Monthly Insights: Heron’s Response to Jamie Dimon’s Private Credit Paradox (July 2025)

Monthly Insights #4, July 2025

In this issue:

• Current Events: Jamie Dimon Plays Both Sides
• What Makes Middle Market Loans Attractive for Investors? A Q&A With PGIM
• Why Private Credit Covenants Matter for Investors: A Q&A With FS Investments
• Quote of the Month from Steve Jobs

Current Events: Jamie Dimon Plays Both Sides

What's going on?

On a July 15 earnings call, J.P. Morgan CEO Jamie Dimon warned that private credit is peaking, and that investors are continuing to ignore flashing credit risks. It wasn’t Mr. Dimon’s first time sounding the alarm, nor will it likely be his last time offering his two cents.

Is Jamie Dimon right about private credit’s risks?

He’s not completely wrong—private credit is indeed filled with inexperienced managers flooding the markets, trying to build private credit businesses without a track record or much experience. 

But, there are two reasons we should not take the sound bites that came from his comments as the guiding truth:

1. While he’s warning us all about private credit’s risks, his own firm is investing $50 billion into the asset class.
2. Even his own research team has come out saying, “While Jamie’s warnings highlight real risks, they shouldn’t be misconstrued as a negative stance on private credit. He’s advocating for responsible practices and sees potential.” The J.P. Morgan research team went on to say, “Fears of private credit leading to a systemic crisis are overstated.”

Fundamentally, the private credit industry is actually in reasonable health today, especially compared to the early years. Comparing private credit today to 2008, consider these stats:

• Higher percentage of first lien loans: First lien loans now make up ~90% of most portfolios (vs. 33% in 2008). First lien lenders are repaid ahead of other creditors in a liquidation.
• Lower loan-to-value ratios: Average LTVs have dropped from ~67% in 2008 to ~41% today. A low LTV generally offers lenders a cushion against potential losses.

Additionally, the average private credit portfolio company today reports a debt/EBITDA ratio of 5.2x and interest coverage ratio of 1.9x, based on proprietary data compiled by Heron. The industry as a whole reported a default rate of 2.42% in Q1 2025, down from 2.67% Q4 2024 per a Proskauer report.

How are Heron client portfolios positioned amid Dimon’s concern?

At Heron, we aim to strike a thoughtful balance between capital resilience and income generation when building client portfolios. We partner with firms ranging from top-tier institutions like Apollo, Ares, KKR, and BlackRock to smaller but no less experienced credit managers, to bring high-quality private credit assets to RIAs and accredited investors.

Specifically, we aim to provide our clients exposure to:

• Credit managers with 20 years of average lending experience (i.e., top ~5% of all lenders).
• Private credit funds with around 90%+ first lien loans, LTVs at around 40%, and loss rates of less than 0.5%.
• Broad diversification across loan count, industry sectors, market segments, and manager style.

In our view, private credit is far from “peaking” as Mr. Dimon warned. First of all, private equity, which is a main driver of direct lending, is not expected to shrink, thus private credit likely won't contract, either, at least not in the foreseeable future. Second, other pockets of private credit like asset-based finance, opportunistic credit, secondaries, and investment-grade private debt are also expected to grow, arguably even faster than direct lending in the next decade.

All considered, we don’t see anything stopping private credit over the next couple of years. In fact, even J.P. Morgan estimates that private credit AUM doesn’t account for even 10% of all corporate borrowing in the U.S. Maybe that’s why they are investing $50 billion in their private credit business? 

Thanks for reading,

Khang Nguyen

Heron Chief Credit Officer

Invest in private credit with Heron >

From the Heron Blog

• What Makes Middle Market Loans Attractive for Investors? A Q&A With PGIM
• Why Private Credit Covenants Matter for Investors: A Q&A With FS Investments

Heron Fund Facts

Fact: $1+ Trillion—this is how much private credit assets are currently under management by managers on our platform today. This is more than half of the global private credit industry.

Why That Matters: With Heron, you gain broad, diversified exposure to some of the largest private credit managers in the world.

Quote of the Month

“Don't let the noise of others' opinions drown out your own inner voice." 

– Steve Jobs. Stanford University commencement speech, 2005