JPMorgan Is Seeking Out A Partner To Accelerate Its Private Credit Push

(Bloomberg) -- 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 people 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 people said, asking not to be named discussing a private situation. The structure and terms of a potential partnership haven't been finalized, and it's possible more than one partner may be selected. JPMorgan approached some firms and received inbound inquiries from others, one of the people added.

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

Read more: Banks Rush to Gain Foothold in $1.5 Trillion Private Debt Market

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 specialized asset-management firms that originiate 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 people said. This would allow the bank to grow its private credit strategy despite limitations on its balance sheet, they added. 

When asked in March how much more the initial $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 Plc, Societe Generale SA, Deutsche Bank AG 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. 

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