Gurps Kharaud: Hi, my name is Gurps Kharaud, Global Head of Equities Digital Markets here at JP Morgan. I'm joining my counterpart and friend, Matt Legg, Global Head of Delta One Sales. And we're here to talk about market volatility and how we're helping clients navigate these times with the tools that we provide for them to employ their investment objectives.

So we've had some quite turbulent times-

Matt Legg: We have.

Gurps Kharaud: ... over the previous few years, whether it's geopolitics, whether it's been COVID or whether it's been the Liberation Day as last year. So how are you dealing with clients in this environment and how are you navigating that with them?

Matt Legg: All of the things that you list have obviously been huge drivers of markets, and really that has led to somewhat of a structural change in the way the clients have been engaging with us in how they want to manage risk.

And as you know really well, because we've worked closely on it, the tools that we can provide. Just to list out a few of those, it makes it really clear, some of the biggest impacts on markets in the last few years have been thematic in nature. Having worked with clients on Delta One products for nearly 20 years now, there's been a really interesting shift through that time from initially more single-stock investments, single-stock hedges, I'd say through the mid-teens, so 2015 to maybe up to the start of COVID, there was a really intense focus on management of factor risk, which remains to this day post-COVID and particularly through some of the events that you mentioned, the extent to which themes were impacting markets cross-sector, and not in a way that was captured by traditional factor models has really increased and really elevated.

And obviously as a result, people look to us and we work with clients to help them deal with that. In terms of how that's happening, I'd say two specific ways. One is us helping to identify the themes that are driving markets and providing the basket exposures or I guess the tradable implementations for them to manage that risk.

And the second is the significant increase because of all of these events in directional thematics. So clients looking to really incorporate their view on themes into their investment strategy, which from a risk management angle and an alpha angle, the extent of our engagement in themes has increased hugely and worked really closely with lots of other businesses to help provide visibility into positioning in thematics.

I think that's been really important because a lot of these themes realize or unwind, or the actual P&L destruction or the impact on portfolios can really come from when there is concentrated positioning across the street in a certain thematic and then a shock.

The thematics are much more transitory and much more dynamic than maybe the factors were. So our ability to create scaled quantitative approaches and tools is a little bit lower, and we need a little bit more high touch engagement. And so we've put dedicated content providers to work with clients on which themes are important, how to access them and what the exposures are.

Gurps Kharaud: And you touched on that regional team set up they've got, how different do those themes and that content that you're providing in those different regions come out and how much is one theme that's very relevant across region versus that individual content for the region?

Matt Legg: Yeah, it's a great question. And as with lots of things, it's due to the huge scale and depth of the US market, it's very fertile ground for being able to access themes. Obviously it's great to know that something is impacting markets across sectors, but we also need to be able to find enough exposure to that theme to be able to create a tradable implementation.

The ability to do that in the US is much easier than in some markets. Clearly AI is impacting things. I think every industry could say that, and of course that then reflects in equity markets. It's been a massive theme for equity investors generally, and that is a global implementation. There's a decent epicenter of that in the US as well.

So regionally, I'd say there's quite a heavy investor focus on US thematics. And then there are also some much more regionally specific drivers and those will be focused on the regional nuances, and that's the reason that we really want to have regionally-based content providers.

Each of those content providers will look at themes globally. We obviously want to give them the maximum opportunity to be able to capture the theme and that can involve pulling stocks from each of the markets. So all of those teams, each regional team will publish on global themes, but of course the Asia team will have a heavy focus on themes that are realizing more in Asia, likewise in Europe and likewise in the US.

Gurps Kharaud: So one thing is, I guess delivering the content, one thing is the thought leadership that you're providing on that content, and the other set is the tool set that you're providing. So when we first started speaking about this some years ago, I remember that we were talking about spreadsheets and emails. How have you seen that content delivery and content generation change over the years that we've had? And how has technology played a role in that?

Matt Legg: Going back to the AI theme, it's obviously enabling us to do more in everything. And so it's impacting us here. To take a step back, factor exposure and management of factor risk has always been important. That remains important. So it's not like the only objective currently is thematics. That's just, I guess, the newer or probably more difficult one to capture. Not uniform. There are different models, different views, but there's quite a significant commonality to what people would view as momentum, value, et cetera.

And by definition, because they're quantitatively defined, they're well suited to being accessed to a platform. So I think that's a given and most managers that we work with now will have some form of externalized assessment or even internalized proprietary models of their factor risk and they'll be working on the management of that. As we move into thematics, as you mentioned, it becomes much more challenging.

We use some of the things that I described, so the content leadership, the view on exposure. We maintain constant suites, or sorry, we maintain dynamic suites of thematics that are capturing the most recent thematics and that are changing as the way you need to capture those themes evolves. And then obviously through the Vida Delta One tool, we're able to push out that content. We're able to push out the access to those baskets. And we're also, and this was one of the very interesting things that we built over the last couple of years, that'll provide tools within that platform which lets investors define their own thematics or to backtest their own thematics.

So we're really just trying to give investors lots of ways to engage with what we're providing and to receive the content we're providing and to build their own analysis. And on that point, I mean, of course I'm describing to you what we've done in that tool and you have been the lead in building it.

Maybe you can talk us through a little bit about how potentially AI is making that easier, some of the different ways in which the tool for Delta One, which is obviously my focus, enables clients to access that type of risk, and maybe if that is happening in other asset classes or in other areas of the tool.

Gurps Kharaud: Yeah, it's a good point that you say. I think that what we spoke about is the interaction model, to the point, I think that we've tried to take what historically was done on spreadsheets, what was done on emails and these kind of things, and we've really tried to make it discoverable. Now that comes from the content that your team is providing and then launching that through the platform. And what we want clients to do is not only see that content, but then be able to launch that, be able to see the themes that they've got, other things as well that we've spoken about in terms of, okay, how do we push certain themes enabling clients to discover that through our market monitor?

It's quite interesting to me. I remember when we come up with this idea quite some time ago of the market monitor and just simple things such as seeing things that are the top movers, both upside, downside, like when you can scan through the different regions, all these different things.

But then the key is then, we don't want that just to be, "Okay, this is great. This is what you've provided." It's very much, "Okay, but now you can click through. Now you can iterate. Now you can do all of that analysis that you want to do."

And I think what it's enabled us to do and really the journey we've discussed is really customization and tailoring. We have the starting point, we have the idea generation, we have the content that you can discover. Now we give you the tools to play that in the way that you want to play it.

Matt Legg: I mean, that's absolutely key because I mentioned it before, but there is a reasonable commonality in how people think about a micro factor, momentum or value, but there's significant subjectivity to how you might think about a thematic. So us saying, this is the theme and that's it, is obviously a small portion of the process to getting to a position where someone is happy to invest in or use a thematic to manage their risk, and it needs to incorporate their views, which obviously means that customization is essential.

Gurps Kharaud: Exactly. And then some of the things that we've spoken about, like collaboration or collaboration tooling, I think being able to share things in the real time is really important. You touched on that AI as well, and I guess it wouldn't be a series for us to discuss if we didn't talk about AI.

I think obviously, as you said, it is a scale factor, but one thing that I really see from my vantage point is it will change what is the traditional roles we spoke about. So when we talk about in design or product or capabilities and these kind of things, you see different areas of the spectrum and different members of your team.

So you have the UX designer who's coming up with how the platform should look, making sure that that's intuitive. You have the product manager who's setting the direction, helping with the requirements, going to these parts.

You have the technologists that are ultimately writing the code and these developments. And it's really interesting. We speak about AI and we speak about all the different capabilities that we have, but they're almost all employing it, but all employing it in different ways, but almost as a result, making all of the areas come closer together.

What we really want to have is that we can prototype much faster. So when we talk about actually coming up with designs, coming up with all these different things, we want to prototype faster. That can happen at all ends of the spectrum. It could be the developer coming up to the product manager, it could be the product manager coming up to the UX person, it could be the UX person going back away. When we talk about writing up requirements and having these things put into the right frame and idea, we can then leverage what we had in the past.

We can then use that to more quickly write up the JIRAs, the codes, all these different parts. When we look at the developers as well where you have the ability to write code much faster, develop much faster, it is super exciting. I think obviously we have to be conscious that we employ it in the right way. There's one thing about moving fast, but sometimes you need to go slow to go fast is something that I say to people. But I think really the ability to iterate, come in with new themes, come up with new ideas and deliver that into production and code is really what I see as transformational.

Matt Legg: So basically increases the ability for us to deliver high quality tooling out to investors.

Gurps Kharaud: Yeah. And I think that the key part is changing something that you thought was an idea. Historically, you would've had an idea, you would've written up the requirements, you would've then provided it or created a design, the design would then be translated into quote. That whole process should become much faster. I think that that will create much more innovation. I want the product managers, I want the UX people, I want the developers to really, really embrace this and see this as a way of how can we come up with new ideas and get in front of clients versus our historic development schedule that we used to have.

Matt Legg: In terms of the development of all of that platform, Vida particularly, but just broader digital markets platforms. I remember working on this stuff 15 years ago and there was a kind of big hurdle to getting people to log into the tool, getting usage and then gradually through time the usage has obviously, as we see, gone somewhat exponential. How are you seeing that going forward? Do you think people will increasingly become more dependent on bank-based tooling or third-party tooling, and how are you seeing the usage of that develop?

Gurps Kharaud: I think that there's two paradigms that create that shift. I always joke with my boss about these kinds of things. So it's just like the willingness of our clients to now embrace digital tools is much higher. Everyone has got their phones, everyone has got their tablets or these different things. People want to embrace these things.

Matt Legg: And that used to be seen as a hurdle, as in it was-

Gurps Kharaud: Completely.

Matt Legg: ... a hurdle to get people to log into a different infrastructure or ecosystem. I feel like that is no longer talked about as a hurdle. People are so used to using all the different platforms.

Gurps Kharaud: Totally. If you think about it, I remember when we first started, and hopefully it doesn't feel like too long ago, but it was a long time ago. So it was, I'm really used to my spreadsheet or I have my macro designed in this kind of way-

Matt Legg: I didn't say that, to be clear.

Gurps Kharaud: Yeah, that's true. Yeah. That's why we're still here. But with these kinds of things we used to have, whereas now actually it's less of... I think, I mean, you and I have discussed, people are almost approaching us and saying, "I don't want to receive this on an email, where I've all of these thousands of emails a day where I can't archive and see it. Actually, I want to see it through the platform." And then that journey of if you make it discoverable for the platform, they've been able to log in, they've been able to apply what they wanted to do for the day, they've been able to discuss with you.

Well, I just think it just makes the whole process much more efficient. I mean, we always talk about this almost client self-directed approach, whether it's consumer products and people shopping and doing that self-directed, that applies to financial instruments.

We always talk about how what we're doing is very complex and all these different things, but really it is the same thing that we want to do. And then when we talk about how does that continue that growth and adoption? I think what you find now is that what you want to make is the ability for our clients to log in, then they be able to share things across their team, and they then be able to share with us, and then you create this circle basically, and then you increase the usage on those parts.

So I think a big drive for us is, one, is having the best analytics on the street. That was always our premise from the beginning. We want clients not only for the investments that they have with us but prospective investments to drill in, be able to understand their risk, their attribution, their performance.

We want them to be able to do pre-trade analytics. And when I talk about pre-trade analytics, it's like, what will happen in this scenario? How, if I change this, will this be employed? We want clients to read content on the new ideas. We want clients to manage the existing investments with us and that's not changing.

I really want to be clear, and you and I have spoken about this, that's not disintermediating a salesperson or disintermediating a trader. Now actually what you're trying to do is make the journey much more seamless, much more frictionless, such that the client can do these things, such that for the item where they really need that dedicated support, that we are there as well.

Matt Legg: And I mean, if you think about it, if we start working with all these new fund launches, spin outs, there are new funds launching all the time. The idea that each of them would want to build the same infrastructure and each should build at each of the different clients for things that can be outsourced, doesn't feel very efficient.

And I think the objective for us has been, work out what is impactful to people's investment process, where they need control or want to build in a proprietary way they're going to build, where it's a more standardized infrastructure they're going to look to outsource, and where there's things where we can add specific value, like sitting at the center of essentially a lot of thematic conversations, a lot of clients thinking about thematic risk and being able to pull that and then deliver it back, we're going to have an important role to play.

That's how we've tried to position ourselves, and I guess the part we're trying to focus on.

Gurps Kharaud: So I think you articulated it really well there, but I think the point that we have is just like your approach in sales is one size doesn't fit all, that's the same approach that we try and apply. We're not saying, "Okay, here's the tool, take it or leave it." I think that the approach that we try and have is, we want clients to be part of the journey when we're designing new things.

I mean, how many times that we've gone to clients and thinking that this is what they want, and they say, no, that this is not what they want and this is how the things work. So that's very much an approach we try and follow.

But the other part as well is trying to open up and be prepared for different clients have different interaction models, from certain clients who will use our tool set, login every single time, to other clients who want us to feed data much more electronically through APIs and making that available, and then have different use cases.

So I think that that's the key that we want to balance on that side, is that we have various ways for you to interact with JP Morgan. We want you to use the tooling that we provided, that we have designed with you, but we want you to be able to do it in the way that you want to do.

And that's where I think that you keep staying in terms of adoption and keep iterating. The other thing as well I would say is that a big thing that we really need to look at and continue to focus on is, just as we've seen with the way that we are applying things on our phones, no one wants to fill in lots of different parts on a different form and then use that to process to their next step.

So another thing is how are we using natural language, chat, all of these different things to be able to apply what you want to do and what you are saying that you want to do, but when you translate that into a platform, that you don't need to translate that into how the platform assumes it.

So that's going to be a big thing.

Matt Legg: So we started the conversation talking about the market volatility and how we've been working with clients on that. From a platform perspective, how do you think about that? How do you help clients manage through these type of environments?

Gurps Kharaud: The key thing for us is, there's no point generating all of these tools and creating all of these platforms if they're not there for clients when they need them to be there. So our big focus is to ensure that we are stable, that we are resilient. What we want is we want to be the go-to place that when things are volatile, when clients want to understand what's going on in their investments, that when clients want to potentially put on new trades, that we are there.

So there's one thing talking about stability and resiliency. What we want to be there is for our clients to be able to understand what's going on in their investments, be able to play new ideas. But what you really see in these volatile times is the number of inquiries we're processing, the number of trades that we're processing, the number of transactions that are happening really, really go up on these platforms at that time.

Why is that the case? They're real time. They're there when you need them and you can execute what you want to do at the time that you want to do it. And I think that that's really a hallmark of our approach. We don't just want to be there in the good times. We want to be there also in these volatile times, and the scale that we can bring through the digital tools that we have really means that you know that you can trust on JP Morgan at those times to be able to do what you need to do with us as a counterparty.

Matt Legg: Makes sense. And the speed is crucial. You've mentioned that throughout what we've talked about. And when you talked about the, at those volatile times, we see the number of inquiries increasing significantly. It makes complete sense because we observe that the majority of the market realization to thematics comes in the first few days of the market processing that new dynamic.

And so the ability for people to come to the tool, have the tooling already there, process quickly and get the trade on is essential.

Gurps Kharaud: So bringing it back to the real world, as we say, we've had some incredible moves that have been happening in the market. So talk us about some of the top themes, top plays that clients are doing this year.

Matt Legg: Well, I think similar to prior years, but geopolitical events have obviously been key. At the start of the year, we had a resurgence of last year's Ukraine resolution trades and the way that they can be played through different basket implementations. We obviously more recently have had the escalation in the Middle East, and that's been impacting lots of areas of equity markets across energy prices and inflation expectations, et cetera.

That is on a go-forward basis, starting to make people think more about stagflation, and stagflation replays that can be implemented through baskets. AI remains an extremely important theme globally, whether that relates to AI bottlenecks, so such as data centers or memory type themes, or whether it's just related to the industries that will potentially be disintermediated by AI, or the industries that stand to benefit.

On a go-forward basis as rate expectations start to adjust, there's quite a lot of focus on highly levered companies, particularly in the US, and the ability for them to continue to finance their operations.

And so there's an increasing focus on that. And lastly, I'd say there's lots of news coming out about private credit and there are a number of equity implementations for that. All of these are great examples of the way investors are taking global or cross-sector themes and trying to implement them into their equity portfolios.

Gurps Kharaud: So thanks a lot, Matt, for taking that time from your busy day dealing with clients. It's been a really great conversation we've had. We've touched on a number of themes from the thematics that we can offer clients to the tools we provide them, to how we are helping them navigate market volatility, has been an absolute pleasure. Thanks a lot.

Matt Legg: Thanks for having me.