On Friday, JP Morgan Chase (NYSE:JPM) announced that its private equity unit, One Equity Partners, was going to become independent. One Equity Partners is going to raise the next investment fund externally instead of relying on JP Morgan.
According to Reuters, a source close to the bank reports that the unit is being separated in order to simplify the structure of the bank. The division is not core to the bank’s business, and in the first quarter it had a loss of $182 million compared with a profit of $132 million last year.
One Equity Partners is still going to manage portfolios for companies such as M*Modal and Wright Medical Group (NASDAQ:WMGI) or the tech company Travelport.
In recent years, banks have become less interested in private equity due to the Dodd-Frank reform law. This is because the financial reform law limited the way banks could invest their own money.
Additionally, the Volcker rule, named after the former Federal Reserve Chairman is supposed to limit the amount of money that banks can contribute to their private equity funds to 3 percent. The Volcker rule, when finalized, probably will not apply to One Equity Partners because it was funded by JP Morgan without any client money.
JP Morgan stated in a regulatory filing that it had halted some of its proprietary trading activities in 2010. These activities would be prohibited by the Volcker rule when it comes into effect.