Kristin Kallergis Rowland - Global Head of Alternative Investments at J.P. Morgan Wealth Management

Colbert Cannon: Welcome to Season 10 of the HPSCast. I’m your host, Colbert Cannon. If you’re new to the pod, HPS is a global investment firm. We manage over 100 billion in assets for a broad range of institutional and individual investors. That capital is invested across private credit and public credit strategies. Each week, I sit down with key relationships to, partners of, and friends of the firm to learn from their experience, ask how that experience shapes their current roles, and give insights into HPS and how we operate.

So with that, let’s bring in our guest. Our guest this week is the Global Head of Alternative Investments for J. P. Morgan’s Wealth Management business. She graduated from the University of Illinois and started her career as a credit analyst at J.P. Morgan Private Bank’s Chicago office. She’s made her career at the House of Morgan, eventually moving over to alternatives in 2013.

She became the Head of Alternatives for Europe and the Middle East in 2015, and then in 2020 became the Global Head of Alternatives for J. P. Morgan Wealth Management. Beyond our shared corporate history, this woman and her part of J.P. Morgan’s global business have been key partners to HPS for many years now, and we are honored by their support.

So, without any further ado, I’m excited to welcome in this week’s HPSCast guest, K.K. Rowland, Global Head of Alternatives at J.P. Morgan Wealth Management. K.K., welcome to the pod.

Kristin Kallergis Rowland: That’s a very kind intro, thanks for having me.

Colbert Cannon: Well, K. K., I’d like to start from the start. Let’s go all the way back. Where’d you grow up? Where are you from originally?

Kristin Kallergis Rowland: just north of Chicago, a town called Lake Forest.

Colbert Cannon: All right. So, Lake Forest, you ended up doing your undergrad at Illinois. Why was that the right choice for you?

Kristin Kallergis Rowland: My father convinced me when I was 13 to start playing golf with him, and I think it was so that my mother didn’t get upset with him when he went to play because he would take me out.

Colbert Cannon: I resemble this comment, KK, with my children, but anyway, keep going.

Kristin Kallergis Rowland: He always said, you know, if I wanted a career in finance, because I really only liked classes with numbers, that I could play golf in finance, which, little did he know, the ‘08 crisis was going to happen, and I wouldn’t play as much golf. But I started playing golf, and then I wanted to be close to home and the camaraderie of like a Big Ten school with a good business school, and I happened to be able to join the golf team there, which was an incredible experience.

Colbert Cannon: So, you studied business undergrad. What did you think you wanted to do? Like as you were studying, what did you think your career was going to be?

Kristin Kallergis Rowland: I did two internships. One was in corporate cash management in the world where auction rate securities were still around, and we were doing CLO research and CDOs and everything else.

And then, another internship I did was in private banking at a different firm. And I realized I felt real connectivity to individuals and families and solving problems for them. So, I knew that I liked finance, and I knew that I liked working with individuals versus corporations. I felt more of a connection to them.

And so, there was a mentor of mine who I’d done an internship with and he said, “I could give you a job full time, but I think the world’s about to flip upside down, and I think that you should go into private banking.”

And that’s what I did. So, I joined J.P. Morgan in ‘08 as a credit analyst.

Colbert Cannon: And tell me about that first job. What were you actually doing, KK?

Kristin Kallergis Rowland: They had me working in Columbus, Ohio, monitoring third-party collateral. They had me go to the mortgage center in the beginning of ’09, because all of our clients obviously wanted to refinance at that time. And so, there were just a lot of moving pieces. It was everything from margin calls to hearing other people have conversations. It was obviously one of the worst times in markets, but it was the best time to learn. And I always felt fortunate to learn from others and be at a place like J.P. Morgan. I was in a very, very fortunate position, and I never took that for granted.

Colbert Cannon: I always think first jobs are formative, and you started, as you said,  right in the teeth of the global financial crisis. What are those lessons learned from those early days? What do you keep with you from that time?

Kristin Kallergis Rowland: I think having roots in credit and being able to look at both sides of any balance sheet – whether it was an individual or the foundation or a company – stuck with me. And then, the other thing I would just say, and it leads into, kind of, what I’m doing in my career now too, is that alignment matters. And whether that’s alignment in products that you’re choosing to invest behind or people that you’re choosing to partner with, etc. – alignment was something that, in those times of crisis, you really learn a lot, and those are things that you look out for later on.

Colbert Cannon: I think that’s really well said. You learn so much in a crisis because when you’re misaligned, if everything’s going fine, it never really worries about it, and then a crisis happens and you find out where your incentives are.

All right, let’s talk about your career then. You start as an analyst. You’re doing analytical work. You make the move over to alternatives. What brought you over to that side of the house?

Kristin Kallergis Rowland: I guess it was because I started in the crisis. My father always said to make sure that you’re doing something at the firm that, if you were fired tomorrow, you could take what you learn and be differentiated in the market. And I actually felt like alternatives at J.P. Morgan was differentiated. I got to do a lot of the product building in my role as business management, which is from 2010 to 2013, and sitting next to the head of the business and seeing how they made decisions and were preparing for three, five, ten years out was always really interesting to me.

The reason I actually moved into it, though, was my husband, Henry, who I’ve been with since I was 17 years old. He wanted to go to business school in 2013. and I remember begging my boss at the time to move over there.

Colbert Cannon: And just to be clear for our listeners, this was to move you to London?

Kristin Kallergis Rowland: Yeah it was like, right place, right time. They needed someone in alternatives. And so, having done some previous work and knowing how special our business was in that space, it was a pretty easy transition for me. Easy by choice, not culturally at first, but I figured it out eventually.

Colbert Cannon: And why? What was culturally different there, KK?

Kristin Kallergis Rowland: I do always joke, and I have British in-laws, born and raised in the UK, and I always say, I always thought that I spoke English, and then I realized I spoke, like, American, and that, speaking English meant being someone who could understand the melting pot of cultures that London was. And I realized, pretty quickly, you could have a business that you think is global because you have people in global locations, but to operate as a global business means understanding the people and the clients and making sure that you’re serving them well every day.

And that took some time for me to understand and adjust to, because I wasn’t as culturally diverse as I thought I was in terms of understanding the needs of others. And I couldn’t have thought of a better job to help teach me that.

Colbert Cannon:: Let’s talk about the work for a second. You’re into alternatives 2010 to 2013. What are you actually doing? What is alternatives at J.P. Morgan?

Kristin Kallergis Rowland: Within asset wealth management, there’s two sides of the business. On the asset management side, we are actually investing on behalf of clients. We are the fund manager, the GP in a way, and they oversee just over $215 billion of assets across various sub-strategies we can go into.

On the wealth management side, it’s just shy of $150 billion in assets, and most of what we invest in, over 90% of our assets, are in third-party providers. It’s people that we think are the best in credit or the best in real estate, etc.

When you think about what we offer our clients, it’s opportunities every year across everything from private equity, core buyout, to private debt, which is probably over $30 billion of our assets. So, that’s real estate. Infrastructure has been growing lately. And then even some hedge fund strategies, very selectively. But what we do is we go out and we find the best manager that we think will be aligned with us on a go-forward basis, and we provide those choices to our clients.

And the client mix is everything from Chase branches all the way to the world’s billionaire families. As an example, just in the U.S. alone, we cover over half the billionaires. And so, it’s trying to figure out the products by which we’re going to offer and allow ideas to come to the table within the scope of alternatives.

Colbert Cannon: You know, you move over to manage all of Europe and the Middle East. Talk to us about that transition. How different is the alternatives business in Europe, and how was that transition for you?

Kristin Kallergis Rowland: It changed a lot when I was over there. 2013, 2015 in particular, was a really interesting time for – I’m putting in quotes – “the retail investor” because there’s a lot of our clients who have institutional-like balance sheets, but, just some of the regulations that came in, some of the marketing rules that came in, essentially had threatened the existence of an alternatives business for a short period of time until we figured out what the rules of the road were.

And the unique thing about it was, I grew up in the U.S. There was one central governing party, and there was one regulator. And you go over to Europe, and every country has their own rules and were adopting them different ways. And so, I bring it up because it was at a time where I knew that we had one of the best teams on the street to come up with ideas and understand what was going on, but it was also at the time where the regulatory regime was coming in, and we had to be thoughtful about bringing the right products to our client base. It was certainly shifting.

Colbert Cannon: Okay, you’re successful over in London. In 2020, you get promoted to become the Global Head of Alternatives. Tell me about that transition. How different is the global versus the regional role?

Kristin Kallergis Rowland: So, in 2017, I got asked to move back to lead the U.S. before 2020. In 2020, it was COVID, it was late October, I had gotten the nod to take over our global business. And I know 2020 felt like the longest but shortest year of our lives, but it came at a time where our clients were looking to put some capital to work. And I think I’ve been in the fortunate position to be at J.P. Morgan for over 15 years, and we always talked about having this fortress balance sheet so that, at times of dislocation, you could lean in and be on the offense. And 2020 was another one of those times. And so, it was a really interesting time to come into this space because we figured out who our real partners were versus who wasn’t.

What I mean by that is, I remember in early 2020, there were long-time growth partners, and I got a call and they said that they were putting their own capital in the market, and we were able to move pretty quickly. We had raised over $1 billion in less than a two-week period, and we’re investing in the dislocation within large cap tech stocks, actually. And I bring this up because that year we were able to move nimbly, and it allowed, when I took over the team, for us to have this real momentum as we thought about the people that were at the table with us, helping us take advantage of dislocations in overall markets.

The same thing happened in credit. We did a delayed activation fund that we actually raised capital for in 2019, not realizing it was going to trigger in March of 2020. But it was one of those years where I was able to step into the global role. I was able to think about our global client base. I wasn’t able to travel, which obviously was tough, but I would just say, overall, 2020 was one of those years where I was able to step into a role at the same time that we were able to do really exciting things.

Colbert Cannon: It’s interesting because you and your group are known for being able to be nimble, which is, on some level, surprising from the outside looking in. As you say, it’s a fortress. You work for a behemoth of a financial institution. The ability to move quickly – it really mattered in 2020 because the market impact of COVID was quite short-lived.

So, let me ask you your perspectives now. You oversee all of alternatives, as you said: hedge funds, private equity, everything. But I am curious about perspectives on our business, private credit. What’s your perspective on private credit as an asset class at this point in the market cycle?

Kristin Kallergis Rowland: Private credit is super interesting to me. I can understand all the reasons why small and medium-sized businesses use private lenders. We’ve skewed towards larger managers, like I said. I think that will serve us well on a go-forward basis. In special situations and distressed, we’ve skewed actually towards smaller managers who are going after more niche sector-specific opportunities that we think are specialists in that space.

But I just think, the biggest question I ask my clients when they say is private credit interesting, I say, what’s your funding source? Because, if your funding source is public fixed income, there are many managers out there who can give you that illiquidity premium that I think you deserve if you’re going to take the illiquidity of private markets. If your funding source is equity, maybe it’s not direct lending, or maybe if it’s in direct lending, it’s mezzanine financing, right? You can get equity like returns, but you’re taking credit risk. You’re moving up in the capital structure.

So, I would say there’s no doubt it’s interesting. There’s no doubt it’s going to continue because companies have reasons to use private debt. I just think it’s going to play a bigger part over the next couple years as well, as there’s some shakiness in overall markets.

Colbert Cannon: KK, why do you favor scale in direct lending?

Kristin Kallergis Rowland: The simple answer is, in direct lending, especially at senior secured, top of the capital structure where most of your returns are coming from the coupon component of it, I would just say there’s more downside than upside. So, I want bigger firms that have bigger teams to work out those situations that they need to. We always say we prefer the symphony over the garage band, like the people that there’s a hundred people playing one instrument, et cetera, because that’s your part of your portfolio that you should be able to sleep well at night with.

If you’re going to do it, I think scale benefits you because it provides resources and capabilities. And in case something goes wrong, it’s sort of, there for you.

And then on the other side, companies that we speak to, the clients that we speak to that use private debt for their own businesses – they prefer having one person to negotiate with. And it was very obvious to us in March of 2020 when these businesses changed rapidly to have one call and one person to change the structure really mattered.

Colbert Cannon: We agree with that perspective. And I do think there’s benefits to that. You took a different view when you were thinking about special situations and more opportunistic stuff – smaller, more specialist. Can you expand a little bit on that as well?

Kristin Kallergis Rowland: I think that credit markets are pretty efficient versus where they were 15 years ago. There’s just a lot more players to be able to step in to some of these stressed and distressed situations. But the reason why I think it matters is because I think sometimes you look at some of the returns of the bigger distressed credit managers, and they’re pretty cyclical.

And so, for us, there’s always some opportunity within idiosyncratic ways of companies that are needing some change or some shift. Right now, it’s really big in places like real estate debt. That market seems to be broken in a lot of places.

But, regardless, I just think, when there’s shifts, like there were the shifts in interest rates, I think management mistakes can often exacerbate things, and I just think having a little bit of capital to invest in some of these idiosyncratic things versus having a ton of capital to feel like you’re going to invest in some of these large deals I think is interesting.

And then the last thing I’ll say is, I think in distressed credit, or even opportunistic mandates, most have a piece that they could enter into debt if they needed to.  And so, that’s why there’s more of an efficiency there than I think we give credit for.

Colbert Cannon: I agree with you completely on that, KK. You spend your life thinking about, as you say, finding best-in-class managers. What are the metrics that you really care about institutionally to find the right partners?

Kristin Kallergis Rowland: I’ll give you an example. There was this real estate debt manager who I wanted to work with for a number of years. They had an incredible track record, and he wouldn’t take my capital. And he said now is not the time to invest but one day it will be.

And for seven years, we kept a consistent dialogue, and he remained disciplined. Everyone else was taking tons of money in the space, et cetera. And I was the first call that he made to come up with a real estate debt opportunity. And the reason I bring it up is because the things that matter to me are also the people who say to me: it’s not the time to take your capital, or it’s not the right opportunity, or it’s the things that you don’t do even more so than the things that you do. That matters to me.

Colbert Cannon: That makes complete sense, KK. It’s the short-term thinking versus long-term thinking that really matters.

What are you excited about for J.P. Morgan Wealth Management and your alternatives business in the coming years? What’s coming next for your business?

Kristin Kallergis Rowland: Oh, what’s not coming! When we look at our client base in terms of those that engage in alternatives – and like I said, we cover everything from the Chase client all the way through to these billionaire families – I would say for us, when we think about what we’re offering to our clients, some of the trends that are happening in the industry, like the rise of the Evergreen Fund, right? These perpetual BDCs or non-traded REITs, et cetera. There’s a lot of people that can do them, but we want to make sure that they do them right. And so, we’re working with a lot of folks to anchor new ideas on a go-forward basis.

So, I would say, engagement with our clients and understanding how change in structure of some of these products align with meeting their goals is really important. We can talk specifically what it means for places like direct lending because I actually think it’s more efficient in a lot of ways.

The second thing I would say is we talk a lot about how much money we invest as a firm in technology. I think that the budget now is over $12 billion that we invest in technology.

Colbert: $12 billion?

Kristin Kallergis Rowland:  $12 billion. Yeah.

Colbert Cannon: That’s an amazing stat.

Kristin Kallergis Rowland: And I think cyber alone is like $700 million on its way to $1 billion. It gives us a lot of insight into what’s taking place and the use of things like blockchain technologies and alternatives or the incredible amount of data that we get from the alternatives business and making sure that our clients actually understand the businesses in which they invest in.

So, I’m using technology and the data to drive not only future investment ideas but really insights for our clients. That’s a big theme of what we’re investing in, beyond just products.

And then a third thing I’d say is we’re using today and the dislocation in institutional allocations to private investments as a way to find great managers who we think will be aligned with us for the next couple of decades.

So, when I think about long-term, times like ‘08 and ‘09 that we then worked with partners in commercial mortgage-backed securities and residential mortgage-backed securities, European non-performing loans, et cetera. That same thing is happening today in a different way where, because of the institutional denominator effect that took place after 2022 and now the lack of distributions across the industry, the institutional investor might be there for a traditional GP or a large-scale GP, but they’re not there in the same size, necessarily.

So, that’s a huge priority of mine, making sure that we really canvas the universe and we figure out who we want to back within the space.

And then I’d say just strengthening our GP relationships as we think about a go-forward basis.

Colbert Cannon: Yeah, a lot of exciting stuff there, KK. Let me drill down on that first one.

As you mentioned, private credit through most of its evolution was in drawdown capital vehicle structures. It’s a commitment, and then fund capital on a deal-by-deal basis. And we’ve seen the rise of these non-tradable BDCs, these evergreen fund structures. How do you think about the tradeoffs and the longevity of that offering in the market?

Kristin Kallergis Rowland: I think it’s the same thing that matters in a traditional drawdown, right? Manager dispersion will exist. So, manager choice matters.

What I would say is, if you think about a direct lending fund, let’s genericize it a little bit: a 3-year investment period, 3-year harvest period, let’s pretend like they’re targeting 7-10% net return, 7-8% that gets paid out in a cash coupon. By the time you ultimately get ramped over two or three years, the portfolio just naturally starts divesting. So, unless you’re thinking about how you invest that unallocated cash or the uncalled capital, you didn’t really get a 7% or 8% cash coupon. You really got half that, on average. And so, I do think that for a direct lending strategy it might make more sense to do it in an evergreen format so that you get invested and you stay invested, and the choice is yours when you want to divest of it.

And I do tell clients not to rely on the liquidity that may come on a quarterly basis or a semi-annual basis to some of the products. But just from a pure portfolio construction perspective, if you don’t feel comfortable investing the uninvested cash, you should let someone else do it for you.

As a non-U.S. investor, which I mentioned to you is less than half our capital base – it’s 40%, let’s call it – there are structural benefits to invest in things like business development companies. There’s ways to limit effectively connected income and so forth when it comes to debt strategies. So, there’s benefits that legacy, I would tell you, might not be worth the risk reward if you’re a non-U.S. person investing in a U.S. corporate debt strategy. So, that’s also a reason why I’m excited about it because there’s not only portfolio benefits in terms of just pure portfolio construction, but there’s also just risk-return benefits.

Now the thing you have got to be careful of is making sure how much embedded leverage is there, again making sure alignment is there, making sure portfolio construction is there. And then the other thing that I think is really important that some of our best managers did was, even though we raised a significant amount of capital, when they went to deploy it, they were very disciplined. And so, we ended up being a little bit accused up front as that money got put to work, but I am excited about it overall. We just have to be mindful of making sure that underlying, there’s not a mismatch of liquidity with the investments.

Back to my credit roots, you know?

Colbert Cannon: Once a credit analyst, always a credit analyst, KK.

Okay, so that’s some of the exciting things on the horizon for your business and for ours. Let’s think macro for a second together, though, before I move on.

We’re recording this in the fourth quarter of 2023. The credit markets remain unsettled. They feel better than they did earlier this year, but you and I have done this long enough to remember that current rates are much more normal than over a decade of zero interest rates.

What worries you in the macro? How do you see the macro unfolding? Give me your crystal ball take of how this all plays out in our credit world for the next couple of years.

Kristin Kallergis Rowland: I would say the reason why I’m more comfortable is because I think some of the decisions that we’ve made in recent years about going with skilled managers, et cetera, will help us on a go forward basis. At the same time, I think balancing across sub-strategies is going to matter, like having a little bit of capital allocated to some distressed credit managers because, like I said, it doesn’t have to be a full-blown distressed cycle for there to be opportunities It was the same thing whether you looked at 2015 and 2016 and 2013 and 2011. You know, every couple of years there was something. It doesn’t have to be a GFC.

Colbert Cannon: We always use the analogy that 2008, 2009 was a blackout, and what you saw since then was a series of rolling brownouts. And that feels like the environment we’re in right now. It doesn’t feel apocalyptic, but man, there’s going to be more rather than less volatility and stress, sort of, by definition, you know?

Kristin Kallergis Rowland: Yeah, I would agree with that, and I do think the reason why we’re getting a lot of the insights and data from our managers is because when people were calling for transitory inflation, et cetera, there were a lot of people that were telling us it might be transitory but over a longer period. And so, those are some of the things that we’re looking for right now, but there are certainly excesses in parts of the market.

I think the thing that concerns me most within credit in particular is likely just the deterioration of credit quality that happened in places like the loan market over the last couple of years, and there’s been tons written about it. But that’s something that I think, on a go-forward basis, people will really differentiate themselves, because you’ll see where things are maybe hidden underneath the hood.

Colbert Cannon: Absolutely, KK. Super interesting. Thoroughly enjoyed your perspectives. Thank you for your insights today. All very interesting stuff.

With that, I want to move to the last segment of the podcast. Something we call “Best Ideas.” It’s where we offer up something that’s added value in our lives recently. “Best Ideas” because it’s our goal as investors to maximize exposure to those.

KK, you’re our guest. I’m going to ask you to go first. What is your best idea this week?

Kristin Kallergis Rowland: If I was to give one single idea, I would say that I think most people need a career coach to invest in yourself, and that’s something that I discovered about three years ago. And I think it’s made a real difference in how I think about my business, how I think about growing a team. And it can be a lot of different people, but I just found the right person, and I would just say I’ve been all about investing in myself if I want to invest in my career. A career coach is certainly at the top of the list.

Colbert Cannon: I think that’s a great idea. Think about how many different things we do. You have a golf coach that helps you, you have these people in your life that add value. And for the single most important thing you do – the vast majority of your day is spent on one’s career – people don’t think about that in the same way.

Great. Love it. A career coach.

So KK, for my best idea, as people know, I like to be inspired by the guests of the week. KK, as discussed, is a fantastic golfer. Your podcast host has a great love for golf, even if his game is decidedly mediocre. My best idea this week, a perfect present for any golf lover in your life, is called “The Golf Courses of Seth Raynor” out now from Back Nine Press.

Seth Raynor, if you are a loved one, have ever shown an interest in golf architecture, you’re going to know his name. He, along with his mentor, C. B. MacDonald, are appropriately credited with designing and building some of the most important and stunning golf courses in the world, such as Fishers Island, Essex Country Club, and, relevant for our guest, Illinois classics like Chicago Golf Club and Shoreacres, one of my personal favorites.

Kristin Kallergis Rowland: Where I grew up playing.

Colbert Cannon: Is that right?

Kristin Kallergis Rowland: Oh, I love Shoreacres. It’s my favorite course on the planet.

Colbert Cannon: That book, which you will love then, KK, is awash with incredible photography from this gentleman named Jon Cavalier. People may know him. He’s the man behind the popular Instagram account @linksgems and is just a great golf photographer.

But the book is great, and it’s, sort of, a weirdly educational read. They walk through golf design principles, template holes like Redan, Biarritz, all accompanied by that gorgeous photography that will make you long for warmer weather days in the Northeast.

In honor of an Illinois guest who is a far better golfer than I am, let me recommend the great book, “The Golf Courses of Seth Raynor”, as my best idea this week.

Kristin Kallergis Rowland: Love that.

Colbert Cannon: KK, it’s time to wrap up then. Thank you so much for taking the time. Always a pleasure to chat and greatly appreciate your support of HPS.

Kristin Kallergis Rowland: Appreciate it.