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Macro

JPMorgan Seeks Private Credit Firm to Boost $3.6T Asset Management in $1.7T Market

JPMorgan seeks to expand in $1.7 trillion private credit market, currently managing $17 billion in assets.

5/23, 08:52 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Apollo Global Management, Inc.
Ares Management Corporation
Blackstone Inc.
EQT Corporation
JP Morgan Chase & Co.
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Key Takeaway

  • JPMorgan Chase seeks to acquire a private credit firm to enhance its $3.6 trillion asset management arm, eyeing the booming $1.7 trillion private credit sector.
  • The bank previously held talks with Monroe Capital but did not pursue a deal; it may still grow its private credit offerings organically.
  • JPMorgan has already allocated over $10 billion for direct lending and is forming partnerships with asset managers for private credit deals.

JPMorgan's Private Credit Ambitions

JPMorgan Chase & Co. is actively seeking to expand its footprint in the burgeoning $1.7 trillion private credit market. The bank's asset management arm, which currently manages $3.6 trillion, is on the lookout for a private credit firm to bolster its private capital business. According to sources familiar with the matter, JPMorgan held talks with Chicago-based Monroe Capital earlier this year, but the discussions did not result in a deal. Despite this, JPMorgan remains committed to growing its private credit offerings, which managed $17 billion in assets at the end of last year, compared to Monroe's nearly $19 billion in committed and managed capital as of April 1.

Interest in private credit has surged, with alternative-asset giants like Ares Management Corp. and Apollo Global Management Inc. making significant investments. JPMorgan's investment bank has already allocated over $10 billion for direct lending and is forming partnerships with asset managers for private credit deals. At an investor day, JPMorgan President Daniel Pinto emphasized the firm's focus on private credit, stating, "We must find a way on the fiduciary space, as we are finding in the non-fiduciary space, to get into private credit." CEO Jamie Dimon also hinted at the possibility of acquisitions, saying, "If they came in and said we have a great thing that makes sense for us, then yeah, fine, we should do it."

HPS Investment Partners Limits Inflows

HPS Investment Partners has taken the unusual step of capping inflows into its $10 billion HPS Corporate Lending Fund to manage a surge in demand for private credit. This move will reduce contributions from its main distributor, JPMorgan Chase & Co., and place turned-down investors on a waitlist. The cap aims to give HPS the flexibility to avoid unattractive deals and ultimately boost returns. Starting in March, JPMorgan reduced its HLEND contributions to around $150 million to $200 million per month, down from $200 million to $500 million previously.

The cap is a strategic move to prevent the fund from deploying extra cash into lower-yielding investments like liquid loans. Broadly syndicated loans had an average yield of 319 basis points more than relevant benchmarks last week, while one of the cheapest private credit loans recently offered had a spread of 450 basis points. The backlog of investors at JPMorgan, which accounts for about 90% of distributions, has grown to around $400 million to $500 million. HPS charges 1.25% of net assets in fees for HLEND, compared to Oaktree Capital Management's recent reduction of its base management fee to 1% from 1.5% for one of its BDCs.

Competition for PowerSchool Buyout

Private credit lenders and banks are vying to provide debt financing for a potential buyout of education software provider PowerSchool Holdings Inc. Ares Management Corp., HPS Investment Partners, Blackstone Inc., and Blue Owl Capital Inc. are among the direct lenders seeking to offer a roughly $3 billion debt package. One version of the financing includes a $2.4 billion funded term loan, a $500 million delayed-draw term loan, and a $300 million revolver. Competing offers from banks include a smaller amount of debt and preferred equity.

PowerSchool has attracted interest from private equity firms like Warburg Pincus and Bain Capital. The amount of funded debt discussed by private lenders would be well over seven times PowerSchool’s earnings, a level banks may struggle to match due to regulatory constraints. Preferred equity is often used to fill this gap in bank-led financings. The competition between banks and private credit lenders has intensified, leading private credit firms to cut pricing and offer more favorable terms. Recently, a group of direct lenders offered EQT AB a loan for its buyout of Avetta LLC at one of the cheapest rates on record.

Management Quotes

  • Daniel Pinto, President of JPMorgan:

    "The firm must find a way on the fiduciary space, as we are finding in the non-fiduciary space, to get into private credit."

  • Jamie Dimon, CEO of JPMorgan:

    "We are not going to buy a private capital company... I have an opinion, but if they came in and said we have a great thing that makes sense for us, then yeah, fine, we should do it."