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Dec 9, 2019

JPMorgan seeks US$1B for mezzanine debt fund

Bonds, Equities to Stay Disconnected for an ‘Extremely Long Time’: JPM

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JPMorgan Chase & Co. is raising money for a mezzanine fund through its asset- and wealth-management arm, according to people with knowledge of the matter.

The firm is looking to raise as much as US$1 billion from investors for a fund that would focus on providing financing to companies using a hybrid of equity and debt, said one of the people, who asked not to be identified because the information isn’t public. The bank has already raised a significant portion of its target, one of the people said.

The decision caps years of discussion about how to bridge a gap in the asset manager’s alternatives offerings after JPMorgan spun out the credit manager formerly known as Highbridge Principal Strategies in early 2016, leaving it without a mezzanine fund, said one of the people. At the time, JPMorgan considered raising its own fund but shelved the plans because it didn’t want to compete with HPS while it maintained a minority stake in Highbridge’s private-equity business, the person said.

A JPMorgan spokeswoman declined to comment.

The new fund is part of a strategy to boost the bank’s US$150 billion alternatives business as investors increase allocations to private equity, real estate and private credit offerings. Mezzanine funds invest in the riskier portion of the capital structure in exchange for higher returns.

Still, fundraising for mezzanine strategies has taken a hit as managers have struggled to put cash to work amid competition from other products like unitranche financing, according to a November report from Ernst & Young.

Earlier this year, JPMorgan changed the focus for its US$2 billion multistrategy Highbridge fund -- converting it into a credit-only vehicle.

Mezzanine financings are typically used in private debt deals to midsize companies that are too small to tap capital markets.