As Private Credit Surges, Banks and Alternative Asset Managers Turn Frenemies Rather Than Foes

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Always good for a memorable complaint, Jamie Dimon asserted over the summer that the prospect of tougher banking regulations had the biggest purveyors of private credit “dancing…

Always good for a memorable complaint, Jamie Dimon asserted over the summer that the prospect of tougher banking regulations had the biggest purveyors of private credit “dancing in the streets.”

A few years before, Dimon — the statesman-like chief executive of JPMorgan Chase & Co. — similarly warned that regulators were creating an uneven playing field to the benefit of fintechs. These upstarts, he argued, could target profitable segments of banking without having to deal with the costs and regulatory burdens of traditional lenders.

As it turned out, deep-pocketed Wall Street banks easily overcame the fintechs’ threat. JPMorgan alone bought or invested in scores of them.

But private credit poses an altogether different challenge. Led by alternative-asset behemoths like Apollo Global Management and Blackstone, private credit has arguably become the most powerful transformational force in the financial world since the 2008 economic crisis.

These alternatives firms have increasingly stepped into lending voids left by risk-averse banks. They have also created new vehicles to issue and put money to work in investment-grade credit — such as loan origination firms and business development companies (BDCs) — that traditional lenders cannot match.

Banks have been reacting by treating private credit purveyors more as frenemies than foes. Wall Street lenders, including JPMorgan, are building up their private credit units, either on their own or by partnering with alternative lenders and hedge funds. And banks both large and small are inviting alternatives firms to acquire assets from their balance sheets to boost their capital reserves.

But make no mistake: The banks had little choice but to cede ground to large alternatives managers and are understandably uncomfortable at a long-term retreat to advisory roles even in debt deals they originate. As the financial crisis becomes a distant memory, banks are working on new ways to enter the private credit business.

It’s also true that…

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