JP Morgan Chase 2014 Annual Report Download - page 225

JPMorgan Chase & Co./2014 Annual Report 223
Investment strategy and asset allocation
The Firm’s U.S. defined benefit pension plan assets are held
in trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts and
are also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm’s COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts of an insurance
company and are allocated to investments intended to
replicate equity and fixed income indices.
The investment policy for the Firm’s U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of the
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present value
of contributions and funded status. As the U.S. defined
benefit pension plan is overfunded, the investment strategy
for this plan was adjusted in 2013 to provide for greater
liquidity. Currently, approved asset allocation ranges are:
U.S. equity 0% to 45%, international equity 0% to 40%,
debt securities 0% to 80%, hedge funds 0% to 5%, real
estate 0% to 10%, real assets 0% to 10% and private
equity 0% to 20%. Asset allocations are not managed to a
specific target but seek to shift asset class allocations within
these stated ranges. Investment strategies incorporate the
economic outlook and the anticipated implications of the
macroeconomic environment on the various asset classes
while maintaining an appropriate level of liquidity for the
plan. The Firm regularly reviews the asset allocations and
asset managers, as well as other factors that impact the
portfolio, which is rebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans’
liabilities. In order to reduce the volatility in returns relative
to the plans’ liability profiles, the U.K. defined benefit
pension plans’ largest asset allocations are to debt
securities of appropriate durations. Other assets, mainly
equity securities, are then invested for capital appreciation,
to provide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and the
portfolio is rebalanced when deemed necessary.
Investments held by the Plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and registered investment companies are further diversified
into various financial instruments. As of December 31,
2014, assets held by the Firm’s U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$3.7 billion and $2.9 billion for U.S. plans and $1.4 billion
and $242 million for non-U.S. plans, as of December 31,
2014 and 2013, respectively.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved range/target allocation by asset category, for the Firm’s U.S. and non-
U.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
U.S. Non-U.S. OPEB plans(c)
Target % of plan assets Target % of plan assets Target % of plan assets
December 31, Allocation 2014 2013 Allocation 2014 2013 Allocation 2014 2013
Asset category
Debt securities(a) 0-80% 31% 25% 62% 61% 63% 30-70% 50% 50%
Equity securities 0-85 46 48 37 38 36 30-70 50 50
Real estate 0-10 44 — —— — ——
Alternatives(b) 0-35 19 23 1 11 — ——
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
(a) Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.