Investing in Communities: How Peloton and J.P. Morgan Support Community Banks

As Peloton’s Treasurer, Dana Laidhold is responsible for Peloton’s Cash Management and Treasury Operations and she makes the big decisions on how Peloton will invest its liquid assets. She looked to one of Peloton’s long-time banking partners, J.P. Morgan to explore new ways to manage Peloton’s assets while also driving a positive impact.

The conversation led the two companies towards J.P. Morgan’s Empowering Change program. Started in February 2021, the program directs J.P. Morgan’s corporate investor client assets toward minority and diverse-led financial institutions, like banks that are locally owned and operate to serve businesses and families in the community, and provides these partners with a new revenue opportunity and the capital they need to make loans and better serve their clients.

Dana sat down with Richard Pagnoni, J.P. Morgan Asset Management’s Managing Director and head of Americas Financial Institution Sales, to discuss the ins and outs of Empowering Change and how other organizations can rethink their own asset management strategies to support their own corporate social responsibility goals.

Dana Laidhold (DL): Thanks so much for taking the time to sit down and answer a few questions about the Empowering Change Program. I know when I first approached you and your team, I was looking for a different way to manage Peloton’s assets and it was great to learn about this new and innovative share class. Can you share an overview of the program?

Richard Pagnoni (RP): I would be happy to, Dana.

In line with the firm’s $30B commitment toward advancing racial equity, we decided to develop the Empowering Change program which is designed to create economic opportunities within underserved communities. As one of the key components of the program, we launched the Empower share class, a new institutional money market share class for exclusive distribution by Minority and Diverse-Led Financial Institutions.

The new share class is offered across our institutional Money Market Funds and is currently being distributed by partner MDIs (Minority Depository Institutions) and Diverse-Led CDFIs (Community Development Financial Institutions), creating new meaningful revenue opportunities for these organizations which in turn will benefit the communities they serve.

The program also provides our partners with full access to the breadth and depth of Asset Management’s resources, including training, operational and client service support, coordinated strategic sales and marketing plans, as well as access to our Morgan Money digital investment platform. Our goal is to fully support our partners as they enter and participate in the program, providing them the runway they need to build up their banks to operate, manage and grow their institutional cash management businesses well into the future.

By creating the Empower Share Class we are able to bridge the gap between institutional investors and our partner MDIs/CDFIs. Historically, smaller community banks found it challenging to face larger institutions based on the size of their balance sheets. On the other hand, Institutional Investors have investment policy restrictions preventing them from depositing balances with smaller community banks. With the introduction of the Empower share class, our partners can now offer our money market funds to the institutional community, allowing them to accept large investments into our money market funds and earn revenue on the balances.

In addition, the Empower Share Class will donate 12.5% of the profits received annually for management of the share class assets to the Empower and Community Development Fund, a Donor-Advised Fund. With the support of JPMorgan Philanthropic office, The Donor-Advised Fund will make annual contributions to non-profit organizations in support of community development.

DL: This type of fund makes a lot of sense for companies like Peloton, but I’m curious how your MDI partners feel. Is this something you heard they needed?

RP: That’s a great question. To-date, the feedback from our partners has been overwhelmingly positive. Labeling the program as “Innovative” a “Win-Win”, “Impactful” and “A life-Line” to mention a few.

Our partners are consistently looking for ways to grow their balance sheet and diversify their revenue streams but have been challenged in the past. With deposit balances near or at capacity, searching for alternative revenue opportunities is critically important to our partners and the communities they serve. With the introduction of non-interest income generated through institutional money market distribution arrangements, our partners are able to grow revenue without the need for balance sheet capacity. This is something they haven’t been exposed to or aware of in the past.

Since money market funds are considered “off balance sheet” investment, our partners can make the Empower Share Class available to the institutional community without negatively impacting their financial ratios. Equally important, because the program doesn’t require the use of their balance sheet, each partner has the ability to accept large investments from institutional investors, while growing revenue without limitations.

Regarding what our partners need, each of them would tell you more revenue. Many of our partners need the additional revenue to reinvest back into their banks to further improve their branches, technology, increase staffing, as well as investing in additional branches and services that will benefit their communities. Given their importance, it’s critical that we help them succeed and grow as a bank so they can provide additional loans and services to the people who live in their communities.

DL: How did you find your first cohort of community partners?

RP: We partnered with the broader J.P. Morgan Chase franchise, as well as, the J.P. Morgan Foundation, to help us identify black-owned MDIs who would qualify and have interest in participating in our Empowering Change program. Our goal was to start with four partners and expand the list of participants to include additional black-owned MDIs/CDFIs, as well as other minority and diverse-led financial institutions as the program grows in AUM. We started with Harbor Bank of Maryland and Liberty Bank, who were protégé banks of J.P. Morgan Chase through the U.S. Treasury Mentor/Protégé Program, and added M&F Bank and Unity National Bank to complete round one. We will be moving to add additional participants in the coming months.

RP: I do want to turn the tables and ask you a question. You mention that the fund makes sense for Peloton and I think explaining why would help other companies understand the impact of the fund.

DL: It’s an interesting question. It’s a balance between finding an initiative that will actually drive positive impact, but that is scalable and didn’t disrupt our operations. The fact that the Empowering Change program works with multiple partners was a big draw for me because that meant we could access a wider network for positive impact while centralizing administration. If Peloton had wanted to make deposits with the same banks outside the fund, we would have to manage the individual deposits. That means multiple reports and transactions which isn’t scalable.

Also for Peloton specifically, we’re a company that wants all of our operations to bring value to our community. In addition to any special programs or initiatives we have, we also want to be sure we’re integrating our core values into our everyday business operations.

RP: That makes sense. And since we’re on this topic, would you have any advice for other treasurers or asset managers for how to find investments that match up with their corporate social responsibility initiatives?

DL: I’m hoping our conversation helps others know programs like this exist. The only reason not to do something like this is honestly because you don’t know it exists. So reading and keeping updated on the latest trends in financial services is a great place to start.