JPMorgan Chase & Co.

is restricting some lending to

private credit funds

after marking down the value of certain loans

in their portfolios

, the latest sign of stress in the US$1.8 trillion industry.

The devalued loans are to software companies, according to people familiar with the matter. That industry is home to some of the biggest borrowers in the private credit market and has been in the spotlight in recent weeks due to investor concern over the impact artificial intelligence will have on its business model.

Wall Street lenders like JPMorgan act as banks to private credit funds, providing them with cash using their loans as collateral. A reduction in the

value of those assets

will curtail the amount the bank is able to lend to these funds, heaping further pressure on an industry already grappling with a series of hefty withdrawals from retail investors, spooked by renewed scrutiny of underwriting standards and developments in AI.

JPMorgan’s moves have only impacted a small cohort of its borrowers, the people familiar with the matter said, asking not to be named discussing non-public information. And the decisions haven’t triggered any material margin calls so far, they added.

Unlike many of its rivals, the largest United States bank reserved the right to revalue private credit assets at any time, according to the people. A representative for JPMorgan declined to comment on the latest changes, which were first reported by the Financial Times.

Cliffwater LLC became the latest private credit firm to

face redemption requests

in excess of seven per cent from its flagship fund, Bloomberg News reported on Tuesday, following similar demands from investors in funds managed by BlackRock Inc., Blackstone Inc. and Blue Owl Capital Inc.

Chief executive

Jamie Dimon

warned in October that more “cockroaches” would surface in the once-booming but opaque world of private lending, where prices aren’t typically disclosed. Since then, some investors in the sector have brushed off jitters about default rates and the potential for more widespread risks.

Wall Street banks have been the staunchest financial supporters of the private credit industry, lending about US$300 billion to credit funds as of late June, according to a Moody’s Ratings report from October, based on data from the Federal Reserve’s Board of Governors. JPMorgan had US$22.2 billion of exposure to private credit, the report showed.

Facing increased regulation in the wake of the financial crisis, banks offloaded much of the

risk of lending

directly to high-yield and unrated borrowers to private credit lenders, which offered them a safer way to reap the benefits from the rapid growth of the asset class.

But that strategy is wobbling with the recent collapse of United Kingdom mortgage lender Market Financial Solutions Ltd.

MFS, which borrowed more than £2 billion (US$2.7 billion) from backers including Barclays PLC and Apollo Global Management Inc.’s Atlas SP Partners unit, claimed to be operating one of the United Kingdom’s biggest providers of short-term bridge loans until its Feb. 25 collapse.

—With assistance from Ambereen Choudhury and Megawati Wijaya.

Bloomberg.com

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