JPMorgan to seek out a partner to accelerate private credit push

JPMORGAN Chase & Co is searching for a potential partner to grow its private credit business and accelerate its push into one of the hottest areas in leveraged finance, according to sources with knowledge of the matter.

The discussions with prospective partners – including sovereign wealth funds, pension funds, endowments and alternative asset managers – began in recent months and are at an early stage, the sources said, asking not to be named discussing a private situation. The structure and terms of a potential partnership have not been finalised, and it’s possible more than one partner may be selected. JPMorgan approached some firms and received inbound inquiries from others, one of the sources added.

JPMorgan is looking for third-party capital to supplement the more than US$10 billion of balance sheet cash that it has already set aside for its private credit strategy, which it began rolling out in last year. A bigger pool of capital would allow the bank to better compete with heavyweights such as Blackstone, Apollo Global Management and Ares Management by making larger commitments or participating in larger deals. Senior JPMorgan executives earlier this year told clients the US$10 billion is just a starting point, a source with knowledge of the matter said.

Wall Street banks are trying to figure out the best way to compete with private credit, which is eating into the market share of the leveraged loan and high-yield bond markets, a key fee generator. Investment banks typically sell junk-rated debt to large groups of institutional asset managers, rather than hold the risk on their balance sheet, whereas private credit lenders are specialised asset-management firms that originate the loans directly from their own funds. Efforts by banks to compete off their own balance sheets is a return to traditional lending but comes with a high capital charge for those loans.

A representative for JPMorgan declined to comment.

If JPMorgan goes forward with a partnership, the bank would originate the deals and the outside partner would provide the capital, the sources said. This would allow the bank to grow its private credit strategy despite limitations on its balance sheet, they added.

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When asked in March how much more the initial US$10 billion of balance sheet cash would grow, the bank’s global head of debt capital markets Kevin Foley said, “I’m not going to put a number on it, but it’s a deep pool.” He added, “We’re committed to it, and we’re long-term players in it.”

In recent months, Barclays, Societe Generale, Deutsche Bank and Wells Fargo & Co have all made concerted efforts to grab a slice of the private credit market, with varying strategies that often involve some form of partnership with outside capital. BLOOMBERG