JPMorgan seeks to offload $4 billion in private equity-related loan exposure.

One of Wall Street’s largest banks is preemptively implementing risk defenses in anticipation of potential stress in the private equity industry.

According to the UK’s Financial Times, citing sources familiar with the matter, JPMorgan is negotiating a risk transfer transaction with investors, seeking to sell the potential loss risk of some private equity fund net asset value loans (NAV Loans) to external investors. The NAV loan asset pool involved in this transaction exceeds $4 billion in total size. JPMorgan plans to retain ownership of these loan assets while transferring up to 12.5% of the risk exposure for this asset pool.

This move comes at a time when the private equity sector is facing multiple pressures. On one hand, IPO and M&A markets remain sluggish amid high interest rates, significantly lengthening fund exit cycles; on the other, the rapid development of AI is raising concerns about the outlook for software company valuations, and software assets happen to be a key part of many private equity portfolios. Against this backdrop, the risks of NAV loans, which are collateralized by fund net asset value, are drawing increased attention.

With this business growing rapidly, US and European regulators have repeatedly warned about the potential risk of “leverage on leverage” and are stepping up scrutiny of such financing tools. If this transaction is completed, it may provide a new risk management model for the private credit market.

Risk Transfer Becomes a Tool for Banks to Reduce Exposure

JPMorgan’s discussion centers not on directly selling the loans, but on using a risk transfer structure to have external investors take on part of the credit loss risk.

This structure allows JPMorgan to keep the relevant NAV loans on its balance sheet, but when potential losses occur, investors will bear a portion of the risk first. Such arrangements help banks reduce risk concentration in specific asset pools while maintaining their financing relationship with private equity clients.

The loan pool involved in this deal exceeds $4 billion, covering private equity loans in multiple regions and funds. Sources say investors will receive a low double-digit return for taking on the first loss risk. This reflects how large banks are re-evaluating the risk-reward ratio of related financing businesses in an environment where private equity exits are slowing.

Private Equity Exits Remain Stagnant, Fast Expansion of NAV Loans Raises Concerns

NAV loans use the market value of existing PE fund portfolios as support. Private equity firms often use these loans to return cash to investors, or to provide additional growth capital to portfolio companies.

In recent years, as large PE managers’ borrowing needs have risen, many banks have accelerated their deployment of NAV loan business. As these loans are based on the entire fund’s assets, underlying assets are relatively diversified, and many lenders view them as a lower-risk form of financing. Generally, PE firms can borrow up to about a quarter of a fund’s assets.

But the current market is changing this perception. Blocked exit channels and AI-driven valuation pressures on software portfolio companies are eroding the original safety margin of NAV loans. For funds depending on such loans, this compresses returns and amplifies potential structural risks.

Market Size Still Expanding; Regulators Eye "Leverage on Leverage"

The NAV loan market is expected to continue expanding. According to a May report from AllianceBernstein, the current market size is about $100 billion and could grow to $350 billion by 2030.

The rapid expansion is attracting regulatory attention. US and European regulators have warned that NAV loans may pose “leverage on leverage” risks—since the underlying private enterprises are already highly indebted, and funds borrowing further at the fund level adds complexity to the financing chain.

Market participants are also concerned that funds using NAV loans after formal investment periods end to support portfolio companies may artificially inflate fund performance. This concern is especially prominent during slowing exits, as funds may rely more on loans rather than asset sales to maintain cash flows and investor distributions.

Peers Also Taking Action as Private Financing Risks Are Re-assessed

JPMorgan is not the only bank seeking to reduce this risk exposure.

According to a previous Financial Times report, Japan’s largest lender, Mitsubishi UFJ Financial Group, is also seeking to cut risk tied to loans to publicly listed private credit funds via risk transfer mechanisms.

This indicates that risk management for bank financing in the private market is changing. Previously, NAV loans were seen as a key business for serving major PE managers; now, amid prolonged exit cycles, valuation pressures in tech, and increased regulatory scrutiny, risk transfer is emerging as an important tool for banks to manage exposure.

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