Innovate to simplify: Structuring for modern markets

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Rui Fernandes: And that's been the most rewarding part of all of our activity in the sense that many of the solutions we provide, whether it is for clients that want more leverage exposure, more financing or more protection or more tailored exposures, we tend to do it in the simplest possible implementation, knowing that the needs can be quite complex, but it's the innovate to simplify mantra that I think served us well this year.

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Gurps Kharaud: Welcome to J.P. Morgan's Making Sense podcast. I'm Gurps Kharaud, Head of Equities, Structuring and Financing Digital Markets. And today, we're taking a closer look at the role of structuring in modern markets. What's changed these years and what clients are asking for, and how AI is starting to show up in complex structured solutions. Joining me for today's conversation is my colleague, Rui Fernandes, head of global structuring at J.P. Morgan. Rui, thanks so much for joining me today.

Rui Fernandes: Thank you for having me, Gurps.

Gurps Kharaud: So you've now been in your seat for coming up to a year, and the role was formed by combining our sales and trading structuring teams into one cohesive unit under your leadership. Tell us a bit about your role and the role structuring plays alongside sales and trading.

Rui Fernandes: Well, first, I can't believe it's been a year, but it's been a great year. We brought together a few different structuring teams that we had within the bank into a single team. And that has really allowed us to do a couple things. One, have an easier way of aligning our priorities across the structure and financing business with our sales and trading colleagues and ultimately with clients. Because we have a comprehensive team across the entirety of markets, we've organized a team in a way that is easy to understand internally and externally, which as I say, aligns these priorities in an easier way.

And this is especially true for the structured side of the business where many of these priorities are multi-year priorities that require investments in people, technology, infrastructure, new products, approvals, et cetera. So that alignment is absolutely clear and critical, and this has really helped.

The other thing that has come to fruition this year is the greater collaboration across the different structuring teams. So to back up a little bit, within structuring and think of it as getting product innovation, platform development, complex transaction execution across the market's division, we are aligned by asset class expertise, call it equity, fees, rates, FX, commodities, credit, et cetera. But we're also aligned by client type and client-specific expertise, for example, corporates as a client base and insurance as a client segment. So it's a matrix, in other words.

And like every matrix, it's very important for teams to work very well together and to really extract synergies between, let's say, an asset class source of expertise, state equities, and the client specific needs. Take, for example, for an insurance company for a unit-linked policy or something like that. So I often say to the team that for us as a combined team now, we really need to demonstrate that the total is greater than the sum of the parts. So we're one plus one equals three, as I, as I say. And I think this has really happened well this year. And that's been a driver of our success internally and ultimately with clients as well by being thoughtful in terms of the solutions and the products we provide.

But let's be honest, Gurps, I think we should stay honest and humble and recognize that also over the last year, we've had very benign market conditions. And a rising tide lifts all boats. That's true with everyone. It's certainly true with structuring. So we've been fortunate that this year across the equity markets, the credit markets, build out of digital infra, a lot of themes, of course there are emerging risks, but market conditions have been fairly benign. And that helped the integration of the team in structuring across markets.

Gurps Kharaud: So talking about volume. So we've obviously seen record volumes this year overall across our markets businesses. I think a lot is reported about the increase in what one would deem as the flow businesses across the equity space and the fixed income space. Your team and your work arguably sit on the opposite side of that business spectrum. So what have you seen this year that has been unique or different for this year versus previous years?

Rui Fernandes: Yeah, so I think depends how you measure volume, but certainly volumes have spiked across markets, especially in periods of volatility. That's been true. Actually, it's true every year. But the reality is that over the last few years, there have been specific bouts of volatility.

I think when volatility happens and clients needs to hedge, rebalance, deploy capital, et cetera, in those periods of heightened volatility, it is true that typically the more liquid instruments, meaning the flow instruments, are the preferred instruments for clients. That's why you see heightened volumes in flow businesses in periods of heightened volatility.

That said, if you actually look at the activity this year, the structured and financing side of the business as measured by overall client activity, measured by balance sheet deployment, which is a metric that we use to look at financing, how much balance sheet are we committing per clients, it's also been a record year for the activity. And I would say it's been more diversified in terms of asset classes. It's really been across the board.

Equities clearly has led the way. And the driver there has been, as I was saying earlier, benign market conditions. Clients either want leverage to amplify one of their conviction positions or they want protection to hedge some of the gains that they've already had. There's many reasons, but ultimately equities as an asset class has really been a key driver of the structure and financing activity.

But also across the private credit ecosystem, the private equity ecosystem, there has been continued demand for financing. We are a large provider, large participant in that market, and we've also seen a lot of extra activity there. But to bring it all together and to answer your question more directly, it's really been a continuation of the tailoring of solutions that we provide for clients. And that's really what differentiates us, is to be able to easily and efficiently provide tailored solutions for clients that more closely match the risk reward profile they're looking to achieve.

Gurps Kharaud: You would say that you cover multiple asset classes. So I think we just now, you have your historical home base of equities. You now see the broader ecosystem. What would you say has been the most interesting asset class of 2026 for your business?

Rui Fernandes: Are you asking me to pick my favorite child?

Gurps Kharaud: (Laughs) Yeah. Not your favorite child. Let's call it your most interesting child of 2026.

Rui Fernandes: Oh, interesting. Okay. I'm not sure that the children that are not named as most interesting will see it as in that way. But I would say I'm going to be greedy and I'm not going to say one, I'm going to say two. And one, I would say commodities as an asset class. And the reason why I say that, I think it's twofold. One is my own personal journey, if you will, in trying to understand the commodities business, which is quite different from many of the other businesses that I have historically been involved in, credits, equities, credit rates, et cetera.

So it's been from a learning perspective, and therefore from as an interesting asset class, certainly it's been amazing. I think my level of knowledge is scaled. My baseline level is still very low versus where it should be, but I'm trying to learn as fast as I can. But it's also been interesting commodities because when you really think about it, you realize how pervasive the influence of commodities is across the financial sector and the corporate sector as well.

So for example, you think about the build out of AI and digital infra. There is a huge amount of commodities expertise, but also commodities risk that comes with that. So commodities as an asset class is also part of that build out, and it's very important to understand the interplay and the interconnectedness between the two.

The second example is at J.P. Morgan, as, as you know, from the top of the house, we're very focused on our security and resiliency initiative. A lot of that has to do with commodities, rare earths, minerals, supply chains, energy security. And when you hear all that, you also think commodities. So what role do we play as a structuring organization in this entire theme is very important and, frankly, it's fascinating and hugely interesting.

The second one, I know you want me to just give you one example and I'm going give you two. But the second one is corporates as a client segment. And it's interesting because from my previous experience in equities and then eventually credit and macro, really the majority of the clients are financial institutions, less so corporates. But when we set up a corporate structuring team about a year ago, it's really been fascinating how the problem statement, if you will, for corporates is quite different. The solutions that are required are also quite different. The sensitivity of the clients is quite specific.

Gurps Kharaud: Yeah, I would agree with that very much so. So, I mean, you and I, we've worked together for a number of years as how have we been able, in my seat, to use that simplification mantra, as you say, and export different capabilities. So I think, you know, we, we speak about Vida Portfolio Solutions. For the audience, that's a cross-asset portfolio solutions platform.

The way that we've tried to tackle the problem statement, as you would say, is really distilling everything into four main capabilities. So you have create, you have manage, you have analyze, you have report. And the platform now, it, it supports from QIS, Delta One, credit portfolio trading and financing. And from the outside, I think one would probably say, "What do these businesses have in common?" But when you start to look in capability side, you can really draw synergies, be that from how does a client want to create a custom basket. That could be in equities, that could be in credit.

And it's actually really interesting to, to look at the problems from a capability side rather than an asset class side, to actually draw synergies, deliver things faster once you've done it one time. We often use this phrase, you know, "Run the playbook again." So, you know, you take the learnings that you've had from a different asset class and bring it to another one. And it means that actually, what, what you can do is go faster and get things adopted in a way that you didn't think would be possible from the outset.

When we look at this year, I think we've definitely seen, as you say, an increase in flow and definitely flow businesses, which is part of my mandate, especially in the equity side. But very much so in the structured space, how clients are adopting more and more digital solutions for products which historically we would say were managed back and forth over emails and over spreadsheets, whereas now we're really trying to give clients the ability to self-serve even in the most complex of investment areas.

Rui Fernandes: And Gurps, I'm going to return the question to you, because you're saying Vida, for example, has a number of different modules. Beta One, Delta One, Strategic Index. Which one's your favorite?

Gurps Kharaud: Similar to you, I love, I love all of my children, um, the same. But I'd say that it's probably, to your point, I think what's actually more interesting or has been more interesting is wrapping my head around the new asset classes. So similar to you, uh, I grew up in the equities business. So, you know, things such as where we really began, which was QIS, I'll call it the strategic index business, and then moving into Delta One. Those are arguably the home bases.

And I think that what's been really interesting, and I think that is very akin to how we run our markets business, is really been expanding into the new areas. So a couple of years ago, we began on a journey with private credit. And I think that people, when you probably looked at it and said, "Okay, we're going to create a digital tool for private credit," would've wondered what that meant.

But we've managed to actually take that solution and bring it back into equities with the sublines area. I think portfolio trading has been really interesting, you know, using principles from equities and going into that area. But I think, as you said, there's a lot more still to come. There are new modules that are coming out. I think I always get the internal vibes, which is, "Oh, you're forgetting about your, uh, previous ones. Are you moving onto your new ones?"

So quite a few things that you've been covering, and I still can't pin you down to one thing that you enjoy the most. That's all good. When you think about solutions, so, so you've mentioned the word solutions a few times, and, and not to pigeonhole you into choosing one, but which solutions do you think are resonating the most with clients this year? And why is that?

Rui Fernandes: Yeah, you really want to pin me down on, uh, my most interesting asset class, my most interesting solution. I'm going to duck that question again. No, I'm joking. And I, I will say the most interesting solution or the one that resonates the most with clients. And I know this is going to sound like a cliche, but it really is the simplest solution. And I often talk about how we innovate to simplify.

Because in structuring, we have a lot of people that, financial engineers, which, you know, working with our sales, trading partners, and with clients, we can't come up potentially the perfect solution. But the risk is that it may become so complex that is actually very difficult for a client to get their head around it, to implement it, to get it approved internally at an investment committee. So we need to be able to innovate and provide solutions, not just in a vacuum in a perfect world where it's all done in a spreadsheet or in, with AI. It also has to be done in a way that clients can get their head around it and implement it.

And that's been the most rewarding part of all of our activity in the sense that many of the solutions we provide, whether it is for clients that want more leverage exposure, more financing or more protection or more tailored exposures, we tend to do it in the simplest possible implementation, knowing that the needs can be quite complex, but it's the innovate to simplify mantra that I think served us well this year.

Gurps Kharaud: So another theme is, is AI, and, and you touched on it earlier when you were talking about the commodities business. But it's a topic in all businesses right now, and there's not a day that goes by that our audience does not see a new headline on the topic. We often talk about AI in the more common tasks, but can you take us through how your team is harnessing AI and how you are seeing it help the more complex and structured businesses we do? And where do you think it has limitations for your businesses in current form?

Rui Fernandes: Of course, it's a huge topic for us in structuring, because a lot of what we do involves a process of building a new product, building a new platform, also extracting. And that, by the way, involves coding. And as you know, AI has been, has made huge strides in being able to code, to just code much more efficiently. So that's been one big area of focus for us.

So in terms of process flow, I think AI has been really important and it will continue to be. And I think we're just in the early innings of it. J.P. Morgan as a firm has really been at the forefront of AI adoption and we, in structuring benefit from that tailwind, that is driven from the top of the house.

But what I would say to kind of try to encapsulate the impact of AI and how we think about it, it really comes down to really two things. One is speeds to market. Can AI allow us to bring a product or a solution or a customized transaction more quickly to market in a way that is actionable and tradable versus the past? And I think that the answer to that is absolutely, and I think we can do more, but is that relentless speed of bringing products because the competitive environment is tough? So sometimes, we can all come up with new products, but how quickly can you bring it to market? And AI is an enabler of that.

The second thing is just the amount of information that is now available and that can also be synthesized in a much more efficient way. And for us, as we're trying to tailor our solutions and coming back to the innovate to simplify, having information about client exposures, positioning, all of that, I think it's very important for us to be able to tailor solutions more efficiently, almost on a client per client basis.

So back to this customization, it's a term that we often use. AI is also an enabler of that. And that's the second thing that's important. I think I would say then to round it all out is also what we kind of call the post-trade client servicing. Because in a lot of our structured financing business, these transactions are very long-dated. It can be, uh, you know, lead to transactions. It can be a 50-year maturity transaction and beyond.

So the ability for us to service the client through the life cycle of these transactions, and there can be events as part of the transaction, coupons, dividends, restrikes, all kinds of things that require maintenance around the transaction, that if AI can help us be more seamless in that client service, ultimately it allows us to retain the client, improve the client experience, and ultimately help our business.

Gurps Kharaud: I think that's a really good point that you say that. It's all about the intention, which is really focused, as you say, in making a better client experience. Rui, I think that's a great place for us to wrap up. We've covered a lot today. I really appreciate your time and insights that you've brought with you. And thank you to all of our listeners for tuning in. We hope you'll be joining us again next time. And if you want to learn about Vida Portfolio Solutions, there'll be a link in the show notes.

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