JPMorgan Launches $2 Billion ETF as Exec Backs High-Yield Debt Over Private Credit

Finite opportunities in private credit are creating public, high-yield debt opportunities, J.P. Morgan Asset Management CEO George Gatch said, according to a Wednesday (June 25) Bloomberg report.

Gatch made the comment as J.P. Morgan unveiled its J.P. Morgan Active High Yield ETF in a Wednesday press release. The fund will devote at least 80% of its portfolio to junk-rated bonds and opened with a $2 billion anchor investment.

While junk bond spreads to Treasuries are “tight,” yields are attractive compared to equities, and default rates in this space are low, the report said. Beyond that, alternatives to high-yield debt like private credit are being overrun with investors.

With that in mind, the liquidity advantages and high yields of publicly traded bonds provide a good entry point, according to the report.

“There’s a lot of money and investors chasing finite opportunities in the private credit market,” Gatch said, per the report. “You also have liquidity tradeoffs. You take those two things in combination and on a marginal basis, I would put my marginal dollar in public high-yield rather than private credit.”

The private credit space is a key part of the capital spectrum for firms that cannot access, or choose not to get, normal bank channels.

“The private credit firms — including venture capital companies, buyout funds, hedge funds, direct lenders and others — are in turn significant partners for FinTech platforms that, themselves, extend loans,” PYMNTS reported May 9. “The capital flows that connect banks, private credit firms, FinTechs and the latter’s end customers are increasingly interwoven, with risks and rewards extending across that continuum.”

Federal Reserve data showed that banks are increasing their exposure to nonbank financial institutions (NBFI), a category that includes private equity (PE) and private credit (PC). Large banks’ total loan commitments to PE/PC funds were around $300 billion, or 14% of large banks’ total lending to NBFIs, as of the end of 2023. The tally was under $10 billion in 2013.

PE and PC firms, in turn, put money to work in the economy, although when these entities suffer shocks, “they tend to draw down their bank lines of credit at a faster rate than firms with only bank credit,” the Fed said. “This creates a channel through which PC funds may increase banks’ credit and liquidity risks, on balance.”

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