Hurdles ahead in JPMorgan’s bid to form private credit syndicate

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NEW YORK— Bloomberg: JPMorgan Chase & Co is running into some pushback over fees and control as it aims to pull together a group of lenders to help fund private credit deals it originates, an effort that has the potential to reshape the burgeoning market.

The biggest US bank has held talks with several private credit firms about creating what would amount to a syndication group where members would take a slice of each loan, according to sources.

JPMorgan would select the loans, and others in the syndicate would have no or limited ability to veto deals they don’t want to fund, the source said.

Banks have been searching for the best way to carve out their own piece of the US$1.6 trillion private credit market as higher rates spark a flood of investor interest and increasingly stringent capital rules make them more wary of keeping loans on their balance sheet.

“Private credit has already been eating into Wall Street banks’ share of the leveraged loan and high-yield bond markets, a key fee generator,” said a source.

Several lenders have announced private credit partnerships, and others are looking at options.

JPMorgan is in ongoing discussions with potential partners, and in some meetings has floated charging fees that amount to about 2.5%.

The fees and lack of veto power pitched in some of the conversations have made some firms reluctant to join the effort.

A spokeswoman for JPMorgan declined to comment.

JPMorgan has been searching for third-party capital to supplement the more than US$10bil of balance sheet cash that it has already set aside for its private credit strategy, which it began rolling out in the last year, Bloomberg reported last month. In addition to alternative asset managers, it’s also pursuing discussions with sovereign wealth funds, pension funds and endowments.

The firm is one of the largest underwriters of leveraged loans and high-yield bonds and the private credit effort may help it protect a crucial business.

The structure it’s pitching would allow it to maintain control of client relationships and provide a level of certainty to borrowers that agreed loans would be funded.

Private credit specialists have gathered more money to deploy based on the pitch of higher returns and lower volatility than the public loan market.

But now they face questions over how they’ll accomplish the unglamorous tasks of finding, underwriting, and servicing a broader swathe of loans.

While the largest credit firms and alternative asset managers have spent years building out origination platforms, many smaller or mid-size rivals may struggle to replicate that in short order.

Some traditional banks see that as their opening to get a steady stream of fees by leaning on their underwriting and servicing experience and existing relationships.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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