The new circular trade in private credit

One scoop to start: Hedge fund giant Citadel has moved some of its core researchers out of Hong Kong, highlighting the pressures facing quantitative traders in the Chinese hub.

Another thing: Wall Street’s top prosecutor Jay Clayton has dismissed fears of a looming private credit crisis, arguing the fast-growing asset class has fuelled US economic strength while Europe has lagged behind.

In today’s newsletter:

• A private credit SRT pitch

• MFS and a Ferrari collection

• JPMorgan’s big reshuffle

SRTs: How private credit can bet on itself 

A growing chorus of private capital executives insist there’s nothing to worry about in private credit. 

Fears stemming from a few high-profile defaults in the loan marketplace are overblown and overhyped by the media, according to luminaries such as Apollo’s Marc Rowan and Blackstone’s Stephen Schwarzman.

DD is excited to point out that they now have a new way to express their confidence in their own cooking: buy significant risk transfers tied to the very credit funds they are sanguine about, from banks seeking to trim their exposure.

Japan’s largest bank, Mitsubishi UFJ Financial Group, is in talks with investors to offload its exposure to about $2bn of loans it extended to listed private credit funds, people familiar with the matter told the FT.

Specifically, MUFG has pitched a $200mn risk-transfer product that would protect the bank against losses if private credit funds failed to repay their debt.

The product, called an SRT, is underpinned by about $2bn of credit lines for business development companies.

For the bank’s part, offloading the risk offers it capital relief to free up more capacity for lending and dividend payouts.

“Bankers are under pressure to tell their bosses that they got their private credit exposure down because investors will ask in upcoming earnings calls,” one person familiar with the matter told the FT.

Private capital already has investments in SRTs tied to private equity capital call lines and other corporate credit. In recent weeks banks have sounded out investors about a variant of an SRT to offload risks tied to data centre debt.

The sceptical view is that the arrangement will just create a circular risk, given that the most likely buyers are firms that have massive private credit operations. It also underscores the growing interconnections between the banking system and the giants of private capital.

Indeed, Blackstone, Apollo and Ares are among those that banks have pitched on private credit SRTs, according to people familiar with the matter.

If firms with private credit operations do load up on these products, any adverse loss could hit them in multiple ways.

Blackstone faced this criticism in 2024 as it loaded up on SRTs underpinned by short-term loans used by private equity funds. “They are providing protection on themselves,” one large SRT investor told the FT at the time.

It will also be interesting to see how MUFG decides to deploy the cash freed up by the arrangement. Perhaps to make further loans to private credit funds?

The Fast and the ‘Fraudulent’

How many Ferraris does the owner of a niche property lending firm need?

In the case of Paresh Raja, the flamboyant founder of collapsed mortgage firm Market Financial Solutions, the answer was allegedly six . . . along with three Aston Martins, two Mercedes and three Rolls-Royces.

The fleet of luxury cars is among the trophy assets that MFS’s administrators claim in a new lawsuit that Raja purchased after “plundering” his company “to fund a lavish lifestyle”. 

MFS borrowed £2.6bn from lenders before its spectacular implosion, prompting heavy losses for banks such as Barclays and private credit firms including Apollo’s Atlas unit. MFS’s administrators allege that at least £1.3bn of this borrowed money has been misappropriated.

A spokesperson for Raja told the FT that he “strongly denies the allegations” and “has consistently maintained there was no fraud or dishonesty”.

Before its collapse, MFS was one of the UK’s largest providers of bridging loans — short-term mortgages taken out by borrowers who struggle to obtain traditional bank finance.

The FT took a closer look at this very British form of property lending, discovering that US private credit money has turbocharged the high-octane niche.

Take Duncan Kreeger. Having started out working at his father’s mortgage brokerage as a teenager, the 42-year-old has since co-founded two bridging lenders. He candidly states on his personal website that “around 50 per cent of the businesses he has been involved in have failed”.

US private credit firms have proved willing lenders to Kreeger’s firm, TAB, which has not been accused of any wrongdoing, but has previously racked up losses on non-performing loans.

In an interview with the FT, Kreeger clarified that his failed businesses primarily comprised ventures from his youth, such as trying to sell alloy wheels online and opening a poker club in North London.

“Lending money is the oldest business in history,” he said. “Bar one maybe.”

JPMorgan’s investment bank shakes up its top ranks

JPMorgan Chase has been nipping at the heels of Goldman Sachs for years in the business of mergers and acquisitions. Their new strategy to catch Goldman? Be more like Goldman. 

JPMorgan announced a number of investment banking job moves on Wednesday, first scooped on Tuesday night by the FT. 

Investment banking coverage chief Dorothee Blessing, global head of capital markets Kevin Foley and global co-head of the financial institutions group Jared Kaye were appointed co-heads of global investment banking, among a dozen senior banker moves. 

Of major significance was the move of 26-year JPMorgan veteran Anu Aiyengar from global head of M&A to a global chair of investment banking and M&A. 

Charlie Bouckaert, JPMorgan’s co-head of industrials investment banking, will replace Aiyengar as the bank’s global head of M&A. Notably, the group of M&A practitioners will be brought under the umbrella of industry coverage groups, in line with the structure at most other bulge-bracket banks including Goldman.

“JPMorgan is on the cusp of being able to get to number one, they just need to leave clients thinking these guys are smarter than Goldman,” one M&A banker told the FT. 

The proof will be in Wall Street’s closely watched league tables.

Job moves

• Citi has hired Stuart Ord as head of UK M&A and Joe Seifert as vice-chair of UK investment banking. Ord was previously co-head of UK M&A at Deutsche Bank and Seifert was CEO of EET Hydrogen.

• Akin Gump has hired Gerald Brant, Jeffrey Kochian, Brittany Harrison and Jonathon Hamill as private equity partners in New York and London. They join from Sidley Austin.

• Jefferies has hired Ian Wellby and Arnout Harteveld as managing directors in real estate investment banking. Wellby joins from Hudson Advisors and Harteveld joined from Goldman Sachs in March.

• Simpson Thacher has hired Jordan Elkin as a restructuring partner in New York. He joins from Kirkland & Ellis.

• Boots is set to name outgoing Currys boss Alex Baldock as its new chief executive as the UK pharmacy chain builds out its management team ahead of a potential stock market listing in London next year.

Smart reads

Wall Street exodus There’s been an exodus of ultra-high earners from New York City to Florida in recent years, but Miami is still no rival to Wall Street, FT Alphaville writes. New York continues to add more finance employees than its warmer counterpart.

Cheap flights Airlines are constantly grappling with external shocks but the Iran war is proving existential for the industry, the FT reports. Soaring jet fuel prices have analysts predicting more bankruptcies and even the end of a glorious era of cheap air travel.

‘Singapore washing’ There’s a well-trodden path for Chinese companies seeking access to global markets: they move to Singapore. But that strategy may no longer work for larger firms in sensitive sectors, the FT reports, as Beijing cracks down.

News round-up

Intertek set to agree £10.6bn takeover by private equity group EQT (FT)

Czech arms group tests Berlin and Paris with offer for stake in tank maker KNDS (FT)

Jeff Bezos’s Blue Origin weighs first external fundraising (FT)

Crispin Odey settles sexual assault claims (FT)

Elon Musk’s settlement with SEC raises ‘red flags’, judge says (FT)

Italy’s Ludoil agrees to buy Beny Steinmetz-linked Sicilian oil refinery (FT)

Shares surge in debut of power producer favoured by Trump energy agenda (FT)