JPMorgan Chase Tightens Lending to Private Credit Funds as Software-loan Worries Grow

The Financial Times, CNBC, and Market Watch, contributed to this report.

JPMorgan Chase is quietly dialing back how much money it lends to private credit firms, marking down the value of loans those firms use as collateral and effectively limiting how much they can borrow.

The move is aimed largely at loans tied to software companies, according to a person familiar with the matter. The bank’s trading division has started lowering the valuations of those loans inside financing portfolios used by private credit clients – a precautionary step meant to reduce risk if the market for those assets weakens further.

Importantly, the decision isn’t being driven by borrowers actually failing to repay their loans. Instead, the markdowns reflect shifting market valuations and growing uncertainty about the software sector.

Much of the concern centers on the rapid advances in artificial intelligence. New models from companies like OpenAI and Anthropic have sparked worries that some traditional software providers could become obsolete or lose market share.

That anxiety has spilled into the private credit world, where many lenders financed software companies during the boom years. The uncertainty has triggered what some investors describe as a downcycle in private credit, with retail investors pulling money out of funds in unusually high numbers.

Large firms including Blue Owl Capital and Blackstone have seen elevated redemption requests in recent weeks, highlighting how jittery investors have become about the sector.

Private credit firms often borrow money from banks to boost returns – a strategy known as “back-leverage.” Essentially, they use their portfolio of loans as collateral to take on additional borrowing.

It’s a lucrative strategy when markets are strong, but it can amplify losses if the underlying loans drop in value.

By marking down the collateral tied to those loans, JPMorgan is effectively reducing the amount private credit firms can borrow against them. In some cases, those firms may even be required to post additional collateral to maintain their financing arrangements.

The exact size of the loans affected and how deep the markdowns are hasn’t been disclosed.

The shift suggests JPMorgan wants to get ahead of potential stress in private credit rather than react once losses appear.

CEO Jamie Dimon has long warned about the risks that come with heavy leverage and rapidly growing credit markets. By adjusting collateral values now, the bank is essentially building a cushion against possible volatility in the sector.

According to a person familiar with the situation, JPMorgan may be among the first major lenders to tighten leverage to private credit funds in this way.

The approach echoes what the bank did during the early days of the COVID-19 pandemic, when it also reduced lending exposure to protect itself from market shocks.

For now, the changes look more like a defensive move than a sign of immediate trouble – but they signal that some of Wall Street’s biggest players are starting to take a more cautious stance toward the once-booming private credit industry.