JPMorgan setting up distressed debt fund

Catherine Keating, chief executive officer of JPMorgan Private Bank, answers a question from a Reuters journalist at the Reuters Wealth Management Summit in Boston, Massachusetts October 10, 2007.

BOSTON (Reuters) - JPMorgan Chase & Co(JPM.N) is creating a distressed debt fund which will be offered to the No. 3 U.S. bank's deep-pocketed clients, the head of its U.S private bank said on Wednesday.

"It's actually in process right now," JP Morgan Private Bank Chief Executive Catherine Keating told the Reuters Wealth Management Summit, declining to provide additional details of the fund.

The fund is being created as the private bank encourages its clients to lessen their exposure to M&A arbitrage funds, which posted big returns amid the takeover boom of recent years, and consider various forms of investing in credit, Keating said.

"We're talking about corporate bonds, mezzanine investing, distressed investing, either outright or most likely through funds that do that," she said. "Our clients will have a variety of things to choose from, some managed by JPMorgan and some managed by other managers on the street."

Still, Keating acknowledged that caution was the watchword with regard to such funds, after the recent subprime meltdown caused steep declines in the prices of collateralized debt obligations and leveraged loans in recent months.

"It's all about being careful about the sectors you invest in," she said. "It comes down to securities selection."

JPMorgan already has a fund called the Special Situations Investing fund, which trades distressed bank and high-yield debt. One of its partners, Jonathan Katz, left the bank earlier this month to set up a new distressed debt hedge fund outside the bank.

(Reporting by Christian Plumb)