JPMorgan Chase & Co., which has set aside $10 billion of its own balance sheet for its foray into direct lending, will allow a select group of private credit lenders to invest side-by-side on its deals in exchange for fees.
The bank will provide its origination capabilities to the lenders, with a focus on showing partners investment opportunities in non-sponsored companies, as opposed to private equity-owned businesses. The participating lenders do not need to invest upfront capital as part of the partnership, market sources said.
FS Investments, Cliffwater and Shenkman Capital Management are among the lenders in the partnership, according to media reports. Market sources say the full group is much larger.
The arrangement is the latest banking and direct lending partnership to form as banks look to recapture profit from the market ceded to private credit in the past few years.
Other partnerships include Citigroup’s recently announced $25 billion private credit partnership with Apollo, Webster Bank’s venture with Marathon and Wells Fargo’s $5 billion partnership with Centerbridge Partners.
Last year, JPMorgan set aside $10 billion of its own balance sheet for its foray into direct lending, but revealed little at the time about how it would work.
On a podcast in August, JPMorgan gave some details on how the bank views its private credit strategy today.
“We’re very much now in the game in direct lending and we aim to allocate substantially more capital going forward, and also to augment that capital with third party co-lenders as well,” said Jake Pollack, global head of credit financing and direct lending at JPMorgan, in the Aug. 8 podcast.
“In particular, the lines between competitor and client have blurred and the reality is that in many cases, some of our best clients in one area are also competitors in others, and that’s okay, right?” said Pollack.
JPMorgan has allocated a good portion of the initial $10 billion to date, Pollack said in the interview.
Some critics of private credit-bank ventures have raised questions about how the partnerships will work out if the jointly invested loans underperform, highlighting that partners may ultimately not share the exact degree of risk appetite, and could struggle to work together.
“In a workout situation, a bank is not a natural owner of companies,” said one lender, speaking on the basis of anonymity.
Featured image: Shironosov/Getty Images/iStockphoto
Learn about our editorial standards.
