JP Morgan Chase 2014 Annual Report Download - page 142

Management’s discussion and analysis
140 JPMorgan Chase & Co./2014 Annual Report
PRINCIPAL RISK MANAGEMENT
Principal investments are predominantly privately-held
financial assets and instruments, typically representing an
ownership or junior capital position, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such investing activities are
typically intended to be held over extended investment
periods and, accordingly, the Firm has no expectation for
short-term gain with respect to these investments. Principal
investments cover multiple asset classes and are made
either in stand-alone investing businesses or as part of a
broader business platform. Asset classes include tax-
oriented investments including affordable housing and
alternative energy investments, private equity, and
mezzanine/junior debt investments.
The Firm’s principal investments are managed under
various lines of business and are captured within the
respective LOB’s financial results. The Firm’s approach to
managing principal risk is consistent with the Firm’s general
risk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm’s independent control functions are
responsible for reviewing the appropriateness of the
carrying value of principal investments in accordance with
relevant policies. Targeted levels for total and annual
investments are established in order to manage the overall
size of the portfolios. Industry, geographic, and position
level concentration limits are in place intended to ensure
diversification of the portfolios. The Firm also conducts
stress testing on these portfolios using specific scenarios
that estimate losses based on significant market moves
and/or other risk events.
The Firm has taken steps to reduce its exposure to principal
investments, selling portions of Corporate’s One Equity
Partners private equity portfolio and the CIB’s Global
Special Opportunities Group equity and mezzanine
financing portfolio.