#635
The House Always Hedges

Private credit was supposed to route around the banks. Instead, the banks are once again at the center of the market. JPMorgan has committed roughly $50 billion of balance sheet to direct private loans, tightened financing for some funds with heavy software exposure, and built strategies that let hedge funds bet against companies exposed to private credit. Bank of America briefly tried something similar before retreating. Banks are willing to finance private credit, compete with it, and help clients position against it, sometimes all at once.

This week, that balancing act came into clearer view, as Apollo and Ares joined firms including BlackRock and Morgan Stanley in limiting redemptions from private credit funds. Bloomberg estimates investors sought about $13 billion of withdrawals this quarter, recovering only about two-thirds of what they requested, with roughly $4.6 billion still stuck behind fund gates. The unease runs deeper than liquidity. JPMorgan estimates software accounts for around 30% of private credit loans outstanding, versus roughly 10% for bank-originated debt. As investors reassess which software borrowers can withstand slower growth and AI-related pressure, that gap has started to look less like specialization and more like concentration.

Private credit spent years casting itself as an alternative to bank intermediation. But when conditions tighten, the banks still shape the outcome. They provide financing, pull back from risk, and help the market price the downside. For all the ground private credit has gained, the old guard still has a way of reappearing when the cycle starts to turn.