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JPMorgan (JPM) Close to Forming Private Credit Partnership
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As part of its efforts to tap into the $1.7-trillion private credit markets, JPMorgan (JPM - Free Report) is close to finalizing a partnership with FS Investments and Octagon Credit Investors. The move is expected to help JPM diversify its investment solutions and enhance offerings in the rapidly growing private credit space.
According to people with knowledge of the matter, the talks are ongoing and the terms of a potential tie-up may be modified.
Given that the private credit space has been eating into the market share of the leveraged loan and high-yield bond markets, Wall Street banks have been searching for ways to remain competitive.
In November 2023, Bloomberg reported that JPM was looking for third-party capital to supplement more than $10 billion that the bank had allocated for its private credit strategy. The financial giant wanted to bring together a group of lenders for the purpose of funding the private credit deals it originated.
JPMorgan held discussions with sovereign wealth funds, pension funds, endowments and alternative asset managers.
If JPMorgan is able to originate deals with its external partner and provide capital, it would lower balance sheet risk, resulting in private credit revenue growth.
Notably, JPM is a major provider of leveraged loans and high-yield bonds, and the private credit effort may safeguard an essential part of its business. By implementing the partnership, it could maintain control over client relationships and provide a level of certainty to borrowers that agreed loans would be funded.
The collaboration between JPMorgan, FS Investments and Octagon Credit, if formed, will not just be a merger of resources. It will result in the alignment of expertise in the private credit space.
Over the past six months, shares of JPMorgan have gained 24.4% compared with the industry’s rise of 22.6%.
A number of lenders have announced private credit partnerships and others are considering alternative options.
Last month, Citigroup Inc. (C - Free Report) , along with LuminArx, announced the launch of Cinergy, a financing tool for the private lending market.
Cinergy is expected to offer a wide range of private credit solutions to companies, including Citigroup’s client base.
Mitali Sohoni, the head of asset-backed financing at C, said, “The private lending market is experiencing transformative growth, and we are pleased that Cinergy will enhance our ability to meet the capital needs of our clients. Powered by LuminArx’s execution capabilities and the significant industry experience of its team, I believe Cinergy represents a truly differentiated offering.”
Similarly, The Goldman Sachs Group, Inc. (GS - Free Report) , intending to capitalize on significant growth of the private credit industry, entered a partnership with Mubadala Investment, an Abu Dhabi sovereign wealth fund. The companies will invest $1 billion in private credit deals in multiple Asia-Pacific markets, with a particular focus on India.
The funds will be deployed through a separately managed account, which will be managed by GS through its dedicated on-ground team in Asia and a global private credit team.
The expansion into the private credit space will likely drive Goldman’s revenue growth amid efforts to scale back its consumer banking business, along with focusing on its core strengths of investment banking, trading and asset management.
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JPMorgan (JPM) Close to Forming Private Credit Partnership
As part of its efforts to tap into the $1.7-trillion private credit markets, JPMorgan (JPM - Free Report) is close to finalizing a partnership with FS Investments and Octagon Credit Investors. The move is expected to help JPM diversify its investment solutions and enhance offerings in the rapidly growing private credit space.
According to people with knowledge of the matter, the talks are ongoing and the terms of a potential tie-up may be modified.
Given that the private credit space has been eating into the market share of the leveraged loan and high-yield bond markets, Wall Street banks have been searching for ways to remain competitive.
In November 2023, Bloomberg reported that JPM was looking for third-party capital to supplement more than $10 billion that the bank had allocated for its private credit strategy. The financial giant wanted to bring together a group of lenders for the purpose of funding the private credit deals it originated.
JPMorgan held discussions with sovereign wealth funds, pension funds, endowments and alternative asset managers.
If JPMorgan is able to originate deals with its external partner and provide capital, it would lower balance sheet risk, resulting in private credit revenue growth.
Notably, JPM is a major provider of leveraged loans and high-yield bonds, and the private credit effort may safeguard an essential part of its business. By implementing the partnership, it could maintain control over client relationships and provide a level of certainty to borrowers that agreed loans would be funded.
The collaboration between JPMorgan, FS Investments and Octagon Credit, if formed, will not just be a merger of resources. It will result in the alignment of expertise in the private credit space.
Over the past six months, shares of JPMorgan have gained 24.4% compared with the industry’s rise of 22.6%.
Image Source: Zacks Investment Research
Currently, JPM carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Banks Seeking Expansion in Private Credit
A number of lenders have announced private credit partnerships and others are considering alternative options.
Last month, Citigroup Inc. (C - Free Report) , along with LuminArx, announced the launch of Cinergy, a financing tool for the private lending market.
Cinergy is expected to offer a wide range of private credit solutions to companies, including Citigroup’s client base.
Mitali Sohoni, the head of asset-backed financing at C, said, “The private lending market is experiencing transformative growth, and we are pleased that Cinergy will enhance our ability to meet the capital needs of our clients. Powered by LuminArx’s execution capabilities and the significant industry experience of its team, I believe Cinergy represents a truly differentiated offering.”
Similarly, The Goldman Sachs Group, Inc. (GS - Free Report) , intending to capitalize on significant growth of the private credit industry, entered a partnership with Mubadala Investment, an Abu Dhabi sovereign wealth fund. The companies will invest $1 billion in private credit deals in multiple Asia-Pacific markets, with a particular focus on India.
The funds will be deployed through a separately managed account, which will be managed by GS through its dedicated on-ground team in Asia and a global private credit team.
The expansion into the private credit space will likely drive Goldman’s revenue growth amid efforts to scale back its consumer banking business, along with focusing on its core strengths of investment banking, trading and asset management.