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Wall Street’s Private Credit Circus: Dimon vs. the Big Bucks Brigade

Ah, Wall Street – never a dull moment. The latest uproar? The meteoric rise of private credit. On one side of the ring, we have Jamie Dimon, the CEO of JPMorgan Chase, sounding the alarm like a town crier. Dimon insists that private equity firms, money managers, and hedge funds are playing fast and loose, creating an unregulated wild west where risks go unchecked.

“I do expect there to be problems,” Dimon proclaimed at a Bernstein industry conference in late May, with the ominous addendum that “there could be hell to pay” if retail investors in these funds hit a rough patch.

Private credit debate

Cue the rebuttal from the other corner: the titans of private credit themselves. Marc Rowan, Apollo’s CEO, didn’t hesitate to throw a counterpunch. “Every dollar that moves out of the banking industry and into the investment marketplace makes the system safer and more resilient and less leveraged,” Rowan retorted at the same Bernstein conference. Because, of course, nothing says safety like money managers playing with billions.

Private credit advocates argue their funds are as solid as a rock. No deposit runs, no reliance on fickle short-term funding – unlike some regional banks that crumbled under pressure last year. Instead, they claim they’re backed by institutional investors like pension funds and insurance companies that won’t be knocking on the door for their money anytime soon.

Jonathan Gray of Blackstone was quick to highlight the fate of First Republic, the San Francisco bank that imploded and landed in JPMorgan’s lap. “It had 20-year assets and 20-second deposits,” he quipped, undoubtedly to a chorus of chuckles.

And then there’s the rise of private credit itself. Traditional banks are stepping back from lending, spooked by the Federal Reserve’s high-interest rates and potential economic downturns. Meanwhile, the private credit market has swelled from a measly $41 billion in 2000 to a staggering $1.67 trillion as of last September. Sure, it’s a drop in the ocean compared to the over $12 trillion in loans held by US banks, but who’s counting?

UBS chairman Colm Kelleher isn’t entirely convinced. He warned earlier this year that the private credit market might not be “particularly systemic,” but once the snowball starts rolling, it could turn into an avalanche.

Yet, for now, private credit seems to be doing just fine. According to Preqin, private credit has outperformed average investor returns over the past decade for five of the last six quarters. It’s even outshining private equity.

“Everybody can look quite good when it’s all going up to the right,” mused Goldman Sachs’ COO John Waldron, proving that even bankers can appreciate a good uphill ride.

Private credit’s assets are a smorgasbord – from corporate loans to consumer car loans and commercial mortgages. They’re a lifeline for midsize or below investment-grade borrowers in distress. Terms are flexible, interest rates adjustable, and while that might seem like a win, it’s also a potential minefield if interest rates drop.

Traditional bankers grumble that these money managers have an edge, unburdened by the same capital requirements. Regulators are cooking up new rules to tighten those screws even more. Dimon once quipped that private equity lenders were surely “dancing in the streets” when those stricter standards were proposed.

Private credit debate

But hold your applause – Washington might soon be raining on that parade. The Financial Stability Oversight Council is eyeing a new framework to label firms as “systemically important,” which means more oversight from the Fed. Naturally, private funds argue they’re not banks and shouldn’t be treated as such.

The dance between banks and private asset lenders is as tangled as ever. They’re rivals, but banks also lend to these asset managers. Dimon himself admitted that many private lenders are “brilliant” – after all, JPMorgan does business with a lot of them.

“We’re just uniquely positioned to be in the middle of all of it and I think it’s going to continue to grow,” said Troy Rohrbaugh, co-CEO of JPM’s commercial and investment bank, at another recent conference. And so the private credit circus rolls on, with Dimon and the money managers jousting for the spotlight. Grab your popcorn – this show isn’t ending anytime soon.


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