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Here’s an interesting Bloomberg piece on how JPMorgan continues to send you a list of private credit loans that are eager to buy, and keeps you rejected by the industry.
Bloomberg’s Ellen Schneider and Carmen Arroyo say List is joking. Private credit companies are firmly holding JPMorgan at bay, saying, “We don’t intend to share profits with those banks now that private credit is an industry of several people and that’s a story of the financial world.”
However, there is suspicion that this paragraph is actually the real reason why JPMorgan’s attempts to trade private credit loans is being hampered.
They also have another strong motivation. If JPMorgan, or any other banks following its footsteps, succeeds in creating a vibrant trade market for loans, it could shatter perceptions, as critics argue about the stability of the price they spent the year selling to investors. The value of the loans that the pitch goes to is not whipped and dragged by the whims of the broader market as they are private assets. But when they trade regularly, price levels are marked daily, and private credit is suddenly not that different from their open market counterparts.
Some have long assumed that as private credit grows and matures, transparency will increase and that loans will eventually start trading more frequently.
However, opacity and illiquidity are not bugs. They are important features of the asset class.
The main reason why risk-adjusted returns on private credits seem so appealing to institutional investors who have been chasing it over a trillion dollars in recent years is their lack of volatility. The lack of transactions and public data is further permitted. . . Be skilled around valuations, allowing the industry to make such profits:
Yes, we believe that private credit somehow magically issued a positive return in a year when all major segments where stocks and bond markets suffered double-digit losses became brutal.
Supporters say the floating speed nature of private credit loans means they will be better in an interest rate environment where they are rising. They argue that just because the open market is man disease does not mean that the mark needs to be moved in a similar way.
Both are true! However, the temptation to mark a cough is optimistic ~cough~ intense. Furthermore, stricter monetary policy makes debt burdens unbearably troubling. And there are many indications that since 2022 there has been a lot of pain in private credit.
However, this stress can be covered by quietly extending your loan and simply adding interest to the principal on the loan, or using all the money collected to extend your new loan and keeping the show on the streets.
The last thing you want is to trade that loan slice at a lower price and make someone else do it to mark down. As Bloomberg’s story points out (with our emphasis):
Many shops also want to have strict control over who owns the debt, and often try to stop banks from selling to companies that do not have strong partnerships. This is a trend that is becoming increasingly common in the leveraged drone market. Some sponsors and lenders are even going so far as to ask JPMorgan to remove the loan from the execution it sends, according to people familiar with the issue they asked to not identify them to discuss private conversations.
This concludes with what Alphaville has heard, with some large private credit managers appearing to be threatening to place banks publicly available on loans with “penalty boxes.” This appears to be something that is struggling with JPMorgan’s private credit.
JPMorgan does not have a suitable handle for private credit pricing. The Bloomberg story highlights the case of PluralSight, which bank traders cited for over 90 cents in dollars last summer.
The pricing glitches are market-specific. However, one small sunlight is provided by a “business development company” that resembles the private credit funds listed. These will require publicly reporting the assessment of the loans they hold, and as a result, you would expect them to be similar. But as Barclays highlighted in last year’s report, ratings are often everywhere.
Transparency and trading can ultimately become private credit. However, private credit companies intend to fight teeth and claws.
Read more:
– How does private credit weather the hiking cycle of the first big greats? (ftav)
