JPMorgan Expands Its Bet on Private Equity to the Tune of $50 Billion

Put Tom Cruise in the Jamie Dimon biopic because the JPMorgan Chase CEO is opening his firm up to more risky business.

America’s largest bank by assets said Monday that it is putting aside $50 billion to make loans to risky firms backed by private equity shops, in an effort to expand its foothold in the roaring private equity market that was once reserved for non-bank lenders.

Private Eye

Private credit, in the most basic sense, refers to when companies borrow money directly from lenders who are not banks. Instead, they take out loans from private investors, hence private credit. The dominant players in the space are money managers like Apollo Global, Blackstone, Ares, and KKR.

The sector exploded starting in 2022, when loan volume on debt markets seized up amid inflation, fears of an economic downturn, and pandemic supply chain issues, all of which prompted a tightening cycle at the Federal Reserve. Direct lenders in the private credit market became a key alternative for private equity shops to finance leveraged buyouts and for middle-market companies to obtain loans that banking lenders might shy away from.

As the sector exploded, traditional institutional investors — insurance companies, pension funds, sovereign wealth funds — poured in hundreds of billions of dollars, transforming private credit into a greater rival to traditional lenders. Moody’s analysts predict, as of last week, that the private credit market will double to $3 trillion by 2028. Which is why banks have responded by finding ways to join the fray — by putting up money from their balance sheets, using existing or establishing asset management or private credit arms, or by forming strategic alliances with private credit lenders:

• JPMorgan has already committed over $10 billion to more than 100 private credit deals in the last four years, partnering with more than half a dozen asset managers in the process.
• It is now massively adding to those stakes: In addition to the $50 billion in capital from its own reserves, the bank said other investors have committed $15 billion to make direct loans to companies.

JPMorgan’s rivals have rolled out their own efforts: Citigroup struck a $25 billion private credit partnership with Apollo last year, Wells Fargo and asset manager Centerbridge partnered on a $5 billion direct lending fund in 2023, and Goldman Sachs and Morgan Stanley have used their in-house asset management divisions to launch multibillion-dollar direct lending funds.

Need a Reason: The attraction of private credit for lenders is obvious: It often generates higher returns than fixed-income investments, and it’s also less competitive than traditional capital markets. For borrowers, the convenience is the ability to negotiate customized loan structures and repayment terms and, of course, access to financing deemed too risky for bank loans — the fact that private credit is less regulated than banking means lenders can move faster for clients in a pinch for cash.