Private Credit Worries and Big Investors Are Still Piling in, JPM Exec Says
The drama unfolding in the private credit market hasn’t deterred big-money investors, according to a top JPMorgan strategist.
Monica DiCenso, the global investment opportunities head at JPMorgan Private Bank, brushed off the jitters that have swirled around the private credit sector in recent months. Despite some funds freezing investor withdrawals, risks in the sector are likely overstated — and institutional clients are actually using the panic as an opportunity to continue adding exposure, she said, speaking to CNBC on Wednesday.
“I am seeing institutional clients add to private credit here. They’re using this fear as a time to add. And so that’s always something that you want to watch when you see a very sophisticated part of the market saying, ‘This is probably a little overdone,'” Dicenso said, though she acknowledged that private credit was a “higher risk” corner of the market.
Fears about the health of private credit were first kindled with the collapse of TriColor Holdings and First Brands late last year. Since then, private credit funds have faced a wave of withdrawal requests, with firms like BlueOwl, BlackRock, and Apollo limiting amounts investors can withdraw.
The news fueled fears of a contagion event that could spread to other areas of the financial system, but DiCenso said she believed that firms putting up redemption limits was actually a “good thing.”
“It stops the run of the banks, if you will. So while it doesn’t feel good to see that headline, it helps calm people’s nerves, and it helps these companies manage and run these risks,” she said.
Private credit investments are less liquid than publicly traded assets. Many of the developments that have unfolded in the private credit sector recently stem from how retail investors, used to daily liquidity in stocks and ETFs, have been spooked by the relative illiquidity of private debt funds.
Meanwhile, much of the debt in the private credit universe is still doing just fine, DiCenso noted. The default rate for private credit loans hovers around 2.5%, in line with the historical average for high-yield and leveraged loans, according to one JPMorgan Private Bank analysis.
“If you’re partnering with a manager who’s well-seasoned and knows how to do this, I do think it’s going to be okay,” DiCenso said of the sector’s performance.
Other big names on Wall Street have also shrugged off recent panic in the private credit sector.
Speaking on the bank’s earnings call on Tuesday, JPMorgan CEO Jamie Dimon said he was “not particularly worried” about the systemic risks related to private credit. Dimon — who suggested that TriColor and First Brands were just some of the “cockroaches” lurking in the broader credit market last year — was among the first people on Wall Street to warn of risks in the private credit market.
Goldman Sachs CEO David Solomon also said he believed private credit is still an attractive space, despite more “noise” from investors in recent months.
