Why Jamie Dimon is misguided and how to solve the talent shortage in the alternative investments sphere.
Private credit has rapidly expanded beyond its Wall Street niche, drawing in everyone from seasoned titans to wide-eyed Main Street investors. However, the sector’s meteoric rise hasn’t gone unnoticed by the establishment. Jamie Dimon, JP Morgan Chase’s CEO and Wall Street’s perennial voice of caution, recently sounded the alarm on private credit’s potential default risks, making headlines in the process.
While Mr Dimon’s concerns shouldn’t be dismissed outright, they read like a traditionalist wary of the new kid on the block. Private credit thrives because it’s filling a crucial gap left by traditional banks in the wake of the 2008 financial crisis. Bound by tighter regulations and newfound risk aversion, lenders like Mr Dimon’s own bank retreated, allowing private credit funds to eagerly fill the void.
Yet this wasn’t just about replacing bank lending. Private credit takes a wholly different approach altogether, offering benefits like higher yields, recurring income potential, and shorter-duration deals. It’s the financial equivalent of having your cake and eating it too, often wrapped in flexible capital solutions affectionately dubbed ‘debtquity’ by those in the know.
The private credit market’s ‘golden era’ has the asset class projected to surpass $2tn in the next few years. It’s a full-blown gold rush, and it’s no wonder investors are clamouring for a seat at this table. From institutions and family offices to, increasingly, retail investors, the appeal of private credit spans the entire investment spectrum.
Eye-watering salaries
With all this growth comes a catch: the demand for talent is skyrocketing — sparking bidding wars with eye-watering salaries and equity. Naturally, industry executives like Mr Dimon have begun to question if this ‘shortage’ of talent will turn the industry into a breeding ground for riskier deals and higher defaults.
So here’s the multi-trillion-dollar question: Is the talent crunch a fatal flaw, or merely a symptom of a myopic hiring approach? I’m betting on the latter. The so-called ‘shortage’ is a problem of our own making, stemming from the misguided notion that only years of specific private credit experience can produce top performers.
Some of the industry’s sharpest minds came from credit rating agencies, investment banks, structured finance desks, and even insurance underwriting. These diverse backgrounds fuelled their ability to assess risk, think creatively, and build robust financial models. The result is that firms with this recruitment strategy have maintained historically low default rates relative to peers, even after scaling up.
Private equity offers a compelling analogy. While PE firms have recently shed talent — leaving a pool of battle-tested professionals ripe for the picking — these firms have long excelled at forging a pathway from investment banking, without the usual “X years of PE experience” required.
Private credit can adopt a similar talent pipeline but with a major distinction: private credit deals often demand more rigorous due diligence than PE counterparts. We can’t simply copy and paste PE’s hiring model; we need to elevate it. We must cast our nets wide, sourcing top talent from across the financial spectrum, investing in their development to create the next generation of financial leaders.
Financial complexities
The skills that spell success in private credit — sharp financial modelling, strong negotiation skills, meticulous due diligence, and adept portfolio management — aren’t exclusive to this field. We need minds that can navigate financial complexities with precision and think about risk in novel, innovative ways.
Analysts from rating agencies bring a deep understanding of creditworthiness, while investment bankers offer deal structuring expertise. Risk assessors from structured finance provide valuable insights into complex financial products. These professionals have honed their capabilities in some of the most valuable skill sets needed to mitigate risk in private credit.
As the industry continues to evolve, so too must our approach to talent. As fintech and data analytics revolutionise private credit, the industry increasingly demands tech-savvy professionals who can leverage these tools to enhance underwriting, streamline operations, and broaden its reach. Our talent acquisition must follow suit and adapt to this new reality.
This talent war isn’t isolated to private credit; it’s a family feud encompassing all of high finance. To win, we need only recognise that skills necessary to excel in private credit are often forged through years of experience in other financial disciplines. By tapping into this broader talent pool, we’re not just ensuring the industry’s growth; we’re fortifying it against the very risks that keep Mr Dimon up at night.
The future of private credit is more than bright. But to fully realise its potential and silence the naysayers, it’s time to embrace a more dynamic, flexible approach to talent acquisition. Innovators across private credit need to recognise and value assessment capabilities, diversity, and a hunger to learn. By cultivating a melting pot of talent from varied backgrounds, we’re both solving a ‘shortage’ and injecting fresh perspectives into risk management that could revolutionise the industry for years to come.
To the old guard clinging to outdated notions of expertise, I say this: adapt or get left behind. The future of private credit belongs to the innovators, the risk-takers, and the visionaries brave enough to shake up the status quo.
There’s room for everyone at this table; we just need to add a few more chairs.
Nelson Chu, founder and CEO of private credit specialists, Percent