Global Head of Collateral Management • J.P. Morgan
“In the torment of the insufficiency of everything attainable we eventually learn that here, in this life, all symphonies remain unfinished.”
This quote by 20th century theologian Karl Rahner is particularly fitting for Kelly Mathieson, who, through her 23 years at J.P. Morgan, has never left a business segment at the bank feeling that her work for that segment was complete.
Nevertheless, her instinct and the advice of colleagues made her realize that is was time to move on to other roles, and she did so without regret. Recently, those roles have gone hand in hand with the quest to find the optimal amount of collateral culminating in her current role as global head of collateral management.
Upon graduating with an MBA from New York University, Mathieson joined what was then Chase Manhattan in 1990. She joined a training program for what was then set up to be the trading floor. There she worked on a number of different desks including currencies, commodities and got her first taste of the repo market during that period when J.P. Morgan worked on the first tri-party repo trade.
From the trading desk, Mathieson then moved to the business that was creating securities lending for the first time. “1995 was the real genesis of the securities lending market, and I had a wonderful opportunity to move to a different division or the wholesale side of the firm of that business that had the custody business, and part of the initial formation of the body of work around the creation of the agency lending, particularly as it was building off of custody,” she recalls.
After five years in securities lending, Mathieson went to work for J.P. Morgan Asset Management from 2000 to 2006. From there she moved into the securities services division and worked there until a year ago. It was here that she gained exposure to the collateral management, securities clearing businesses and ran the custody business for a few years before moving into what is the new business created in the corporate and investment bank out of the merger of the investment bank and treasury & securities services divisions, called ACCE (Agency Clearing, Collateral and Execution), to run the collateral management business.
“I don’t know if that was obvious to me at that point in time, but if I reflect on it I think what has been common for me is that I’ve always been part of or adjacent to the clearing and securities trading,” says Mathieson. “What’s been nice though in the last couple of years is to round that out more with a full appreciation for custody securities safekeeping and then most recently a service for the derivatives transactions and derivatives clearing market up until the last year or so.”
Mathieson’s career changes within J.P. Morgan have also enabled her to properly reflect on the broader changes occurring within the industry. “There were some very specialized products in the past that have used collateral management for securities and tri-party repo,” she says. “Then there was securities lending and then apart from that you might have done something in the derivatives side, so it now comes together in one large framework. I think it’s a nice progression that I can experience professionally, but I think it’s a mirror image of what’s actually going on in the market place right now.”
Mathieson makes several observations in terms of how the market approaches these types of transactions and the market experience that emerges as a result. “There was a heightened focus on developing those types of transactions in a highly liquid and a global way to support financing activity,” she says. “So from very much a sell-side driven market, an opportunity came for some buy-side participants to make additional yield on their portfolio by lending securities, but the real cause or catalyst of these transactions, whether it be collateral management or securities lending, was because ultimately there was a pool of banks or broker-dealers that had a financing or a balance sheet management.”
The turning point for collateral management came with the counterparty risk management policy group’s work in August 2008. This resulted in a more balanced perspective on counterparty risk management, “in that the same best practices and principles that would apply when deciding whether to acquire an asset are now also being used to decide whether the obligation of collateral that’s associated with that asset is the right thing to do,” says Mathieson. “So there is more balance and more presence from participants and more regulatory governance.”
This balanced approach influenced the creation of ACCE and the strategy for J.P. Morgan moving forward. “Certainly for collateral management and its sister organizations in securities lending and clearing there is the need for that balance, that need for a very comprehensive set of services that both achieve the goals that meet the need for a buy-side market participant that may be hedging or using derivatives to achieve a hedge or exposure that the underlying security might not be suitable for and needing to do that with a CCP, a clearing broker or securities lending or repo principle or a futures commissions merchant,” says Mathieson.
While the unfolding regulatory landscape has presented J.P. Morgan with an opportunistic set of market conditions to provide those services to clients, Mathieson believes there are a number of things that still have time to play out fully in the market with regards to either securities financing, lending or collateral management.
One of them is the type of collateral required for different types of transactions, whether centrally cleared or counterparts in the derivative space. “By that I don’t mean the type of collateral will broaden to less liquid, more esoteric type of collateral. I still think collateral will be of high quality but I think the specificity and the type of haircuts, margin, the timing of dispute resolution, the terms of certain eligibility schedules and CSAs between two counterparts have not played out.
“I think that will lead to a real series of questions about collateral location—whether you are a large asset management or insurance company, across all of your funds or investment accounts do you have the right amount of collateral in the right account at the right time to meet your obligations?”
Lastly, Mathieson predicts a series of questions about the economics of collateral. “It’s past something that can be expressed in real costs and economic value. The very investment and trade decision that gives rise to the need for collateral is being made so that you can know the cost of the obligation being made at that time and think about it as one blended decision for the asset and the obligation that will arise of holding that asset.”
–Janet Du Chenne