Thanks, Mr. Bloomberg
As I wrote a few weeks ago, private credit trading is a fascinating potential development in the asset class, fraught with downside risks for lenders and perhaps some upside benefits for investors. And what do you know, Bloomberg comes out with a Big Take talking about how JP Morgan Chase is being shut out of the private credit market, because the big private lenders don’t want JPMC in the market, because…JPMC is trying to establish a private credit trading market, which would lead to more transparency, lower spreads, and more accurate valuations. To be clear, these are all things that the private markets Does Not Want, so they’re sending JPMC to Coventry, and really hoping JPMC just goes away.
This will lead to an interesting game of well-funded chicken: JPMC is setting aside $50Bn to make direct loans, a decent size for any entity that wants to break into the market. They aren’t the only entity trying to set up a trading desk: Goldman has announced that they are as well, and as one of my friends says “if JPMC and GS are doing it, Morgan Stanley is thinking about it”.
On the other side, the big guns in private credit have large balance sheets, tight relationships, strong lobbyists, and ultimately have the final say over whether a loan in their portfolio can actually be traded. So there’s that.
But, in the end I think JPMC will prevail. There is too much capital chasing too few borrowers, and standards will slacken, leading to poor loans. As the macro soap opera continues, some lenders will be forced to sell, and if they think that working via JPMC’s trading desk will help them get a better price for their loans, then a market will develop, and those funds with LPs asking “when are you going to deploy the cash we gave you?” will step in. Jamie Dimon likes to win, and lots of banks like to follow JPMC’s lead, so you’ll have demand participants, supply participants, and parties willing to supply broker services to make it all happen. I don’t think it’s going to happen in 2025, but JPMC has such a huge balance sheet that they can be patient.