JPMorgan is looking for a private lending firm to expand in the hot sector

(Bloomberg) — JPMorgan Chase & Co. is looking for a private lending firm to bolster its $3.6 trillion asset management division as the largest U.S. bank expands into Wall Street’s busiest sector.

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According to people familiar with the matter, the JPMorgan unit is looking for a private credit bank that could support its business with private capital. As part of that effort, the company held talks this year to buy Chicago-based Monroe Capital, but the two companies ultimately decided not to pursue the deal, said the people, who asked not to be identified describing private discussions.

Spokespeople for JPMorgan and Monroe declined to comment.

Interest in the $1.7 trillion private lending industry has surged in recent years. Alternative asset giants like Ares Management Corp. and Apollo Global Management Inc., invested in increasingly larger deals for their portfolios. Other investors, as well as banks themselves, are also eager to place more bets.

Investment bank JPMorgan has already committed more than $10 billion from the company’s balance sheet to direct lending. As Bloomberg previously reported, the bank is also partnering with asset managers to join in private lending transactions.

Read more: JPMorgan and Citi copy from the private lending playbook

The asset management unit, which handles the money of wealthy individuals and institutions, including foundations and pension funds, is trying to expand its offer of private loans. At the end of last year, it managed $17 billion in private credit assets – less than the nearly $19 billion in committed and managed capital that Monroe had as of April 1.

For a direct lender, selling to a large bank could have consequences for its franchise. The company would jump from a less regulated part of the financial industry to one subject to stringent regulations and a patchwork of regulators. With this in mind, some private lenders have made the mistake of partnering with banks rather than merging with them.

While banks’ entry into the private lending market may put them in competition with their own traditional lending bureaus, it is also a way to raise asset management fees and offer borrowers a range of options as tighter capital rules restrict their lending in other areas. Proponents of private credit say some borrowers prefer to work with several direct lenders rather than take out a loan from a bank that can then be sold to dozens of other companies.

“I’m working on it”

The acquisition would help quickly strengthen JPMorgan’s asset management division, but the company may ultimately choose to grow its private lending offerings organically, one of the people said.

During Monday’s investor day, senior JPMorgan leaders discussed Wall Street’s focus on the sector and JPMorgan’s efforts to build a franchise on multiple fronts. The company must “find a way in the fiduciary space, just as we find it in the non-fiat space, to get into private credit,” said CEO Daniel Pinto. He added that Mary Erdoes, longtime director of asset and wealth management, and her team are “working on it.”

CEO Jamie Dimon disagreed: “We’re not going to buy a private equity company,” he said in response to a question about it, only to quickly withdraw it.

His top deputies “should be thinking all the time, no matter what I say,” Dimon said. “I mean. I have my opinion, but if they come and say we have a great thing that makes sense for us, then yeah, fine, we should do it.

— With help from Michelle F. Davis and John Sage.

(Updates with additional context in eighth paragraph.)