition to securities portfolios, our clients can use assets like yachts, art collections, private jets, or vacation homes as collateral for loans“, von Auer explains. „For very large fortunes, we also facilitate connections to J.P. Morgan's commercial and investment banking when needed.“

The German private banking market is highly fragmented, resulting in J.P. Morgan holding a smaller market share compared to the US and U.K. However, the bank has expanded its local presence over the last two decades. „The local market is significantly more fragmented than in other countries“, says von Auer. „But we have been growing for 20 years.“ This year, J.P. Morgan recorded net inflows from both existing and new clients, with assets under management approximately doubling over the past four years – though specific figures are not disclosed.

In a newly opened office in Munich, J.P. Morgan will employ a double-digit number of private bankers. Southern Germany appears to have a notably high concentration of ultra-high-net-worth individuals with over 10 million euros in assets, which J.P. Morgan targets. Other foreign providers have also been more active in German wealth management recently, such as BNP Paribas acquiring HSBC Germany's private banking division.

Currently, the primary investment theme in private banking is the interest rate shift. „We are at the beginning of a rate-cutting cycle“, predicts von Auer. The ECB has lowered rates from 4% to 3.5% and is expected to further reduce to a neutral level of 2.5%. In the US, rates may drop from 4.75% to 5% down to 2.75% to 3%.

Bonds tend to respond positively to rate cuts. „Conversely, stocks only react positively to rate cuts if the underlying reason isn’t a recession.," says von Auer. “ Many affluent clients at J.P. Morgan still hold significant cash – sometimes up to 10% – which von Auer considers excessive. "In this phase, the mantra is: anything but cash. Cash should play a minimal role in long-term wealth building.“