JPMorgan Global Core JPM Glbl Core - JARU JPM Glbl Core - JARE - Final Results
04/07/2022 07:00
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RNS Number : 1102R JPMorgan Global Core Real Assets Ld 04 July 2022
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN GLOBAL CORE REAL ASSETS LIMITED
FINAL RESULTS FOR THE YEAR ENDED 28TH FEBRUARY 2022
Legal Entity Identifier: 549300D8JHZTH6GI8F97
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
I am pleased to present the Annual Report & Financial Statements for
JPMorgan Global Core Real Assets Limited (the 'Company' or 'JARA') for the
year ended 28th February 2022 ('2022 Annual Report').
Performance
The net asset value total return over the period, measured in pounds sterling,
was +12.9% inclusive of a total dividend of 4 pence per share paid to
shareholders in the year. This is a strong result and the Board is delighted
that the Company's strategy is now generating attractive returns for
investors, while being disappointed that JARA's share price total return did
not keep pace with the net asset value ('NAV'), ending the year down 8.9%,
reflecting a discount to underlying NAV at which the shares were trading on
28th February 2022. Since that date, the Company's share price has rerated and
is now at a premium to NAV; at close of business on 29th June 2022 (the latest
practicable date ahead of publication), the share price was 107.0 pence per
share (a 26.3% increase compared to 84.7 pence per share at the end of
February 2022).
It is pleasing to note that the private strategies in which the Company was
invested, as well as the liquid strategies, all posted positive returns over
the year in their local currencies - in what has been a very testing year for
many asset classes across the globe, this is an endorsement of the resilience
of our underlying strategies. The Company has been fully invested only for the
last six months of the reporting period, so such performance is especially
encouraging.
Since most of the Company's assets are denominated in U.S. dollars, or in
currencies which tend to be closely correlated with the U.S. dollar, JARA's
returns were assisted by sterling's 4% decline against the U.S. currency over
the past year. Shareholders will be aware that, following the year end,
sterling has weakened further against the U.S. dollar, which has proved to be
a helpful tailwind for the Company. One of JARA's attributes is that it
offers shareholders access to real assets globally and with this comes a
global currency exposure. Whilst this currency impact has benefitted the
Company over the last year and post the year end, experience of recent years
might suggest that currency movements have a habit of reversing themselves and
should represent a neutral impact for shareholder returns in the long run.
The Investment Managers' Report reviews the Company's performance and gives a
detailed commentary on the investment strategy and portfolio construction, and
an outlook for the strategies.
Objective and features
The Company's objective is to provide shareholders with both stable income and
capital appreciation through exposure to a globally diversified portfolio of
'core real assets', by which we mean physical and financial assets that offer
reliable, highly forecastable, long term cash flows. These are focused on
unlisted assets held in private funds investing in the global infrastructure,
real estate and transportation sectors, alongside a more liquid element of the
portfolio investing directly in listed real assets. Through these private
funds and accounts managed by J.P. Morgan Asset Management, the Company
provides diversified access to over 250 private investments which themselves
have exposure to over 1,000 underlying private real assets.
The Company aims to provide investors with a long-term NAV return of 7% to 9%
per annum, inclusive of a dividend yield (based on the initial issue price of
100p per share) of 4% to 6% per annum.
For more detail on why shareholders stand to benefit from the diversifying
role that JARA is designed to fulfil in their portfolios, please refer to the
appendix at the end of this document.
Keeping investors informed
The Company currently releases NAVs to the market four times a year, being at
the end of May, August, November and February, via the London Stock Exchange's
Regulatory News Service. With effect from the end of June 2022, the Company
will release NAVs on a monthly basis. These monthly NAVs will contain the
latest pricing for the liquid strategy and exchange rates, with the private
strategies being priced on a quarterly basis.
Capital deployment
By August 2021, the portfolio had achieved full investment and, as can be seen
from the Investment Managers' Report, the Company is now well diversified
across a range of different sectors throughout the Real Asset spectrum. An
important aspect of JARA is its diversification, which aims to ensure no
over-exposure to any one sector, asset or counterparty. JARA benefits from the
active management at both the portfolio and underlying strategy level to drive
returns for investors. One exciting example is JARA's allocation to some of
the newest and most efficient Liquid Natural Gas ('LNG') carriers which have
come to market at a particularly opportune moment. Ordered in 2019, these
assets are now operationally active at a time when they find themselves some
of the most sought-after transportation investments globally, with the Ukraine
conflict driving much of the world to switch its LNG purchases from fixed
pipelines to a seaborne supply chain.
Since the year end the Company has added a further level of diversification
through investment in a US Real Estate Mezzanine Debt (the 'Mezzanine')
strategy. This investment provides JARA with exposure to a portfolio of 15
existing loans, with a bias towards multifamily housing and office loans. As a
result of this transaction the Company has increased its sensitivity to rising
interest rates, given that the Mezzanine strategy has approximately 80% of its
exposure to floating rate loans. This allocation, now fully drawn, also helps
to increase JARA's portfolio income as the underlying Mezzanine strategy has
generated an income of 7.4% over one year and an annualised return of 6.9%
since inception (5th December 2019). The target total return for the Mezzanine
strategy is 6%-8% net per annum (net of management fees); this return is
primarily income orientated.
Revenue and dividends
Over the course of the year, the Company grew its share capital by 4% through
the issue of 8,600,000 new shares at a premium to their prevailing NAV and, as
at 28th February 2022, the Company had 217,407,952 shares in issue and net
assets of £206.6 million.
The Company has weathered a number of headwinds over the last year regarding
the portfolio income, some caused by the disruption caused by COVID-19, but
also on account of sterling strength in the first quarter of the Company's
financial year. Nonetheless, the Board is pleased to note that this has not
prevented JARA from achieving its target dividend rate. The Board declared
total dividends of 4 pence per share in respect of the Company's year ended
28th February 2022, comprising four dividends of 1 penny each.
The Directors intend to maintain at least the current level of dividend and to
review the level of dividend cover in the coming quarters. They have declared
a first dividend for the 2022/23 financial year of 1 penny per share, which
was paid to shareholders on 31st May 2022. Your Board believes that, over the
longer term, the success of the underlying businesses into which JARA invests
will facilitate a steadily growing level of dividends.
Share issuance
Since IPO, the Company has taken advantage of the premium to NAV at which its
shares have traded to issue an additional 67,838,128 shares, and over the past
financial year 8,600,000 new shares were issued pursuant to the placing
programme, raising gross proceeds of £8.0 million. These proceeds were
invested in line with the Company's investment policies across the underlying
investment strategies. Share issuance is always executed at a premium to the
prevailing cum-income NAV per share and so is accretive to the returns of
existing shareholders. If conditions are appropriate, the Company will
continue to issue new shares which, as well as assisting with premium
management, will also enhance liquidity and continue to underpin the Company
as an attractive investment. The Board also assesses the need for buybacks
when the shares are trading at a discount to NAV and will aim to balance
factors such as changes on the shareholder register and whether buybacks would
be more accretive to NAV when compared to any foregone opportunity for
potential investment opportunities.
Corporate governance
The Board is committed to maintaining and demonstrating high standards of
corporate governance, which is essential to foster the long-term, strategic
thinking that will create and protect value for all stakeholders. The Board
has considered the principles and provisions of the 2019 Association of
Investment Companies Code of Corporate Governance (the 'AIC Code'). The AIC
Code addresses all the principles and provisions set out in the UK Corporate
Governance Code, as well as setting out additional principles and provisions
on issues that are of specific relevance to investment companies. The Board
considers that reporting in accordance with the principles and provisions of
the AIC Code provides relevant and comprehensive information to shareholders.
I am pleased to report that throughout the year ended 28th February 2022 the
Company complied with the recommendations of the AIC Code.
The Board
In accordance with the Company's Articles of Incorporation and corporate
governance best practice, all Directors will be retiring and seeking
re-election by shareholders at the Company's Annual General Meeting ('AGM').
The Board's knowledge and experience is detailed on page 39 of the 2022 Annual
Report.
Annual general meeting
The Company's third AGM will be held on 5th August 2022 at 12 noon at Les
Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1
1AR. I would encourage all shareholders to vote.
If shareholders are unable to attend the AGM, they are welcome to raise any
questions in advance of the meeting with the Company Secretary at the
Company's registered address, or via the 'Ask Us a Question' link which can
be found in the 'Contact Us' section on the Company's website, or by writing
to the Company Secretary at the address on page 91 of the 2022 Annual Report
or via email to invtrusts.cosec@jpmorgan.com.
Outlook
This report covers the year from March 2021 to February 2022, JARA's second
full year of operations; the 2020/21 year was greatly affected by the onset of
the global pandemic and while the year just past has seen a remarkable
recovery in the world economy, it was far from plain sailing for investors.
The world has largely learnt to live with COVID-19 and its many variants,
resulting in an improvement in your Company's prospects and a vindication of
its investment strategies. However, shareholders will be aware that, only four
days before the end of our financial year, Russia took the fateful decision to
invade its neighbour Ukraine and while the resulting war will undoubtedly
cause great disruption and hardship for months and possibly years to come,
your Board's assessment of the strategies into which JARA invests suggests
that they are proving to be remarkably resilient. Some of these, such as the
LNG carriers mentioned above, stand to benefit significantly from the switch
away from Russian fossil fuels.
Meanwhile, the Company has developed significantly from when I wrote to
shareholders last year. It is now fully invested, it has achieved its initial
dividend targets and its assets have seen no material disruption or lasting
impact from the COVID-19 pandemic. The diversification across geographies,
asset classes and macro drivers means that JARA is well placed to continue to
meet both its income and capital returns, even in the challenging times in
which we live. Specific themes, such as the focus on energy transition, have
become more relevant and the infrastructure and transport strategies are well
positioned for today's world.
With JARA's shares once again trading at a premium, the Board and Manager will
monitor the demand for the Company's shares and assess this in the context of
the long term goal of growing the Company and delivering strong returns for
investors against the volatile market backdrop. In summary, therefore,
following a launch which took longer and proved to be more problematic that
any of us could have imagined back in September 2019, I believe that JARA
offers its shareholders access to an investment framework which provides
steady income with capital preservation in real terms, while being exposed to
a high quality and professionally managed asset base.
John Scott
Chairman
1st July 2022
INVESTMENT MANAGERS' REPORT
Portfolio review
During the financial year JARA's portfolio of investments achieved its full
weighted allocation and this, coupled with the positive returns in each and
every one of the underlying strategies, resulted in an NAV total return in GBP
of +12.9%. Over the reporting period, local currency performance was +11.7%.
The difference between the GBP return and the local currency return was caused
by currency movements which were accretive to JARA's GBP NAV. As a reminder,
the Company's portfolio is unhedged and therefore, when allocating overseas,
foreign exchange risk is present. Following the year end the US dollar
strengthened against sterling creating a tailwind for JARA as it starts its
new financial year. Please refer to the table in the 2022 Annual Report for a
breakdown of the contributors to JARA's performance calculated using each
strategy's investment performance and its average weighting within the
portfolio throughout the year.
During the year JARA invested $44 million into underlying strategies, with a
significant portion of this going towards private transport and private
Asia-Pacific real estate assets. At the year end JARA was fully invested
across a range of different sectors throughout the real asset universe. This
positioning aligns with both our strategic asset allocation and also areas of
high conviction in the medium term. For example, industrial/logistics remain
our favoured sector within real estate owing to continued tenant demand with
'last mile' assets (asset located close to urban areas) especially in demand.
Similarly, utilities and renewable energy are our preferred areas within
infrastructure owing to structural trends and inherent inflation mitigation
built within the contracts in these sectors. 'Direction of travel', which is
indicative of our areas of focus and known/expected pipelines, is also focused
on these areas.
A central tenet of JARA's investment proposition is to provide shareholders
with a diversified portfolio of real asset exposures both by asset class, end
user counterparty and by geography. JPMAM believes this aim has been achieved
with JARA now having a truly global real asset portfolio. This global
diversification proved crucial as, over the reporting period, economies
reopened and recovered from the pandemic in different ways and on varying
trajectories. The U.S. exposure, for example, proved very beneficial in the
second half of the financial year and there are further details on this later
in this report.
With inflation running high, and central banks trying to thread the needle to
achieve a 'soft landing', combined with geopolitical events in Europe, this
highlights the need to build a resilient portfolio through diversification.
The benefits of a global portfolio have never been more important, especially
in real assets where risk and return is often linked to the local market e.g.
demographics, regulations etc. As such JPMAM believes that JARA's portfolio is
well positioned with its North America and Asia-Pacific exposure complementing
many investor's allocations closer to home.
Review of underlying strategies
Global Private Real Estate
• High quality real estate, across the U.S. and Asia-Pacific
regions. Focused on core property sectors - logistics, residential, office and
retail - in major growth markets and the most dynamic gateway cities, which
are important hubs for economic growth.
• 261 assets globally equating to $48 billion in asset value
(includes leverage). Average level across real estate of 31%.
• Focus has been on increasing industrial/logistics and
residential exposure. These sectors provided the majority of JARA's return
over the financial year.
JARA's private real estate allocation provided a significant contribution to
returns with JPMAM's platform having one of its strongest years on record. The
majority of the return came from the private U.S. real estate exposure which
significantly outperformed all other strategies with double digit returns and
added 2.9% to JARA's total return. In addition, private Asia-Pacific real
estate added 1.7%. A key driver in the U.S. real estate outperformance was
the 'great reopening' of the U.S. economy following 18 months of intermittent
restrictions. The U.S. real estate allocation was increased in the middle of
the year, adding to positions where cash flow allowed and this allocation was
not adjusted as performance materalised. As a consequence, the overweight
resulted in amplified outperformance from this allocation.
Globally, returns were driven by extraordinary tenant demand, especially in
the industrial/logistics sector, which contributed over 60% of our real estate
appreciation last year. Supply constrained locations in the U.S. and
Asia-Pacific markets close to population centres and port traffic demonstrated
the greatest rent growth; a trend persisting throughout 2021, we expect this
to continue in to 2022. Beyond logistics, the residential sector was the
second highest conviction area with a focus on suburban residential in the
U.S. and multi-family sectors in Japan.
In addition to strong performance, the year was very busy in terms of active
asset management activity within the underlying strategies. From an
acquisitions standpoint, in Asia alone we closed or contracted on nearly USD1
billion of equity investment - primarily in Logistics in New Zealand, Japan,
Singapore, Australia and Hong Kong. As well as these acquisitions the real
estate strategies disposed of more than USD3 billion of assets (c. 7% of real
estate asset value), 80% of which were in office and retail assets which no
longer met ongoing expectations for growth objectives. Assets were generally
sold at or above holding values and on average retail disposals achieved
values that exceeded their carrying value by 9%.
It is pleasing to report that both JPMAM's real estate strategies were ranked
#1 in their respective peer groups within GRESB(1), receiving an average score
of 90/100 and both strategies were awarded five out of five stars. These
results are representative of JARA's approach to ESG across its entire
portfolio, as detailed within the ESG section of the 2022 Annual Report. These
results also compare well with rankings within the wider investment company
universe.
Global Private Infrastructure & Transportation
• Core/core+ infrastructure and transportation. Focused on
platform ownership allowing for long term value creation and backbone
transport assets with, on average, investment grade counterparties.
• Income profile of this part of the portfolio in the 7%-10% range
with the significant majority of return coming from income.
• 88 assets (747 if look-through assets included) equating to $44
billion in asset value (includes leverage). Average leverage of 48%.
• Broad sector exposure in core space with ongoing focus expected
to be on renewables, utilities and energy logistics.
JARA's private infrastructure also had a strong year and contributed +1.5% to
total return; the significant majority of which was derived from income.
Looking at performance by sub-sector, the regulated assets generally performed
inline with or above expectations, while airports remained impacted by the
pandemic. In contracted power (within which we include renewables) valuations
were generally positive owing to market demand, whilst operating performance
was slightly below expectations due to adverse weather conditions seen in
different regions.
It is worth reminding investors that within infrastructure there is quite a
differentiated approach to investing as the strategy actually owns operating
businesses, many of which are 'platform investments' where smaller assets can
be added over time via acquisitions, developments and build outs to increase
the size of the existing platforms in a more cost effective manner compared to
engaging in large transactions. We now employ this approach across both
infrastructure (they now represent 80-90% of the infrastructure AUM) and
transport with roughly two thirds of the capital deployed in the last five
years being via platform companies. These two strategies hold 14 such assets
at the Company's year end. There is significant opportunity to do this in the
utility, renewables and maritime space, both as a result of favourable market
conditions but also due to the often-fragmented nature of the marketplace.
With this in mind, the strategy is expected to increase its exposure to the
utility and renewals sector and reduce its exposure to fixed transportation
assets such as airports and sea ports which currently represent 2% of JARA's
portfolio. This is deemed to be a well-timed shift considering the more
explicit inflation linkage and less economically sensitive demand these
sectors generally see.
Transport contributed +1.7% to JARA's total return; this strategy focuses on
leasing out large backbone assets critical to the functioning of global trade,
leased to some of the largest corporates in the world. The significant
majority of this return was also income orientated and performance was in line
with expectations. Throughout the year global supply chains were extremely
strained, with throughput hindered by virus containment measures and labour
and equipment shortages. These conditions led to significant disruption and
shipment delays, absorbing free capacity, and thereby elevating charter rates
and creating a tailwind for many of our operators. Whilst supply chain
pressures should ease over time this has not yet happened and will likely not
fully resolve itself whilst China continues to aggressively contain outbreaks
of COVID-19.
Throughout the year over 20 new private assets were added within the transport
strategy, all of which were in the maritime and energy logistics space. The
strategy continues to avoid adding aviation assets as the future, especially
around business travel, remains uncertain and better returns are to be found
elsewhere; however, the existing assets now represent only 3% of JARA's
overall exposure and counterparties continue to be some of the more resilient
in the sector. For existing assets, contract terms are primarily fixed, hence
the ability to consistently add new assets in the portfolio is favourable in
allowing the strategy to capture some of the higher lease rates that are on
offer in the current market environment. A number of additions this year were
new build assets where having more fuel efficient and technologically advanced
assets will provide a competitive advantage. This is especially the case when
contracting with large well-run corporates that have a high focus on ESG
elements in their operations and this extends to the assets they lease. One
area of particular focus in the newbuild space has been with liquid natural
gas ('LNG') carriers; an area of high conviction for the strategy over the
last two years and the current macro backdrop has only enhanced this view.
This is discussed further in the outlook section. The average age of the fleet
is around 4.5 years and this will reduce as new build assets are delivered.
Liquid Real Assets
• Listed exposure across real estate, infrastructure and
transportation securities.
• Listed real estate includes 'all-tranche' REIT investing whereby
the team has the flexibility to invest in the common equity of REITs as well
as their debt securities in order to provide a lower volatility more income
orientated return.
The liquid real assets component of the portfolio was increased in mid-to-late
2020 when public market values were still depressed, taking advantage of a
number of mispricing and dislocations in the sub sectors. Since that point the
listed exposure has rebounded strongly, albeit with some volatility towards
year end; in total this sleeve contributed +4.3% over the year. From its peak,
the listed real assets allocation has been steadily reduced and recycled into
private assets. As a reminder, the listed real asset allocation is made up of
two distinct strategies; U.S. all-tranche REITs and an allocation more broadly
across a variety of other listed real assets. The portfolio is currently
equally weighted between these. The benefit of having an allocation to listed
real assets within the portfolio is both as a source of liquidity - giving
more flexibility around asset allocation - and as a further diversifier in
returns and sectoral exposure.
Real asset market outlook
As highlighted in appendix at the end of the document, active asset allocation
is fundamental to investing in the core real asset market given the wide
variety of possible outcomes. This dispersion was evident last year with a
near 20% dispersion between the highest performing component and the lowest
performing asset classes within JARA's portfolio. To take advantage of this
potential dispersion, JARA looks to actively allocate across different asset
classes, whilst being mindful of the constraints which exist when investing in
illiquid asset classes. This active asset allocation will be informed by
JPMAM's relative view of both income and total return achievable by each asset
class within the medium to long term. Please see below for JPMAM's outlook on
each of the asset classes that JARA invests across, as well as a view on how
inflation may impact the asset class.
Real Estate outlook
Pandemic-related impacts are now becoming visible. For example, the shift to
hybrid home-and-office working patterns means that the link between aggregate
market vacancy and the availability of grade A rental space has been weakened.
In some markets, we expect to see high vacancy rates associated with
surprisingly robust rental growth - and in these instances, maintaining a
focus on quality is essential.
We expect that many asset owners with high quality assets will have the
flexibility to increase rents at or above the inflation rate in real estate
sectors characterised by moderate supply and robust fundamentals. Conversely,
sectors with high vacancy rates and excess supply pipelines (or even negative
demand patterns) may see revenues fall below the inflation rate. This sector
dispersion is at an all-time high and therefore we feel that a quality
portfolio of assets, which is well positioned, should see above trend returns
in 2022 and beyond.
We also see opportunity in the real estate mezzanine debt space, particularly
in the US. The mezzanine market no longer reflects the pre-global financial
crisis marketplace where leverage was high and capital structures were
complex. Senior lenders continue to be conservative, allowing for subordinated
loans to play a crucial role in bridging the financing gap required whilst
offering an attractive risk adjusted investment opportunity, with a healthy
income orientated return and downside protection in the form of substantial
levels of subordinated equity. Many of the loans are also floating rate
allowing for protection from rising rates.
Core real estate can offer some inflation protection, on both and implicit and
explicit basis. The positive correlation is in many cases through the explicit
protection built into leases whereby lease rates are increased automatically
every year or reviewed and adjusted in line with an inflation benchmark. This
helps the income stream retain its real value. There is however some regional
variation of how leases are structured to protect against inflation. Capital
values may also benefit in a more explicit way if replacement values increase
and thereby support capital values. There is no historical evidence that
higher inflation hurts return, even when inflation leads to central bank rates
hikes as we are currently seeing.
Infrastructure outlook
We expect core infrastructure assets to continue to serve as a lower risk,
more forecastable source of diversification and steady income (mostly from
cash distributions) through their regulated frameworks, often correlated to
inflation, government concessions; and long-term contractual revenues with
investment grade counterparties.
Looking at both the regulatory and inflationary environment, utilities and
renewables will likely be areas we focus on. Regulated utilities typically
exist within regulatory frameworks that allow for relatively explicit
inflation protection via passing through costs and expenses to customers.
Furthermore, given the long-term nature of ownership and the capital required
to backup resiliency and decarbonisation plans, there are relatively few
operators who can successfully invest in this space.
Renewables will continue to be an area of opportunity. The conflict in Ukraine
has put energy independence at the heart of European political agendas and the
acceleration towards renewables is key to this. Many governments have now
pledged and/or increased their commitments to transitioning to a lower carbon
world. For investors such as ourselves, when making long-term investments in
communities' essential services, sustainability is the top priority. Investors
have an obligation to a broad set of stakeholders to be a positive force in
the current energy transition.
Core infrastructure investments can offer a considerable degree of inflation
protection. Explicit inflation protection is the simplest to quantify and
occurs when regulatory frameworks, concession agreements, and long-term
contracts automatically adjust using inflation-indexing mechanisms, allowing
underlying price increases to be passed on to customers and counterparties. An
example of this would be for a contracted power generation company, such as a
producer of renewable energy where inflation indexing in energy contracts
results in higher prices achieved as the price for power increases, providing
upside. Implicit inflation protection exists for many infrastructure assets,
even when there is no direct linkage through contracts and regulation. These
assets are often well-positioned to pass on rising costs, maybe due to
monopolistic positions making it feasible to pass through higher costs,
thereby protecting revenue streams while costs rise.
Transport outlook
Backlogs and disruption in global supply chains, exacerbated by continued
lockdowns in China, are likely to be positive for market sentiment given their
beneficial impact on profits. Furthermore, we see ongoing growth in e-commerce
continuing and strong consumer demands. Inflation does, however, pose some
risk to this demand if consumers are required to focus more on essential
spending.
In aviation, we expect domestic passenger volumes to continue improving,
although questions remain about long-term trends in international and business
travel. Amid concerns created by new variants of the coronavirus and dynamic
border control requirements, the recovery time for international aviation
remains uncertain. The market share vacated by 70-plus airline bankruptcies is
being filled by fewer, larger, more stable and well-capitalised companies.
Supporting the ongoing energy transition from fossil fuels to renewables is
one of the biggest opportunities we see. Transport assets can support this
transition to a less carbon intensive future by increasing energy-efficiency
and actively supporting certain industries. Demand for LNG is also now likely
to accelerate as the UK and Europe reduce dependency on Russian hydrocarbons
and look to alternative sources - with new sources of LNG likely to be key; we
therefore expect LNG carriers to be in high demand.
When it comes to inflation, transportation, as an asset class, probably has
the least explicit protection for investors as contract prices are often fixed
throughout their life. That said, over the long-term lease rates have been
correlated to inflation when they come for renewal and asset values are also
well correlated owing to replacement values going up when inflation is high.
As such, we see transportation as having the ability to provide some inflation
protection over the medium to long term.
(1) Global Real Estate Sustainability Benchmark.
Investment
Manager
J.P. Morgan Asset Management, Inc.
Security Capital Research & Management Inc. and J.P. Morgan Alternative
Asset Management Inc.
1st July 2022
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. With the assistance
of JPMF, the Audit Committee and Market Risk Committee, chaired by Helen Green
and Simon Holden, respectively, have drawn up a risk matrix, which identifies
the key risks to the Company. These are reviewed and noted by the Board. The
principal and emerging risks identified and the broad categories in which they
fall, and the ways in which they are managed or mitigated are summarised
below. The AIC Code of Corporate Governance requires the Audit Committee to
put in place procedures to identify emerging risks and also provide an
explanation of how these are managed or mitigated.
Principal risk Description Mitigating activities
Investment Management
and Performance
Discount Control Risk Investment company shares often trade at discounts to their underlying NAVs, The Board monitors the level of both the absolute and sector relative
although they can also trade at a premium. Discounts and premiums can premium/discount at which the shares trade. The Board reviews both sales and
fluctuate considerably leading to volatile returns for shareholders. marketing activity and sector relative performance, which it believes are the
primary drivers of the relative premium/discount level. In addition, the
Company has authority, when it deems appropriate, to buy back its existing
shares to enhance the NAV per share for remaining shareholders and to reduce
the absolute level of discount and discount volatility.
Foreign Exchange Risk to Income There is a risk that material sterling strength or volatility will result in a A decision was taken at launch not to hedge the capital value of the portfolio
diminution of the value of income received when converted into sterling. into sterling, nor to hedge the income generated by the portfolio into
sterling. One of JARA's attributes is that it offers shareholders access to
real assets globally and with this comes a global currency exposure. Whilst
this currency impact has benefited the Company over the last year and post the
year end, experience of recent years suggests that currency movements have a
habit of reversing themselves and should represent a neutral impact for
shareholder returns in the long run. The Board keeps the decision on whether
to hedge the capital value or income generation under review.
Foreign Exchange Risk to NAV/Share Price Volatility There is a risk that material sterling strength or volatility will result in a
volatile NAV/share price since most the Company's assets are denominated in US
dollars, or in currencies which tend to be closely correlated with the dollar.
Income Generation Risk There is a risk that the Company fails to generate sufficient income from its The Board reviews quarterly detailed estimates of revenue income and
investment portfolio to meet the Company's target annual dividend yield of 4 expenditure prepared by the Manager and, if required, challenges the Manager
to 6%, based on the initial issue price of 100.0p per share. as to the underlying assumptions made in earnings from the underlying
strategies and the Company's expenditure. Under Guernsey company law, the
Company is permitted to pay dividends despite losses provided solvency tests
are performed and passed ahead of dividend declaration.
Underperformance Poor implementation of the investment strategy, for example as to thematic The Board manages these risks by diversification of investments and through
exposure, sector allocation, undue concentration of holdings, factor risk its investment restrictions and guidelines, which are monitored and reported
exposure or the degree of total portfolio risk, may lead to the Company not on by the Manager. The Manager provides the Directors with timely and accurate
achieving its investment objective of providing a stable income and capital management information, including performance data, revenue estimates,
appreciation, and/or underperformance against the Company's peer companies. liquidity reports and shareholder analyses.
Operational Risks
Corporate Strategy and shareholder demand The corporate strategy, including the investment objectives and policies, may The Manager has a dedicated investment company sales team that engages with
not be of sufficient interest to current or prospective shareholders. both existing and prospective shareholders of the Company. This engagement
includes the education/description of how JARA's portfolio is invested and the
Certain buyers within the sector will only consider investing into an exposures that this generates. The Board regularly reviews its strategy, and
investment trust where its AUM is over a certain level; the Company's AUM assesses, with its broker and Manager, shareholder demand.
currently stands below these levels.
Cyber Crime The threat of cyber attack, in all guises, is regarded as at least as The Company benefits directly or indirectly from all elements of JPMorgan's
important as more traditional physical threats to business continuity and Cyber Security programme. The information technology controls around physical
security. security of JPMorgan's data centres, security of its networks and security of
its trading applications, are tested by independent auditors and reported
In addition to threatening the Company's operations, such an attack is likely every six months against the AAF Standard.
to raise reputational issues which may damage the Company's share price and
reduce demand for its shares.
Counterparty Risk The nature of the contractual frameworks that underpin many of the real assets The Board is able to seek information from the Manager in relation to
within the underlying strategies necessitate close partnerships with a range counterparty concentration and correlation of providers. As counterparty
of counterparties. In addition to the financial risks arising from exposure to quality is key to maintaining predictable income streams, the Manager seeks
customers, client and lenders, there are a large number of operational regular contact with key counterparties throughout the supply chain and with
counterparties including construction and maintenance subcontractors. Such revenue-providing counterparties, while also actively monitoring the financial
counterparties to which the Company is ultimately exposed will increase as the strength and stability of all these entities.
Company's assets continue to be deployed. Counterparty risk would primarily
manifest itself as either counterparty failure or underperformance of
contractors.
Investment Delay Investment into underlying strategies could be delayed resulting in loss of The Manager monitors and reports to the Board on 'queue' length and the
expected income and capital growth opportunity. underlying pattern of deployment in the underlying strategies. Any slowing of
deployment patterns is reported to Board and the income impact is modelled.
Outsourcing Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by JPM and its
systems or the Depositary or Custodian's records may prevent accurate associates and the key elements designed to provide effective risk management
reporting and monitoring of the Company's financial position or a and internal control are included within the Risk Management and Internal
misappropriation of assets. Controls section of the Corporate Governance Statement on pages 42 to 45 of
the 2022 Annual Report.
The Manager has a comprehensive business continuity plan which facilitates
continued operation of the business in the event of a service disruption
(including and disruption resulting from the COVID-19 pathogen). Since the
introduction of the COVID-19 restrictions, Directors have received assurances
that the Manager and its key third party service providers have all been able
to maintain service levels.
Regulatory Risks
Regulatory Change Various legal and regulatory changes may adversely impact the Company and its The Manager and its advisers continually monitor any potential or actual
underlying investments. This could take the form of legislation impacting the changes to regulations to ensure its assets and service providers remain
supply chain or contractual costs or obligations to which the underlying compliant. Most social and transportation infrastructure concessions provide a
strategies are exposed. Certain investments in the underlying strategies are degree of protection, through their contractual structures, in relation to
subject to regulatory oversight. Regular price control reviews by regulators changes in legislation which affect either the asset or the way the services
determine levels of investment and service that the portfolio company must are provided. Regulators seek to balance protecting customer interests with
deliver and revenue that may be generated. Particularly severe reviews may making sure that investments have enough money to finance their functions.
result in poor financial performance of the affected investment.
The Company invests in real assets via a series of private funds. The
operation of these entities including their ability to be bought, held or sold
by investors across a number of jurisdictions and the taxation suffered within
the funds and by investors into the funds depend on a complex mix of
regulatory and tax laws and regulations across a wide range of countries.
These may be subject to change that may threaten the Company's access to and
returns earned from the private funds.
Emerging risk Description Mitigating Factor
Environmental Risks
Climate Change Climate change is one of the most critical emerging issues confronting asset In the Company's and Manager's view, investments that successfully manage
managers and their investors. Climate change may have a disruptive effect on climate change risks will perform better in the long-term. Consideration of
the business models and profitability of individual investments, and indeed, climate change risks and opportunities is an integral part of the investment
whole sectors. The Board is also considering the threat posed by the direct process. The Manager aims to influence the management of climate related risks
impact of climate change on the operations of the Manager and other major through engagement and voting with respect to the equity portion of the
service providers. portfolio, and is a participant of Climate Action 100+ and a signatory of the
United Nations Principles for Responsible Investment.
Although mitigated to some extent by contracted lease commitments, the Company
may be exposed to substantial risk of loss from environmental claims arising Generally, the Manager (or, in the case of an investment made by a JPMAM
in respect of its underlying real assets that have environmental problems, and product, the relevant manager) performs market practice environmental due
the loss may exceed the value of such underlying assets. Furthermore, changes diligence of all of the investments to identify potential sources of
in environmental laws and regulations or in the environmental condition of pollution, contamination or other environmental hazard for which such
investments may create liabilities that did not exist at the time of investment may be responsible and to assess the status of environmental
acquisition of an underlying asset and that could not have been foreseen. It regulatory compliance.
is also possible that certain underlying assets to which the Company will be
exposed could be subject to risks associated with natural disasters (including
wildfire, storms, hurricanes, cyclones, typhoons, hail storms, blizzards and
floods) or non climate related manmade disasters (including terrorist
activities, acts of war or incidents caused by human error).
Global Risks
Geopolitical Risk The Company's investments are exposed to various geopolitical and This risk is managed to some extent by diversification of investments and by
macro-economic risks incidental to investing. Political, economic, military regular communication with the Manager on matters of investment strategy and
and other events around the world (including trade disputes) may impact the portfolio construction which will directly or indirectly include an assessment
economic conditions in which the Company operates, by, for example, causing of these risks. The Board can, with shareholder approval, look to amend the
exchange rate fluctuations, interest rate changes, heightened or lessened investment policy and objectives of the Company to gain exposure to or
competition, tax advantages or disadvantages, inflation, reduced economic mitigate the risks arising from geopolitical instability although this is
growth or recession, and so on. Such events are not in the control of the limited if it is truly global.
Company and may impact the Company's performance.
The crisis in Ukraine has already affected energy and commodity markets and
may cause further damage to the global economy. The ongoing conflict between
Russia and Ukraine has heightened the possibility that tensions will spill
over and intensify geo-political unrest between other countries sharing a
common border.
Technological and Behavioural Change The returns generated from the underlying investment strategies in which the The Board manages these risks through maintaining a diversified portfolio of
Company is invested may be materially affected by new or emerging changes in investments, ensuring the underlying investment team consider these threats in
technology which change the behaviour of individuals or corporations, or may portfolio construction and investment plans and are aware of the investment
require substantial investment in new or replacement technologies. Such opportunities as well as the threats presented by these shifts in the sectors
changes may include the decline in demand for office space as remote working in which they invest.
technologies become widespread, material changes in transport technologies and
new technologies for the generation and transmission of energy.
Pandemic Risks
Pandemics The emergence of COVID-19 has highlighted the speed and extent of economic The Board receives reports on the business continuity plans of the Manager and
damage that can arise from a pandemic. While current hopes that vaccination other key service providers. The effectiveness of these measures have been
programmes will control the virus appear well-placed, there is the risk that assessed throughout the course of the COVID-19 pandemic and the Board will
emergent strains may not respond to current vaccines and may be more lethal continue to monitor developments as they occur and seek to learn lessons which
and that they may spread as global travel opens up again. may be of use in the event of future pandemics.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on
page 40 of the 2022 Annual Report. The management fee payable to the Manager
for the year was £1,628,000 (2021: £703,000) of which £67,000 (2021:
£203,000) was outstanding at the year end.
The Company holds cash in JPMorgan Sterling Liquidity Fund, which is managed
by JPMF. At the year end, this was valued at £0.01 million (2021: £0.3
million). Interest amounting to £4,000 (2021: £6,000) was receivable during
the year of which £nil (2021: £nil) was outstanding at the year end.
The Company holds cash in JPMorgan US Dollar Liquidity Fund, which is managed
by JPMF. At the year end, this was valued at £0.1 million (2021: £18.6
million). Interest amounting to £8,000 (2021: £559,000) was receivable
during the year of which £nil (2021: £4,000) was outstanding at the year
end.
Included in administrative expenses in note 7 on page 70 of the 2022 Annual
Report are safe custody fees amounting to £2,000 (2021: £94,000) payable to
JPMorgan Chase N.A. of which £1,000 (2021: £1,000) was outstanding at the
year end.
Handling charges on dealing transactions amounting to £30,000 (2021:
£21,000) were payable to JPMorgan Chase N.A. during the year of which £4,000
(2021: £2,000) was outstanding at the year end.
At the year end, a bank balance of £1,052,000 (2021: £976,000) was held with
JPMorgan Chase N.A. A net amount of interest of £171,000 (2021: £nil) was
receivable by the Company during the year from JPMorgan Chase N.A. of which
£nil (2021: £nil) was outstanding at the year end.
Please see below for details of the Directors' remuneration.
Single total figure of remuneration(1)
The single total figure of remuneration for each Director is detailed below.
Directors 2022 2021
Total Total
£ £
John Scott 60,000 60,000
Helen Green 50,000 50,000
Simon Holden 54,000 54,000
Chris Russell 42,000 42,000
Total 206,000 206,000
(1) Other subject headings for the single figure table are not included
because there is nothing to disclose in relation thereto.
Whilst not required by the Company and not constituting part of the Directors'
remuneration, the Directors own shares in the Company. The Directors'
received a dividend from their shares over the reporting period commensurate
with their shareholdings, which does not constitute part of their
remuneration. There are no balances payable to the Directors at the year end.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report & Financial
Statements in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 ('the law') requires the Directors to
prepare the Financial Statements for each financial year. Under that law, the
Directors have elected to prepare the financial statements in accordance with
International Financial Reporting Standards to meet the requirements of
applicable law and regulations. Under Company law the Directors must not
approve the Financial Statements unless they are satisfied that, taken as
a whole, the Annual Report & Financial Statements are fair, balanced and
understandable, provide the information necessary for shareholders to assess
the Company's position, performance, business model and strategy and that they
give a true and fair view of the state of affairs of the Company and of the
total return or loss of the Company for that period. In order to provide these
confirmations, and in preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether applicable International Financial Reporting
Standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Company will continue in business
and the Directors confirm that they have done so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and to
enable them to ensure that the financial statements comply with the law. They
are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The accounts are published on the www.jpmrealassets.co.uk website, which is
maintained by the Company's Manager. The maintenance and integrity of the
website maintained by the Manager is, so far as it relates to the Company, the
responsibility of the Manager. The work carried out by the Auditor does not
involve consideration of the maintenance and integrity of this website and,
accordingly, the Auditor accepts no responsibility for any changes that have
occurred to the accounts since they were initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions. The
accounts are prepared in accordance with International Financial Reporting
Standards.
Under applicable law and regulations the Directors are also responsible for
preparing a Directors' Report, Corporate Governance Statement and Directors'
Remuneration Report that comply with that law and those regulations.
Each of the Directors, confirms that, to the best of their knowledge:
• the financial statements, which have been prepared in accordance
with International Financial Reporting Standards and applicable law, give a
true and fair view of the assets, liabilities, financial position and return
or loss of the Company; and
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal and emerging risks and uncertainties that it
faces.
The Board also confirms that it is satisfied that the Strategic Report and
Directors' Report include a fair review of the development and performance of
the business, and the position of the Company, together with a description of
the principal and emerging risks and uncertainties that the Company faces.
For and on behalf of the Board
John Scott
Chairman
1st July 2022
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28TH FEBRUARY 2022
Year ended Year ended
28th February 28th February
2022 2021
£'000 £'000
Gains/(losses) on investments held at fair value through profit or loss 15,896 (9,297)
Net foreign currency gains/(losses) 905 (5,290)
Investment income 9,846 3,049
Interest receivable and similar income 183 565
Total return/(loss) 26,830 (10,973)
Management fee (1,628) (703)
Other administrative expenses (1,023) (642)
Return/(loss) before finance costs and taxation 24,179 (12,318)
Finance costs (1) -
Return/(loss) before taxation 24,178 (12,318)
Taxation (485) (412)
Return/(loss) for the year 23,693 (12,730)
Return/(loss) per share 11.06p (6.16)p
The Company does not have any income or expense that is not included in the net profit for the year. Accordingly the 'Return for the year', is also the 'Total comprehensive income for the year, as defined in IAS1 (revised).
All Items in the above statement derive from continuing operations. No
operations were acquired or discontinued in the year.
STATEMENT OF CHANGES IN EQUITY
Share Retained
premium earnings Total
£'000 £'000 £'000
Year ended 28th February 2021
At 29th February 2020 200,574 (6,159) 194,415
Issue of ordinary shares 8,679 - 8,679
Share issue costs (117) - (117)
Loss for the year - (12,730) (12,730)
Dividends paid in the year (note 4) - (6,730) (6,730)
At 28th February 2021 209,136 (25,619) 183,517
Year ended 28th February 2022
At 28th February 2021 209,136 (25,619) 183,517
Issue of ordinary shares 7,987 - 7,987
Return for the year - 23,693 23,693
Dividends paid in the year (note 4) - (8,608) (8,608)
At 28th February 2022 217,123 (10,534) 206,589
STATEMENT OF FINANCIAL POSITION
AS AT 28TH FEBRUARY 2022
2022 2021
£'000 £'000
Assets
Non current assets
Investments held at fair value through profit or loss 204,667 163,450
Current assets
Other receivables 1,063 814
Cash and cash equivalents 1,175 19,867
2,238 20,681
Liabilities
Current liabilities
Other payables (316) (614)
Net current assets 1,922 20,067
Total assets less current liabilities 206,589 183,517
Net assets 206,589 183,517
Amounts attributable to shareholders
Share premium 217,123 209,136
Retained earnings (10,534) (25,619)
Total shareholders' funds 206,589 183,517
Net asset value per share 95.0p 87.9p
Incorporated in Guernsey with the company registration number: 66082.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 28TH FEBRUARY 2022
Year ended Year ended
28th February 28th February
2022 2021
£'000 £'000
Operating activities
Return/(loss) before taxation 24,179 (12,318)
Deduct dividend income (9,730) (2,972)
Deduct investment income - interest (116) (77)
Deduct deposit and liquidity fund interest income (183) (565)
Less interest expense (1) -
Add indirect management fee 880 -
Deduct gains/add losses on investments held at fair value through profit or (15,896) 9,297
loss
Increase in prepayments and accrued income (14) (16)
Decrease in other payables (101) (93)
Add exchange losses on cash and cash equivalents 107 3,981
Taxation (484) (414)
Net cash outflow from operating activities before interest and taxation (1,359) (3,177)
Dividends received 9,413 2,318
Investment income - interest 150 124
Deposit and liquidity fund interest received 183 737
Purchases of investments held at fair value through profit or loss (53,630) (128,334)
Sales of investments held at fair value through profit or loss 27,279 23,635
Net cash outflow from operating activities (17,964) (104,697)
Financing activities
Issue of ordinary shares 7,987 8,679
Share issue costs - (117)
Dividends paid (8,608) (6,730)
Net cash (outflow)/inflow from financing activities (621) 1,832
Decrease in cash and cash equivalents (18,585) (102,865)
Cash and cash equivalents at start of year 19,867 126,713
Exchange movements (107) (3,981)
Cash and cash equivalents at end of year(1) 1,175 19,867
(1) Cash and cash equivalents includes liquidity funds.
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The Company is a closed-ended investment company incorporated in accordance
with the Companies (Guernsey) Law, 2008. The address of its registered office
is at 1st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter
Port, Guernsey GY1 1AR.
The principal activity of the Company is investing in securities as set out in
the Company's Objective and Investment Policies. The Company was incorporated
on 22nd February 2019. The Company was admitted to the Main market of the
London Stock Exchange and had its first day of trading was on 24th September
2019.
Investment objective
The Company will seek to provide Shareholders with stable income and capital
appreciation from exposure to a globally diversified portfolio of core real
assets.
Investment policy
The Company will pursue its investment objective through diversified
investment in private funds or accounts managed or advised by entities within
J.P. Morgan Asset Management (together referred to as 'JPMAM'), the asset
management business of JPMorgan Chase & Co. These JPMAM Products will
comprise 'Private Funds', being private collective investment vehicles, and
'Managed Accounts', which will typically take the form of a custody account
the assets in which are managed by a discretionary manager.
2. Summary of significant accounting policies
2.1 Basis of Preparation
(a) Statement of compliance
The Company's financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which comprise standards
and interpretations approved by the International Accounting Standards Board
('IASB'), the IFRS Interpretations Committee and interpretations approved by
the International Accounting Standards Committee ('IASC') that remain in
effect and The Companies (Guernsey) Law, 2008.
(b) Basis of accounting
These financial statements have been prepared on a going concern basis in
accordance with IAS 1, applying the historical cost convention, except for the
measurement of financial assets including derivative financial instruments
designated as held at fair value through profit or loss ('FVTPL') that have
been measured at fair value.
All of the Company's operations are of a continuing nature.
3. Return/(loss) per share
2022 2021
£'000 £'000
Total return/(loss) 23,693 (12,730)
Weighted average number of shares in issue during the year 214,182,610 206,541,068
Total return/(loss) per share 11.06p (6.16)p
4. Dividends
2022 2021
£'000 £'000
Dividends paid
2021/2022 First interim dividend of 1.00p (2021: 0.75p) per share 2,088 1,510
2021/2022 Second interim dividend of 1.00p (2021: 0.75p) per share 2,172 1,566
2021/2022 Third interim dividend of 1.00p (2021: 0.75p) per share 2,174 1,566
2021/2022 Fourth interim dividend of 1.00p (2021: 1.00p) per share 2,174 2,088
Total dividends paid in the year 8,608 6,730
Dividend declared
2022/2023 First interim dividend declared of 1.00p (2021: 1.00p) 2,174 2,088
5. Net asset value per share
2022 2021
Shareholders funds (£'000) 206,589 183,517
Number of shares in issue 217,407,952 208,807,952
Net asset value per share 95.0p 87.9p
6. Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the Annual
Report and Financial Statements for the year ended 28th February 2021 and do
not constitute the statutory accounts for the year. The Annual Report &
Financial Statements includes the Report of the Independent Auditors which is
unqualified.
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Financial Statements for the year ended 28th
February 2022 and do not constitute the statutory accounts for that year.
The Annual Report and Financial Statements include the Report of the
Independent Auditors which is unqualified.
Neither the contents of the Company's website nor the contents of any
website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into, or forms part of, this announcement.
1st July 2022
For further information:
Alison Vincent,
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the annual report will shortly be submitted to the FCA's National
Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://secureweb.jpmchase.net/readonly/https:/lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDIsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMDA0MDUuMTk3NzA4MDEiLCJ1cmwiOiJodHRwczovL2RhdGEuZmNhLm9yZy51ay8jL25zbS9uYXRpb25hbHN0b3JhZ2VtZWNoYW5pc20ifQ.b7Q7NXHGRA8MjB_Ugl8Tv4JxhiU28TbcoNb04FTTMiY/br/77057565556-l)
The annual report will shortly be available on the Company's website at
www.jpmrealassets.co.uk (http://www.jpmrealassets.co.uk) where up-to-date
information on the Company, including daily NAV and share prices, factsheets
and portfolio information can also be found.
JPMORGAN FUNDS LIMITED
APPENDIX
JARA - A cornerstone allocation to Global Core Real Assets
JARA seeks to provide shareholders with a cornerstone allocation to real
assets through a portfolio which is diversified across real asset categories
and geographies. JARA delivers this by accessing a number of JPMAM's
institutional real asset strategies, focused on Infrastructure, Real Estate
and Transport. These strategies are significant in scale with established,
mature portfolios able to provide investors with predictable long term
cashflows that are hard to access through the public markets. The scale and
diversification of these strategies provides JARA's shareholders with access
to geographies and investments not typically available to them in other real
asset vehicles.
JARA predominantly allocates towards 'core' real assets, which have
forecastable cash flows for long periods of time with a low margin of error.
As such it is expected that a significant part of JARA's investment return
will be derived from income and typically these cash flows are linked to high
quality counterparties in developed, mostly OECD markets. This is in contrast
with 'non-core' or value-add assets that tend to have a higher risk/higher
return profile and a greater dispersion of returns.
As well as seeking to provide investors with a stable income, real assets can
provide strong risk adjusted returns. Within the 2022 Annual Report is an
analysis based on JPMAM's Long Term Capital Market Assumptions - an annual
publication which provides a forward-looking view of asset class risk and
returns over the next 10-15 years. The purple line shows the stock/bond
efficient frontier and provides an illustration of the level of return and
volatility which might be expected from a public markets' portfolio. The goal
for investors is to maximise outcomes for a given level of volatility and,
therefore, asset classes which sit above the efficient frontier are typically
deemed to be accretive to investor portfolios as they offer a higher return
for a given level of volatility. As detailed in the diagram in the 2022 Annual
Report, real assets and, importantly, JARA sit above the stock/bond efficient
frontier and therefore adding JARA into a portfolio should have an accretive
impact on returns and efficiency.
It is also important to highlight how JARA compares to single real asset
categories such as global infrastructure, global transport and region-specific
real estate. Whilst JARA aims to deliver a similar total return to these asset
classes its volatility is expected to be lower - making it a more efficient
investment. This is driven by the uncorrelated nature of JARA's component
investments. As such, JARA looks to benefit from a double layer of
diversification as its dedicated real asset categories offer an uncorrelated
return to public markets but also each other thereby reducing portfolio level
volatility vs. any one single real asset category allocation. As noted in the
next section, there is also significant opportunity for active asset
allocation across the real asset market - something which JPMAM is well
positioned to take advantage of for JARA's portfolio.
Benefits of active asset allocation
JPMAM has one of the world's leading alternatives platform with $215 billion+
in assets under management ('AUM') across the alternatives spectrum. Within
this, real assets represent approximately $90 billion in AUM, the majority of
which is focused on core, income producing assets (data as of 31st December
2021).
JARA's portfolio is managed by JPMAM's Alternatives Solutions Group ('ASG'); a
team focused on designing, building and managing multi-alternatives solutions.
The ASG team has over 25 years of experience in managing alternatives
solutions and has the goal to bring 'more science and less art' to
alternatives asset allocation and portfolio construction utilising top-down
views and capital market assumptions with bottom-up market data from JPMAM's
300+ alternative investment professionals.
JARA therefore benefits from accessing these already scaled core strategies
with a lower cost and lower exposure to any one geography, asset or regulatory
risk. In addition, JARA has the ability to pivot exposures at the underlying
strategy level - for example by underweighting or overweighting a certain
sector or geography. It also benefits from ongoing active management from the
ASG which looks to optimise returns by evolving the strategic asset allocation
over time to take advantage of any new opportunities the market provides.
Active asset allocation is fundamental to investing in the core real asset
market given the wide variety of outcomes possible. To take advantage of this
potential dispersion, the ASG look to actively allocate across different asset
classes, whilst being mindful of the constraints which exist when investing in
illiquid asset classes. This active asset allocation will be informed by our
relative view of both income and total return achievable by each asset class
within the medium to long term. The scale and global diversification of these
strategies provides JARA's shareholders with access to deals they would be
unable to access on their own.
Underlying strategies
Infrastructure Transport Real Estate Listed Real Assets
· Core/core+ infrastructure in OECD markets · Yield-focused backbone transport assets with long term leases with on · High quality real estate, across the U.S. and Asia-Pacific region · Listed exposure across real estate, infrastructure and transportation
average investment grade counterparties securities
· Sectors focus on renewables, contracted power, utilities and storage · Providing income, uncorrelated returns and global exposure · Core property sectors - logistics, residential, office and retail - · Listed real estate includes all-tranche REIT approach whereby
in major growth markets with attractive demographics targeting the most investment is also diversified into debt securities
dynamic liquid gateway cities, which are important hubs for economic growth
· Platform investing approach allowing for long term value creation · Maritime, energy logistics, aircraft, rail and fleet leasing · Exposed predominantly to industrial/logistics, multifamily and office
Exposure to global themes
Real assets are the building blocks of productive societies - offering places
for people to work and shop; providing essential services such as electricity
and water and helping transport people and goods around the globe. As such,
they are fundamental to the way we live our lives and are linked to many of
the global trends we experience in society every day.
Global trends within JARA's portfolio
Energy Transition E-commerce Acceleration Emerging Core Sectors Awareness of Social Responsibility
10% 24% 6% 100%
· JARA has exposure to +6GW of renewable energy · JARA owns assets across the supply chain including Logistics and · As the world evolves so will our definition of 'core' real assets · All underlying strategies are fully ESG integrated
Container ships
· Exposure extends beyond just renewable energy assets to other · E-commerce trend magnified by COVID-19 · Examples include: · Strong GRESB ratings and UN SDG alignment
ancillary renewable sectors (e.g. wind farm maintenance vessels)
For illustrative purpose only. As of February 2022. Holdings and exposure may
be subject to change from time to time. All investments might not be suitable
for all investors. Provided for information only, not to be construed as
offer, research or investment advice.
Similar to how the fallout from the global pandemic created and accelerated
some of these themes, over time, JPMAM expects new, equally influential themes
to become important to the real asset market. This may, for example, be in how
real assets can help Europe increase its energy independence or help the
digitisation of our lives.
In each case, JPMAM remains vigilant and excited to pursue new themes within
the core real asset marketplace on behalf of JARA.
END
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