The Changing Face of Finance
Crafting a New Model: JPMorgan vs BlackRock vs Apollo
Neither JPMorgan nor BlackRock could avoid the topic of private credit on their earnings calls this morning. Too many market participants had seen Apollo CEO Marc Rowan present at his firm’s investor day last week. “Private will win over banks,” he said. “Private will win over public.”
Rowan was quick to caveat his prediction, emphasizing that he is talking about growth rates rather than outright substitution. Still, as incumbents on the other side of the trend, JPMorgan and BlackRock are taking the threat seriously.
On his call, Jamie Dimon indicated that he would reserve a portion of his balance sheet to do the same kind of credit that Apollo and other private credit firms do. He has already benefited from a resurgence in bank activity. Having lost out on 86% of leveraged loan volumes to specialist funds in 2023, in the first half of this year banks refinanced $17 billion of debt that was previously provided by private credit firms, according to Pitchbook data, compared with $10 billion that went in the other direction. Some of this was reflected in JPMorgan’s balance sheet, where commercial and investment banking loans were up in the quarter, after being flat over the previous four quarters. Jamie Dimon concedes that he has a regulatory disadvantage versus non-bank firms, but his edge is existing client relationships.
Larry Fink at BlackRock agrees with the thesis. “Private markets are becoming increasingly important in the financing of the economy,” he told investors on his call. He has grown his private credit business to $85 billion although compared with $4 trillion across public fixed income, cash and private credit, it remains small. And the bigger piece is floundering. In the first nine months of the year, institutional active fixed income suffered from investor outflows. The firm recently announced a new structure for its private credit business and reckons that if it flips 10% of assets currently managed for insurance clients, it can add $70 billion to its private credit pile. BlackRock’s edge is also existing client relationships.
But Apollo is just getting started. Rowan concluded his presentation last week with the following chart which spells out what he’s trying to do. To explore his playbook and see what risks might be involved in the changing face of finance, read on.
