JP Morgan: Private credit is not ‘cannibalising’ high yield market
JP Morgan has argued that the growth of private credit is not a threat to the high yield market.
In a note published on Friday, the bank conceded that there had been a 25 per cent contraction in the US high yield market since the middle of 2021, but said the trend was not attributable to the rise of private credit.
Rather, the bank said that almost $300bn (£237bn) of high yield credits had migrated to investment grade status since 2021, which it argued reflected a move towards higher credit quality in the high yield market.
Read more: IMF warns on ‘retailisation’ of private credit
However, the bank admitted that the growth in private credit had been driven by a gap in provision created by regulatory pressure leading the banks to retrench from lending.
As such, private credit has become the preferred source of funding for small companies and those unable to access funding from the public high yield market.
“Private credit is not without risk; stress is rising in private credit given its floating rate nature while high yield tends to be more fixed rate,” the bank observed.
“That said, it is not cannibalising the traditional high yield market, but rather supplying important financing to companies that may not be equipped both in size and quality to issue in the public high yield market of today.”
Read more: Advisers look to reallocate from public fixed income to private credit
The bank’s comments come in the context of what seems to be a shift by various investors away from traditional lending to private credit.
While JP Morgan highlighted the tendency for smaller companies to use private credit, there are marked trends in insurers and pension funds increasing their investment in private credit too.
Data published by Preqin earlier this month, revealed a 24 per cent rise in investments in private debt by US public pension plans from $146m (£116.21m) to $182m.
Meanwhile, the influx of insurers into the asset class recently prompted Citigroup chief executive Jane Fraser to warn of arbitrage between banking and insurance.
Read more: San Antonio Fire & Police shifts $45m to private debt funds
