Don't Be a Sucker: JPMorgan, Goldman Sachs Bet Against Private Credit
Are the risks fully priced into companies like Blue Owl and Blackstone?
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JPMorgan CEO Jamie Dimon
You’re standing at a table in a casino, preparing to place a bet. Several well-dressed individuals on the other side of the table are preparing to take the opposite side of your wager.
The individuals on the opposite side of the table are named Goldman Sachs (GS) and JPMorgan (JPM) . They are preparing to actively bet against you.
Still itching to place that bet?
Private Credit’s Bad Juju
We’ve been hearing a lot about private credit this year, and not much of it is good.
Instead of borrowing capital from traditional banks, private credit allows businesses to take direct loans from other private entities. Think of it as business-to-business lending.
Blue Horseshoe Hates Blue Owl
Blue Owl Capital (OWL) is a name in this sector that has recently drawn negative attention. On the weekly chart below, we see a stock that has fallen by 65% over the past 13 months.
Blue Owl manages, but does not own, several entities with similar names. Here is the weekly chart of Blue Owl Capital Corporation (OBDC), which trades separately from Blue Owl Corporation. Shares of OBDC have lost about one-third of their value since early last year.
Blue Owl Capital and its subsidiaries generally lend to software and tech firms, and are often involved with digital and AI infrastructure products.
Another familiar name in this sector is Blackstone (BX) , which lends primarily to commercial real estate owners. Blackstone's weekly chart illustrates the stock’s 43% loss since November 2024.
The damage demonstrated on these charts could be an indication that some borrowers are struggling to making payments. Investors are scrambling to determine if risk is adequately priced into these names.
Opposite of 2008
In "The Big Short," investor Michael Burry requests that a financial institution create a vehicle he can use to short the housing market. If a financial institution had approached him with the idea instead, would he still have taken the trade?
This week, it was reported that several large investment banks are doing something similar to that. They are offering their hedge fund clients vehicles designed to short the private credit market.
What it really amounts to is a bet between massive investment banks and hedge funds in search of alpha. If the hedge fund wins, the investment bank loses, and vice versa.
Do you really want to take a position in private credit if names like JPMorgan and Goldman Sachs are on the other side of your trade?
The Sucker at the Table
It’s been said that if you don’t know the identity of the sucker at the table, it’s probably you.
Pride may tempt you to trade against the big players in this industry, but it’s usually a losing wager. When you’re betting against Goldman Sachs and JPMorgan, you’re betting against the house.
Related: Wall Street Turns on India as Oil Shock Drives 'Unprecedented Crisis'
At the time of publication, Ponsi had no positions in any securities mentioned.
