Guess who’s coming to dinner? activism - J.P. Morgan · Guess who’s coming to dinner:...

Guess who’s coming to dinner?

SHAREHOLDER

AND THE IMPLICATIONS FOR INVESTORSactivism

EYE ON THE MARKETA special edition featured at the 2014 Alternative Investments Summit, written by Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset Management

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EYE ON THE MARKET • J.P. MORGAN FEBRUARY 12, 2014

EYE ON THE MARKET J .P . MORGAN February 12 , 2014

Guess who’s coming to dinner: shareholder activism and implications for investors

Shareholder activism has become increasingly popular. Assets under management at activist hedge funds will likely reach $100 billion within the next couple of years, and that excludes activist activity by pension funds, multi-strategy hedge funds and other shareholder groups. This Eye on the Market looks at the implications, which in aggregate have been positive both for investors and for the operating performance of companies targeted by activists.

The Tools of the Trade: A shot across the bow

Activism refers to strategies designed to change management behavior, or at least create a perception that it will. While hedge funds are the primary activists in the stock market, they represent around half of all activist events with the rest launched by mutual funds, pension funds, private equity firms, consultants and other shareholder groups.

A commonly used activist database (aptly named Shark Repellent) helps illustrate activist objectives and tactics. The 1st chart below shows the primary objective in activist campaigns (to the extent it can be determined from their 13D filings, press releases and other documents). These trends have been broadly consistent over time with the exception of the decline in activists seeking board control in favor of board representation; most assert a primary focus on maximizing shareholder value. Corporate actions that activists often request1 include dividend increases and share repurchases; poison pill removal, board declassification, removal of supermajority voting rules and other corporate governance changes; spin-offs and asset sales; and mergers. As for tactics, the most common approach involves a letter to the board which is publicly disclosed. The decline in board slate nominations appears to be a by-product of the decline in board control efforts. Our sense is that the

1 See Appendix for market data on performance of spin-offs and companies with high buyback rates, and the change in corporate governance as measured by poison pills and board declassification status.

$0

$20

$40

$60

$80

$100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q3 2013

Activist hedge fund assetsBillions of USD

Source: Hedge Fund Research, Inc. Q3 2013.

0

100

200

300

400

500

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Other activistsHedge funds

Source: FactSet. 2013.

Activist events in the USNumber

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2002 2004 2006 2008 2010 2012

Source: FactSet. 2013. Three-year rolling averages.

Primary objective in activist campaignsPercent of campaigns

Maximize shareholder value

Board representation

Vote stockholder proposal

Oppose a mergerBoard control

Enhance corp gov 0%

10%

20%

30%

40%

50%

60%

70%

2000 2002 2004 2006 2008 2010 2012

Source: FactSet. 2013. Three-year rolling averages.

Tactics used in activist campaignsPercent of activist events (tactics are not mutually exclusive)

Publicly disclosed letter to the board

Nominate a slate of directorsLetter to stockholders

Request company seek buyer

Precatory (non-binding) proposal

1

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decline in board control efforts reflects the difficulty of achieving it, and an increased willingness on the part of both institutional investors and boards themselves in considering activist proposals.

Since 2006, target companies complied with activist demands (or settled with a split outcome) around half the time. This roughly matches recommendations from ISS, the shareholder services firm: 21% of the time ISS supported the entire dissident slate, and 34% of the time ISS expressed partial dissident support. The rest of the time, ISS recommended that shareholders side with management.

Activists typically try to avoid proxy fights, which can be time-consuming. Only around one quarter of activist events result in a threatened proxy fight. Furthermore, only 15% have gone “definitive” (when the activist files a definitive proxy statement with the SEC) and only 10% were put to a shareholder vote. In other words, activists often achieve their objectives without going as far as a fight. In addition, they don’t have to hold as much stock as they used to. Activists generally acquire 5%-10% of a target company’s stock, but as shown below, campaigns are increasingly mounted with less than 5%. While recent activist campaigns in software and technology have gotten a lot of attention, activist activity is spread across industry types. Most targets are companies with less than $1 billion in market capitalization (actually, less than $250 million), but over the last few years, there have been ~50 activist events per year focused on large-cap companies. Examples of the latter include Apple, Microsoft, P&G, Pepsico, DuPont, Hess and Kraft.

What factors tend to bring activists to the door? A widely reported issue for activists is the elevated level of corporate cash held by many companies versus both total assets and short-term liabilities. However, this issue is far from being homogeneous across all companies (see box on following page). In aggregate, S&P 500 companies also have low levels of debt. These two factors have convinced many activists that there’s room to generate greater returns on assets/equity without jeopardizing a company’s financial health.

0%

10%

20%

30%

40%

50%

60%

70%

2000 2002 2004 2006 2008 2010 2012

Source: FactSet. 2013

Ownership interests of activists at time of eventPercent of activist events, 1994-2013

Between 5%-10%

Greater than 15%

Less than 5%

Between 10%-15%

Div

Fin

Soft

war

e

Ban

ks

Con

s Se

rv

Tech

Phar

ma

Hea

th C

are

Ret

ailin

g

Cap

Goo

ds

Rea

l Est

Mat

eria

ls

Ener

gy

Con

s D

ur

Med

ia

Sem

i

0%

2%

4%

6%

8%

10%

12%

Source: FactSet. 2013.

Activist events spread across industriesPercent of activist events, 1994-2013

15%

25%

35%

45%

55%

65%

4%

6%

8%

10%

12%

1952 1962 1972 1982 1992 2002 2012

Source: Federal Reserve. Q3 2013.

In aggregate, non-financial companies have a lot of cashPercent

Corporatecash to tangible assets

Liquidassets to short-term liabilities

10%

15%

20%

25%

30%

35%

40%

45%

50%

1990 1993 1996 1999 2002 2005 2008 2011

Source: UBS Securities LLC. Q3 2013.

S&P 500 net debt to market cap Percent

Ex-financials & tech

Ex-financials

2

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Even for companies without mountains of cash, activists see current conditions in the markets as conducive to raising debt to finance M&A, buybacks and dividends. As shown below, the spread between the yield on equity and the cost of debt is still wide, creating the perception that many companies can afford to alter their capital structures (e.g., releveraging).

-6%

-4%

-2%

0%

2%

4%

6%

1973 1978 1983 1988 1993 1998 2003 2008 2013

Source: Bloomberg. January 2014.

Spread between equity and debtS&P 500 Earnings Yield - Barclays US Aggregate Corporate Yield

On corporate cash There’s a lot of debate on the subject, but one thing is clear: the increase in cash-to-assets ratios of US companies since 1980 is driven almost entirely by R&D-intensive firms. The average cash-to-assets ratios of non-R&D firms are relatively unchanged over the same period. Five companies (GE, Microsoft, Apple, Google and Cisco) account for 25% of the entire cash amount, and 22 companies account for half of it, mostly tech equipment, software and pharmaceuticals/biotech. One theory: intensified global competition among R&D-intensive firms exacerbates their idiosyncratic cash flow risks and magnifies the need to hold plenty of cash, since the risk of volatile financing markets is too great to bear. How much is too much? As one ISS executive said, “Microsoft’s cash hoard could not simply be a rainy-day fund because if it is, then they’re expecting something along the lines of Noah”.

Many cash balances are held offshore, where tax rates are lower than in the US (offshore profits are subject to the tax rate differential only when repatriated). For some companies, offshore cash is 70%-90% of their entire cash balance (Apple actually issued $17 billion in debt, the largest such issuance in history, while holding over $100 billion in offshore cash as of March 2013). Offshore cash does not always mean offshore investments: according to SEC filings, 93% of Microsoft’s corporate cash is invested in US government and corporate bonds.

0%

5%

10%

15%

20%

25%

30%

1980 1984 1988 1992 1996 2000 2004 2008 2012Source: "R&D and the High Cash Holdings in the U.S.", He (University of Kansas), December 2013.

Cash holdings of R&D and Non-R&D intensive firmsCash-to-assets ratio

R&D Int: MeanR&D Int: Median

Non-R&D Int: Mean

Non-R&D Int: Median0%

10%

20%

30%

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Tech & HardwareInfo TechPharmaEnergyBuilding materialsIndustrials

Source: "Why Are Corporations Holding So Much Cash?", Sanchez and Yurdagul, Federal Reserve, January 2013.

Cash to assets of R&D intensive industriesCash as percent of total assets

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A major focus for activists is return on equity: the median RoE of companies is around 4.5%. That’s way below the 15% RoE for the average company over the long haul. In terms of the business cycle, pressure on companies to continue to deliver earnings growth deserves some attention. Over the last few years, we have seen one of the most vibrant profit recoveries on record. However, on closer inspection, this has not been a function of top-line revenue growth, but of declining labor and interest costs. With both of these cost trends likely having run their course, earnings growth for many companies may slow. The operational improvements that activists seek may get greater attention from shareholders if they appear to offer greater returns on equity.

-$100

$100

$300

$500

$700

$900

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Source: BEA, J.P. Morgan Asset Management. Q3 2013.

ProfitsBillions of 2005 USD

Current recovery

Quarters since profit trough

-$200$0

$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


RevenueBillions of 2005 USD

Past 5 US recoveries1958, 1974, 1982, 1990, 2001

Current recovery


-$400-$200

$0$200$400$600$800

$1,000$1,200$1,400

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


Labor compensationBillions of 2005 USD

Current recovery


-$160-$140-$120-$100-$80-$60-$40-$20

$0$20

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


Interest expenseBillions of 2005 USD

Current recovery


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Activism and implications for investors: direct investing vs. piggy-backing

From an investor’s perspective, there are two ways to think about activism: direct investing and piggy-backing. The former refers to investments made in activist hedge funds; such an analysis only includes returns activists earn on stocks while they own them. The latter refers to longer-term investors buying stocks that activists target, but (a) only after the initial market reaction has already taken place, and (b) with the intention of holding for the long run, irrespective of how long the activist stays around. These are different concepts and should be evaluated separately.

Investing in activist funds

While there are several databases that can be used to track activist events (e.g., the SEC’s EDGAR), most do not track the returns of each stock during an activist’s specific holding period. There is a source (13D Monitor) which does attempt to track such information, but the data is only available for the 58 largest activist hedge funds2. Furthermore, the information is gross of all fees, and not time-weighted with respect to each event (e.g., performance data is not annualized). The dataset does provide the comparable return of the S&P 500 over the same time frame.

The two charts below show the distribution of absolute and relative returns of all activist events. Note how the average activist return is three times larger than the median activist return. This is due to a sizable subset of events with returns over 300%. This difference between median and average returns, as well as their standard deviation, dwarfs that of the stock market (see box). As a further reflection of the very broad distribution of activist outcomes, there are a material number of events that end up going wrong, with absolute and relative returns representing a complete loss of capital.

While activist investing has generated some exceptional returns, the risk on any specific transaction is high. From a portfolio perspective, a random sampling of 20 activist events dramatically reduces the left tail (negative) outcomes and maintains many positive ones. But not all activists are highly diversified, and in addition, to the extent that higher returns are often earned on smaller transactions, actual portfolios may not benefit from an equal weighting of results.

2 The 13D Monitor database covers 1,500 activist events since 1994. The database estimates returns from announcement date to activist exit based on public filings. There could be differences between 13D estimates and actual manager returns due to a variety of factors, including activist accumulation of shares at different prices before the announcement date, shares accumulated using derivative positions, and positions held when public filings are no longer required. In our analysis, we excluded one record with a return in excess of 160,000 percent, since it was wreaking havoc on the data; I am willing to assume it’s an outlier.

0

20

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140

-100% -50% 0% 50% 100% 150% 200%

Distribution of absolute returns from activist events

Source: 13D Monitor. February 2014. Period: 1994-2014.Return on individual activist campaigns

Ave

rage

Med

ian15

th p

erce

ntile

85th

per

cent

ile

# of obs. withreturns > 200%

210% - 500%: 43510% - 800%: 12

> 800%: 11

Very long tail

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20

40

60

80

100

120

140

-100% -50% 0% 50% 100% 150% 200%

Distribution of returns from activist events relative to S&P 500

Source: 13D Monitor. February 2014. Period: 1994-2014.Relative return on individual activist campaigns

Ave

rage

Med

ian

15th

per

cent

ile

85th

per

cent

ile# of obs. with

returns > 200%210% - 500%: 40510% - 800%: 9

> 800%: 11

Very long tail

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Comparison of return dispersion, individual S&P 500 stocks vs. activist events

All activist events, S&P 500 S&P 500 1994-2013 2010 2013 Average 37% 21% 37% Median 12% 19% 35% Stdev 218% 28% 32% Source: 13D Monitor, Bloomberg

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Piggy-backing on activist announcements, after the fact

The broader questions about activism relate to its impact on prices, earnings and cash flow over the long run. Empirical Research has done some work on the subject, focusing on 4,200 activist events since the mid 1990’s. When considering all events in aggregate, they found improvements in cash flow and in earnings quality (earnings growth, sustainability, margins, etc). One contributing factor to improving cash flow: a meaningful reduction in capital spending after activist involvement.

In terms of stock price returns for piggy-backing investors, the story is mixed. Over a 4-year period, the average return on stocks targeted by activists is positive when measured relative to the market (recall that these returns exclude the performance of the stock in the month of the announcement). However, the median result is just below zero. This result is similar to what we found in the prior section, that a subset of substantially positive returns pulls up the average return for the entire sample. Similarly, the interquartile bands showing the 25th and 75th percentile of returns are very wide. As a result, it would take a lot of diversification and consistent buying before investors could generalize about activist piggy-backing results.

Monitoring cash flow, earnings quality and capital spending in the years following activist involvement

Source: Empirical Research Partners, January 2014, covering the period 1994-2013.

17%

18%

19%

20%

21%

22%

23%

Prior to activism

1 year later

2 years later

3 years later

Median capex to net PP&E

3.5%

3.7%

3.9%

4.1%

4.3%

4.5%

4.7%

4.9%

5.1%

Prior to activism

1 year later

2 years later

3 years later

Median Free CF to enterprisevalue

19%

21%

23%

25%

27%

Prior to activism

1 year later

2 years later

3 years later

% in best quintile of earnings quality

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Year Before Event

1st Year 2nd Year 3rd Year 4th Year

25th to 75th percentile Median Average

Relative returns of targeted US stocks around activist events

Source: Empirical Research Partners. January 2014. Period: 1994-2013. Excludes impact of first month target stock performance.

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Academic research on activism: mostly positive on operating and share price results The most comprehensive research we have seen to date on the subject comes from a joint paper from finance and law professors (Bebchuk et al) at Harvard, Duke and Columbia. Their analysis looked at 2,000 activist events from 1994 to 2007.

• Similar to conclusions from Empirical Research, the paper cites improved operating and share price performance after activist involvement. As shown in the chart, targets have substantially lower RoA and market-to-book metrics before activists get involved, after which the gap closes

• Such improvements were even present in more controversial outcomes: increased leverage, higher shareholder payouts and reliance on hostile tactics

• Activist returns were on average positive over 3 and 5 years, on both an absolute and market-relative basis; the latter controlled for size and book value of comparable companies

• After activists exit, shareholders still benefit; there was no evidence of “long-term reversals”

• The authors believe that anti-activist sentiment from litigators, legal academics, economists, business columnists and regulators is unfounded. Marty Lipton at Wachtell Lipton (a firm specializing in advising companies confronted by activist investors) threw down the gauntlet in August 2013 with a note entitled “The Bebchuk Syllogism”. Lipton takes issue with Bebchuk’s paper for using Tobin’s Q as a performance metric; for not acknowledging that many activist-targeted companies are eventually bought out (I am not sure why this is a bad thing per se); for trying to use empirical measures alone to capture the benefits and costs of activism; and for rejecting “the anecdotal evidence and depth of real-world experience” that activist opponents possess. This follows on a prior note in which Lipton chides Professor Bebchuk for “rejecting the decades of my and my firm’s experience in advising corporations”. In a sharply worded response that I found rather compelling, Bebchuk et al point out the validity of using Tobin’s Q (market academics have been doing so for decades); that the operating improvements and positive shareholder returns they found were present 5 years after activist intervention; and that such improvements were present whether they used industry-adjusted or industry-unadjusted comparisons, and whether they looked at average or median results. Lastly, they found evidence of causality: improvements in operating performance do not systematically happen after large passive block purchases, but do occur after some blockholders switch from passive to activist.

The Harvard/Duke/Columbia conclusions were echoed in a paper from Northeastern University which looked at activist events from 1994 to 2005. The paper found that hedge fund activists improve both short-term stock performance and long-term operating performance of their targets. The most substantial benefits occurred when activists sought corporate governance changes and reductions in excess cash. They also found that the risk-adjusted performance of hedge funds seeking changes in governance is about 7%-11% higher than for non-activist hedge funds.

-1.6%-1.5%-1.4%-1.3%-1.2%-1.1%-1.0%-0.9%-0.8%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Event year

T+1 T+2 T+3 T+4 T+5

Source: "The Long-Term Effects of Hedge Fund Activism", Bebchuk (Harvard), et. al, 2013.

Activism and improved operating and share price performance, Activist-targeted company statistics relative to industry averages

Relative return on assets

Relative Tobin's Q (market to book ratio)

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Separately, Harvard Business School looked at activist events from 1993 to 2006 and found that the success of activist investors is less a function of improved corporate governance taking hold, and more related to activists identifying undervalued companies that end up being bought within 18 months of their involvement (since 2010, around one-third of activist exits are M&A related).

A global study from the European Corporate Governance Institute examined 1,800 cases of shareholder activism between 2000 and 2010 and found evidence of positive share price performance following shareholder activism. Key findings:

• In Asia, Europe and North America, average returns following activist campaigns were positive on an absolute and relative basis when measured from 20 days prior to the event through activist exit. Returns in the 1st month after announcement were a material component of overall returns.

• Campaigns focused on corporate restructuring or takeovers delivered higher returns than those resulting only in changes to the board or to payout policy.

• The highest returns were seen in North America, followed by Europe and then Asia. Much of the return disparity can be attributed to differences in regulations across jurisdictions that hamper activist campaigns. Examples include costly or complicated proxy solicitation procedures in Germany, France and Japan; minimum shareholder requirements for calling an Emergency General Meeting that are as high as 10% in some European countries; and restrictive policy for removal of directors without cause in Germany without a 75% supermajority vote. As for Japan, researchers found a 500% increase in the use of poison pills following legislation passed in 2006-7 that made it easier for foreign companies to acquire Japanese shares. This trend simply made Japan even less activist-friendly than it was already.

Compilations of activism research from Columbia and Ohio State Law School summarize other studies that have been done. They all point in the same direction: positive impacts on operating performance (RoA, cash flow, Tobin’s Q), and improved share price performance, both on an absolute basis and relative to the market over periods ranging from one to five years.

The bottom line is that we found a remarkable level of consistency in academic research, with almost every paper citing a combination of improved stock price and operating performance when looking in aggregate at activist campaigns. The studies sometimes disagreed on the specific reasons for stock price outperformance, and measured the results over different time periods and using different sample sets. There is also a massive dispersion in results when activist events are looked at individually. But compared to other topics market academics tackle (does private equity outperform public equity, do active equity managers outperform benchmarks), there’s a lot more agreement here that activism has, in the broadest sense, worked. Michael Cembalest J.P. Morgan Asset Management See following pages for sources and Appendix

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Sources “Are Poison Pills for Shareholders? Evidence from Japan”, Kato (Osaka University of Economics), Westerholm (The University of Sydney Business School) and Fabre, January 27, 2009

“Are U.S. Firms Really Holding Too Much Cash?”, Laurie Hodrick, Stanford Institute for Economic Policy Research, July 2013

“Companies adopt bitter medicine to deter activists”, Wall Street Journal, January 28, 2014

“Corporate governance and hedge fund activism”, Boyson and Mooradian, Northeastern University, June 2010

“Don’t Run Away from the Evidence: A Reply to Wachtell Lipton”, Bebchuk (Harvard Law School), Brav (Duke University) and Jiang (Columbia Business School), September 2013

“Hedge fund activism: A review”, Brav (Duke), Jiang (Columbia), and Kim (Cornell), 2010

“Hedge fund investor activism and takeovers”, Greenwood (Harvard Business School) and Schor (Harvard University), July 2007

“R&D and the High Cash Holdings in the U.S.”, Zhaozhao He (University of Kansas), December 2013

“Shareholder Activism as a Corrective Mechanism in Corporate Governance”, Rose (Ohio State University – College of Law), Sherman (Case Western Reserve University), November 6, 2013

“The Bebchuk Syllogism”, Marty Lipton et al (Wachtell Lipton), August 26, 2013 “The Long Term Effects of Hedge Fund Activism”, Bebchuk (Harvard Law School), Brav (Duke University) and Jiang (Columbia Business School), July 2013

“The Return To Hedge Fund Activism: An International Study”, Becht, Franks, Grand and Wagner, European Corporate Governance Institute, January 2014

“Shareholder Activism as a Corrective Mechanism in Corporate Governance”, Rose (Ohio State University – College of Law), Sherman (Case Western Reserve University), November 6, 2013

“Guess who’s coming to dinner”, 1967, Stanley Kramer (Dir.), with Spencer Tracy, Katherine Hepburn and Sidney Poitier

In our review of activist trends and history, we excluded those marked as “exempt solicitation” and which did not indicate any ownership percentage by the activist. In so doing, we aim to confine our analysis to institutional activists, and exclude advocacy groups, consultants and other non-institutional shareholders.

R&D: research and development; ISS: Institutional Shareholder Services; SEC: Securities and Exchange Commission; EDGAR: Electronic Data Gathering Analysis and Retrieval; BEA: Bureau of Economic Advisors; PP&E: Property, plant and equipment; RoA: Return on Assets; RoE: Return on Equity; Tobin’s Q: market value/asset value

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EYE ON THE MARKET • J.P. MORGAN FEBRUARY 12, 2014EYE ON THE MARKET J .P . MORGAN February 12 , 2014

Appendix: spin-offs, buybacks and changes in corporate governance

Here’s some additional perspective on issues that activists frequently focus on: spin-offs and share buyback plans. The first chart shows the performance of units that are spun off, and the second shows the performance of the 100 companies with the highest share buyback ratios (buyback cash spent divided by market cap). While these charts do not address activist returns per se, they highlight the generally positive returns associated with certain corporate actions.

Activism is having an impact on the way companies function. As shown below, the use of poison pills has fallen sharply across the S&P 500 and S&P 600 (mid-cap), and large-cap companies continue to declassify their boards (e.g., allowing board members to be re-elected each year instead of protecting their seats for longer terms). As for poison pills, however, many companies have stand-by arrangements that can effectively bring a poison pill into being, which mitigates the actual impact of this trend. In addition, of the poison pills that have been adopted, more than half employ a threshold of 10% rather than the traditional 20% that was designed to thwart hostile takeovers. These lower thresholds probably reflect a desire to keep activists at bay.

-60%-40%-20%

0%20%40%60%80%

100%120%140%

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13


S&P 500 vs. Bloomberg Spin-Off indexTotal return, cumulative percent change since 06/30/2008

Bloomberg Spin-Off

S&P 500

-60%-40%-20%

0%20%40%60%80%

100%120%140%

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13


S&P 500 vs. S&P 500 Buyback index Total return, cumulative percent change since 06/30/2008

S&P 500

S&P 500 Buyback

0%

10%

20%

30%

40%

50%

60%

70%

1998 2000 2002 2004 2006 2008 2010 2012

Source: FactSet. Q3 2013.

Companies with a poison pillPercent

S&P 600

S&P 500

0%

10%

20%

30%

40%

50%

60%

70%

1998 2000 2002 2004 2006 2008 2010 2012

Source: FactSet. Q3 2013.

Companies with classified board of directorsPercent

S&P 600

S&P 500

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MICHAEL CEMBALEST is Chairman of Market and Investment Strategy for J.P. Morgan Asset Management, a global leader in investment management and private banking with $1.5 trillion of client assets under management worldwide (as of September 30, 2013). He is responsible for leading the strategic market and investment insights across the firm’s Institutional, Funds and Private Banking businesses.

Mr. Cembalest is also a member of the J.P. Morgan Asset Management Investment Committee and a member of the Investment Committee for the J.P. Morgan Retirement Plan for the firm’s 260,000 employees.

Mr. Cembalest was most recently Chief Investment Officer for the firm’s Global Private Bank, a role he held for eight years. He was previously head of a fixed income division of Investment Management, with responsibility for high grade, high yield, emerging markets and municipal bonds.

Before joining Asset Management, Mr. Cembalest served as head strategist for Emerging Markets Fixed Income at J.P. Morgan Securities. Mr. Cembalest joined J.P. Morgan in 1987 as a member of the firm’s Corporate Finance division.

Mr. Cembalest earned an M.A. from the Columbia School of International and Public Affairs in 1986 and a B.A. from Tufts University in 1984.

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