Private Credit Defaults, JPMorgan Profits Both Ways: Acting as Creditor and Helping Clients Short

The software industry crisis is pushing the private credit market toward a large-scale liquidation, with JPMorgan Chase playing a rare dual role—being one of the industry’s largest sources of funding and actively building short-selling channels for related assets.

Apollo Global Management experienced a massive redemption request this Monday, marking the latest sign of the crisis’s ongoing spread. JPMorgan CEO Jamie Dimon has ordered a comprehensive review of the bank’s entire loan portfolio to assess exposure to software companies and has restricted the credit limits of some private credit funds with software risk exposure. Meanwhile, the bank has recently created short-selling strategies targeting private credit-related exposures for hedge funds and other investor clients.

In terms of market impact, shares of alternative asset managers Blue Owl, Ares, and Blackstone have all fallen more than 30% year-to-date, the S&P Software & Services Select Industry Index has declined about 20%, and the KBW Nasdaq Bank Index has dropped 8%.

This crisis reveals deep-seated conflicts between large banks and the private credit industry: private credit firms are both the biggest paying clients on Wall Street and direct competitors. Troy Rohrbaugh, Co-CEO of JPMorgan’s Commercial Banking and Investment Bank, admitted last month, “They are all our clients, but what surprised me is that people are actually surprised by the current situation.”

Software Industry Under Pressure: “SaaS Apocalypse” Ignites Private Credit Crisis

The core of this crisis lies in the over-concentration of private credit funds’ exposure to the software industry. Over the years, many unprofitable software companies have obtained high-risk loans through private credit funds; now, with rapid advancements in AI technology, investors are worried about disruptive replacements in the software sector. Coupled with several high-profile defaults and redemption blockages, the market has dubbed this turmoil the “Saaaspocalypse.” Individual investors are rushing to withdraw from private credit funds, and many institutions have had to impose limits on redemption requests.

JPMorgan estimates that debt in the software industry accounts for about 30% of total private credit outstanding loans, while similar debt issued by banks makes up only about 10%. This stark difference is one of the fundamental reasons why private credit funds are impacted far more severely than traditional banks in this crisis.

Dimon’s Double-Edged Strategy

Dimon has long maintained a cautious stance on the private credit boom but also allows JPMorgan to deeply engage in the market to remain competitive with large private equity clients. Currently, the bank has allocated $50 billion of its balance sheet resources to issuing private loans to clients.

According to sources cited by the media, Dimon has been monitoring risks in the private credit market for years, with internal bankers regularly reporting on the latest developments of problem fund managers. Last year, he hinted that there are “cockroaches” lurking in the financial system. Recently, with the rapid evolution of AI tools threatening to eliminate many software companies, his concerns have intensified.

“Honestly, what these people have experienced in software will shock you—we analyze loans and names one by one to understand what it means for us and try to make forward-looking predictions,” Dimon said at an investor event in February.

The Wall Street Journal reports that other banks have also recently launched new reviews of private credit exposures, including comprehensive re-evaluations of loan portfolios and collateral quality.

Conflicts of Interest: Banks’ Dilemma

JPMorgan is not the only bank sensing short-selling opportunities. Bank of America has also created short strategies targeting private credit-related stocks for some clients but quickly withdrew and publicly apologized, with its research analysts later attributing the market’s continued decline to “media attention.”

Wells Fargo analyst Mike Mayo said, “This is an extremely sensitive topic, but market turmoil may give banks an opportunity to attack competitors.”

Since the 2008–2009 financial crisis, private credit has continued to erode large banks’ market share. Banks like JPMorgan and Goldman Sachs have not only lent billions directly to private credit funds but also launched their own private credit initiatives, making the interests and conflicts increasingly complex. Any aggressive moves risk putting them in a dilemma.

Loan Sales Blocked: The Fates of Qualtrics and EA

This crisis has directly impacted specific transactions. JPMorgan faced significant resistance when trying to sell debt related to the tech company of private equity firm Silver Lake.

Sources say the bank recently decided to delay the sale of approximately $5 billion of debt for the cloud subscription software platform Qualtrics. Investors, before committing new capital, demanded extensive data on customer retention, which is still being prepared.

Meanwhile, bonds worth about $8 billion for gaming company Electronic Arts (EA), launched this Monday, ultimately received strong demand. Earlier, at JPMorgan’s leveraged finance conference in Miami this month, investors expressed concerns about AI threatening EA; however, bank executives responded that the likelihood of AI replacing a game studio holding multiple sports league licenses is low.

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