Adam Walker: Hi. I'm Adam Walker, a senior relationship manager within the Investor Client Management group. I also help lead the firm-wide Sponsors Executive Council.

Adam Schwarzschild: And I'm Adam Schwarzschild. I co-head the Financial Sponsors group from North America.

Adam Walker: So, Adam, I'm very excited to speak with you today and have this conversation. I feel like we have a conversation that's similar to this weekly, if not daily, starting about two years ago. When did you join J.P. Morgan?

Adam Schwarzschild: Yeah, that's right, and I agree it's a pretty regular conversation reflective of where our worlds have gone over the years. I joined J.P. Morgan almost three years ago exactly. It's been a great run, so far. It's a pretty special platform. I'd say, indicative of kind of how we work together, it is fairly unique in terms of how I think we cover sponsors. How about yourself?

Adam Walker: I've been at J.P. Morgan, it'll be 23 years next month, J.P. Morgan lifer. I started actually in banking for two years and then spent the bulk of my career in macro sales. And then, four years ago, almost four years ago, I joined the Investor Client Management group as a senior relationship manager for hedge funds, which then evolved into this client base. I do think it's interesting, you come from another firm, I don't come from the sponsor world. I'm almost uncomfortable saying the sponsor word because it's one of the bigger, I think, debates that we've had over the last couple of years is what do we call this client base.

Adam Schwarzschild: Totally.

Adam Walker: Yeah. You've been in it for the bulk of your career, so how have you seen it evolve and why do you think we're having that debate?

Adam Schwarzschild: Well, a couple of things. First, if you go back 20 years, sponsors, one, how it was defined, it was traditional private equity firms, so raising capital and buying control positions in companies, whether those were take-privates or buying other companies that were already private, but they were traditional equity investments that were controlled positions. Back in the day, they were a very small part of the overall banking wallet, when I started out. We were sort of off to the side and everyone wanted... It was very focused on if you're a white shoe strategic M&A with corporates.

It's interesting, that has evolved over time where, now, if you look at what is traditional private equity, it's somewhere between 30 or 35% or, for some firms, north of that in terms of their IB wallet. Of course, even the notion of what a sponsor is has evolved, particularly over the last probably, I'd say, 5 or 10 years. So, it's gone from being a traditional buyout fund to truly an alternative asset management firm. Some of these firms, where they were 75% buyout 5 or 10 years ago, are now 90% sort of a mix of products across private capital. I assume you've seen the same?

Adam Walker: When I kind of took the challenge and I was asked to look at a couple of these firms with a fresh look as somebody who didn't have necessarily a sponsor background or didn't even have a credit background, I was lucky enough to see one of my clients' investor days, one of the first weeks that I started looking at it, and I realized, "Wow, this isn't about necessarily just buyouts or private equity or buying companies and selling companies. This is about the client serving their clients through the entire lifecycle of funds and asset management." We kind of looked at the numbers and we saw a lot of these clients were doing as much business in markets as they were doing on the banking side of the business. We will dig into that probably a little bit later as to what products we see on the market side, but it was really eye-opening because you hear the word sponsor and you think equity side rather than the whole balance sheet.

Adam Schwarzschild: Yeah, that's right. It's actually interesting, we say that... You look at the wallet, for many of our clients, some of the clients that we cover together, the wallet has actually shifted where it's more markets today than it is traditional investment banking products, which I think takes people by surprise.

Adam Walker: Yeah, I think that if you look at our markets businesses, we do do some lending, we do do trading, we do security services, so custody and admin. We have a lot of products that I don't think are on the tip of people's tongues when they think about sponsors and fund evolution. I think it's kind of how you and I speak to each other on, again, a weekly or a daily basis that gets some of those products forefront to some of the management who come from the private equity side. How have you found working at J.P. Morgan not only within the banking group but really across businesses?

Adam Schwarzschild: Well, again, having come from two prior firms, I think J.P. Morgan, as I said before, is a very special place and very unique in the sense that, especially for clients, like some of the bigger alternative asset managers, we have capabilities on both sides that really are unmatched. If you think about some of our biggest clients and what they've evolved to become, they're huge institutions now. They're very complex, very large, all sorts of different pools of capitals which require different types of services. You've listed out a handful of them. There are very few firms on the planet that can really match these type of clients really one for one across their entire organization. So, that's one. I think that's very unique to our firm, the way we're set up.

I think it's also very unique in terms of the way we collaborate and I think our partners collaborate across markets and investment banking. I think a lot of firms are still on that journey in terms of trying to figure out how do they get these teams that have traditionally been very siloed, very focused on different types of businesses, don't necessarily know each other, certainly don't quite understand what each other are doing to serve these clients, how do you get them talking, how do you get them working together. The goal of which is to serve our clients better and, if we're doing that, that's also better for J.P. Morgan and for all these other firms. So, I think, from my estimation, we're ahead in terms of that journey versus others I've seen, and we hear that from our clients too. I think our clients acknowledge that.

Adam Walker: Yeah, I think, and you and I are a part of these conversations, jointly, solely, when we go and see clients, we ask, "How can we do better? What can we do better?" and typically the answer is, "You can be faster and you can view us more holistically," and I think that we try to do that. We come up with mechanisms to be faster to get to the point.

The holistic part is tricky because you said... When you say, "We meet clients one for one," that may be in 45 different products or businesses. So, we can't come with 45 people to every meeting, but we don't know what's going to come up because, a lot of times, the C-suite or the management of these companies is pretty small. The companies are much smaller than we are, even though their breadth is huge with a lot of different products, so we can't come in with 45 people. So, I think the only answer is to make sure that we're collaborating, we're talking constantly, "What did this person say? Can we help them? Do you do this? Do you know somebody who does this?" and have enough product knowledge once you speak to the clients to get to the heart of it rather than putting businesses together because our businesses are very large, so we can't put them together. So, we have to be able to navigate again more holistically and fast.

Adam Schwarzschild: Absolutely. It can be one for one, but it's also, as we're seeing on the daily basis, the lines are blurring between these products and teams at our clients. What may start out as a equity solution may turn into a credit solution, may turn into a hybrid solution that's part equity, part credit. Traditionally, those services and products, how you tackle that, was a little siloed at our institution and certainly are at other firms. Us breaking down those walls or having people break down those walls and being able to collaborate with each other helps us serve our clients when they're also breaking down walls and working across products on their side.

Adam Walker: Speaking about different solutions, can you walk through the evolution of the products that you're seeing and some of the recent themes that I feel like a lot of people thought were maybe a three-month or a six-month phenomenon in the market, but now they're proving to be a little bit longer?

Adam Schwarzschild: Yeah, definitely. So, if we take a step back where I think that the evolution, at least the more near-term evolution of private equity, has gone, we are looking at year four for under-monetization and under-deployment for our client base as a whole, and that's more on the traditional private equity side, putting aside credit and other products. Private equity is not permanent capital. You need the flywheel going and always buying companies, putting capital to work, and monetizing those investments so that you return that capital to LPs so that they can, in turn, put them back into new funds. The cycle has to continue. The flywheel has to keep going. When that breaks down, private equity can break down.

The last three-plus years, we've really seen a bit of a breakdown of that flywheel. So, today, if I look back really last three years, our client base has under-monetized what they do on average by half. Of any given year, most of our clients sell or take public 25% of the AUM in their portfolio. That has been less than 10% over the last three years, and so that's capital that's not going back to LPs that, in turn, cannot go back into new funds. That's really what we're facing today on the private equity side. The pressure right now to monetize has never been bigger. Traditionally, monetizations really took two forms, that were IPOs and sales to either a strategic or another private equity firm. In lieu of those more traditional avenues to exit, our client base is open in a way that I've never seen in 20 years of covering private equity. They're more open today to creative solutions than I've ever seen. Again, they need to be because that's what it's going to take to kind of get this flywheel going. So, that's on the monetization side.

On the investment side, I think the evolution in private equity has been, again, more standard equity-like investments, so buyout funds that were focused on either take-privates or buy and control positions in other companies, private or public. The evolution of that is sort of veered towards what I call more capital solution, capital-structured equity, and that has been a really big theme that we've seen emerge over the last couple of years, and that's capital that can act almost as a bridge between credit and equity and be a problem solver. In an environment that we're seeing today where there are a lot of problems to be solved, including this monetization problem, that's a really critical piece of capital and we're seeing that as a kind of big theme and a big driver over the last year or so, and I think you'll continue to see that into next year.

We spoke earlier about the fact that we work on two sides of the same institution and we found ways to collaborate and also educate each other on what we do. I still think that, on my side of the house, the traditional investment banking side of the house, a lot of folks don't really understand what are you doing with our private equity or alternative asset management clients. If you were to explain to somebody on my side, how would you explain what you do, what are the products that you are focused on, and how are we serving those?

Adam Walker: Sure. If we take a step back and your original point that private equity or sponsors are moving into other areas of asset management and the private equity portion may only be, at this point, for some of the larger alternative asset managers, 15, 20, 25% of their overall assets under management, you say, "Well, what are the other assets under management?" Typically, you get some flavor of a credit bucket, a real estate bucket, or real asset, which has evolved even over the last two or three years to real assets/real estate/infrastructure. You have the private equity bucket, which we talked about. And then, you kind of have other, which can either be hybrid value, it could be a hedge fund sleeve, or other kind of assets. In reality, the markets division serves all four of those buckets depending on what the other is obviously.

When we talked about it internally, most people say, "Oh, sponsors, that is only deal-contingent hedges, that's hedging of FX rates, commodities, potential equity risk, potentially credit risk for private companies." Again, that's one sleeve. So, if you look at the credit sleeve... And a lot of the assets over the last few years have been through the insurance channel, whether it's a wholly-owned insurer, a strategic venture with an insurance company, or a typical asset management fee. They trade and they manage a lot of public securities, both high yield or investment grade or levered loans, but they also own private credit. There's a lot of talk about, "Okay, well, private credit competes with the banks." If you're going after a deal, yes, there's a lot of people competing over lending to companies and I think that's good for capital markets. We lend to diversified pools of credit, private credit as well. So, we service on that point, we trade the high yield, we trade the high grade, we trade the levered loans, we come up with portfolio trades for insurance solutions groups at these clients. That's all just on the credit side to name a few.

You go into the real estate or the infra or the data center part of the business, we have a securitized product group which houses both banking and markets activity. We securitize assets, we set up warehouses, we do all of those things for the growing area of asset-backed finance that these clients are becoming involved in. On the private equity side, I mentioned we all do deal-contingent hedging, FX, rates, and that's all aside from the fund financing that we'll do overall, subscription lines, NAV loans, hybrid facilities. All of those things happen within our markets divisions. So, the puck seems to be going into that direction, but, again, a lot of the relationships are housed in the banking side because that's where a lot of these folks came from.

Adam Schwarzschild: You said a couple of things I think were interesting and triggered some thoughts. One, there are a lot of organizations across Wall Street and beyond that are trying to service these clients. From a client perspective, they're getting phone calls from advisory firms, from balance sheet-only institutions, from all sorts of counterparties, and they also have a big wallet that they need to manage. If you're a firm that actually can provide services across the entire platform and do it well, it's easier for them, one, to award you more wallet share. It's easier because it's just one relationship they can manage across the board versus, "We will go to this firm for this and this firm for that," and I think we're hearing a little bit of that from our clients. There are so many counterparties out there. If they can kind of narrow it a bit and focus on the firms that matter most and do the most for them, it's an easier way for them to manage the wallet.

That's also a huge benefit for us as we think about that. You and I talk about that all the time in terms of business over here and what we're getting here versus what we're getting here and how do we help each other move the needle on both sides.

Adam Walker: Yeah, and I think the one thing that we both say, and we've done a number of joint meetings... The one line that I think really resonates with clients when you tell them, you say, "Don't do business with us just because we're J.P. Morgan and because it's going to be easier for you. Put us to the test with other firms in each individual product." We'll look at you holistically and we'll give you credit for doing those businesses because it's easier for you, it's easier for us to have a holistic relationship, but we've invested so much in each of these businesses and I think that gets lost sometimes when we look at things holistically, like we talked about, but we'll go toe to toe in each and every business. It's not necessarily that we're just this big bank that you should do business and it's going to be easier for you.

I can promise you, when we go in with an admin pitch, we're going to be the best admin. I can guarantee, when you go in and you talk about a sell side, you're going to come up with six other solutions. When you come to us in markets, we can gain liquidity better than other people. So, do it because we earn the business in each business.

Adam Schwarzschild: The other thing you said, which I thought was pretty interesting as I was thinking about how we service these clients and why I think we're so effective, on my side of the house, in traditional investment banking, it's three primary products. It's M&A advisory, it's equity capital markets, and it's providing debt or debt solutions or balance sheet from that perspective. There are a lot of firms out there that can do the M&A and maybe even capital market services because it doesn't require balance sheet. Obviously, you need balance sheet to underwrite debt or to hold debt. On your side, a lot of the services you were talking about require real balance sheet and huge amounts of balance sheet to actually win this business. Again, it goes back to, at J.P. Morgan, you had the advisory side, but you also have a massive balance sheet. If you didn't have that balance sheet, it'd probably be harder to do some of the things you were doing.

Adam Walker: I also think we think about the sponsor or the firm or the fund as an entity that we do business with and we extend the balance sheet, but ever-growing is the amount of portfolio companies that these sponsors or alternative managers own, and a lot of times it's majority-owned. I think, Jamie quotes this a lot, that we have... There were 8,000 public companies in 2000. Now, there are 4,000 public companies, and you have to know that there are more companies than there were back in 2000. So, where are they all?

Well, they're private and a lot of them are owned by sponsors or alternative asset managers, and the question is, "Who's servicing those companies? Who is looking at those companies as part of a larger company, whether it be a sponsor or an alternative asset manager, that does a lot of business with us everywhere?" and we want to serve those clients too as if they're part of that family. You'll have those instances in markets where we're extending balance sheet not only to the sponsor of the fund, but we're also extending balance sheet for different reasons to each of these portfolio companies.

Adam Schwarzschild: It's a really great point. In the latest number I saw, there are over 29,000 portfolio companies within private equity today and that is a record number. If you look at that trend line, it's parabolic over the last 10, 20 years. That's right, those are 29,000 companies that need to be serviced in addition to the GP. That's the opportunity that we see on the corporate finance and investment banking side is that these are companies that they'll need debt. In some cases, they will be taken public, so they'll need equity capital markets solutions, and, in many cases, if not most cases, they're going to need M&A solutions to exit these companies. You look at that and you look at sort of the carousel and the life cycle of these deals, it just keeps going round and round for these portfolio companies. It's amazing and it will be amazing to see how long it takes to actually work your way through 29,000 portfolio companies.

Adam Walker: Yeah, and you're talking about M&A and equity. And then, in my brain, I'm going payments and treasury services and hedging and FX and all of these different things that the companies will also need, so it's really full scale across both markets and banking really.

Some of the challenges, particularly this year, for the private equity area of the private equity firms, what are you seeing? How are folks coping with the macroeconomic environment right now?

Adam Schwarzschild: Yeah, it's been a very challenging couple of years, both on the fundraising side and just on the asset gathering side, the deployment of capital side. We saw in '22 where interest rates went from near zero to what felt like infinity overnight and, obviously, that had a huge disruptive impact on valuations and just the overall market, and we've seen that take a couple of years to just flow through the system and adjust. That doesn't mean that our clients were on the sidelines. They were very much trying to find ways to deploy capital and to monetize throughout that period of time, but it's been slow-going and it's been challenging to say the least. I think we saw that finally at the end of '24 start to kind of level out and I think most of our clients, and frankly most bankers, entered 2025 with a high degree of enthusiasm and optimism and belief that this was the year that things were going to get back on track. And then, of course, April 2nd happened, and that has sort of derailed things for the moment at least.

Adam Walker: It's interesting you say that because, on the market side of the business, I don't want to say we weren't optimistic, but we were coming into 2025 saying the Fed will probably be on hold, they might cut one or two times, inflation may come down a little bit. We were looking at a bunch of markets that we thought weren't going to be as volatile. Markets had repriced post-election, and we really didn't see the prospect of activity. Now, post-first quarter and in April, we've seen the exact opposite. We've seen record volumes. We've seen maybe not cuts directly from the US from other central banks. We've seen a lot of movement in the forward curve.

And I think it's an interesting point that you and I talked about I think last week, which is, the area in private equity, some of the exits are now potentially delayed. Some of the M&A, on the buy side and deployment of capital that you mentioned, is delayed as there's strategic investment thoughts and CapEx that isn't being potentially used because we're waiting for things to settle down a little bit. Exact opposite on the market side where people have to right-size their portfolios immediately, they have to figure out their US dollar versus foreign currency risk, they need to actually trade, and they need to do it quickly.

These alternative asset manager firm, if you look 5, 10 years ago, the private equity division may have been the only division that they had in the company and, now, they have credit assets, which they can trade immediately. We saw record volumes on April 2nd and 3rd. They have real estate that they have to look around and say, "Do we want to be..." and often international real estate, how the decoupling affect all of those businesses, and they got to actually move things around, which we need to be there for. So, as you're talking to the private equity folks on your side and we're talking to some of the other divisions on our side, those conversations are really be having at the most senior levels of their firms and our firms.

Adam Schwarzschild: I'll say this, our client base is not very good at just sitting around. Even though there's been a bit of a shock post-April 2nd, I think most people are now coming out of that shell shock and dusting themselves off and realizing, "Listen, the environment may have changed yet again and it's not what we came into the year expecting, but we still have a job to do. We're still going to have to deploy capital and we're still going to have to monetize." I think this is where the clients, our clients, really separate themselves, the very best, the people that can get really creative in this environment.

Frankly, I think the same is true on the banking side. This is where we separate ourselves from the competition because we know our clients... The playbook has pivoted and we're the ones who need to come to them with that new playbook. Our conversations with our clients have also changed a little bit from the start of the year, where we entered the year really expecting kind of plan A or plan B in terms of execution. Now, it's, okay, plan C, D, and E. We're really focused, as a team, coming to our clients with, "What is plan C, D, and E?" and that's both to monetize and to deploy. So, it's interesting. We're going to see more of that throughout the year.

On your side, how have you seen the conversation evolve? Because, again, the landscape keeps changing and I feel like tomorrow is going to be different than today and a month from now will be even different than what it is tomorrow. How are you guys staying ahead of that?

Adam Walker: Sure. If you take a look back over the last few years, I would say two or three years ago, the question was really about, "How much balance sheet do you have at a bank? How much balance sheet can you deploy to us to lever some of our investments, to help us create liquidity?" That conversation has moved from, "How much balance sheet can you give us?" because balance sheet, at the moment, seems a little bit more plentiful. Also, the forward outlook of bank regulation seems to be different than it was under the last administration. We have an environment where balance sheet isn't what we're being asked for. You mentioned deployment. The conversation has been much more around origination. Now, our clients obviously in this segment, in the alt space, have originated assets themselves, that's generally what the private market looks like, but that origination also I think has been brought to the doorstep of banks as well.

We originate private assets. We can originate... If you look in the history, the last 30 or 40 years, most of the assets that we've originated have been on the public side. Now, we're starting to originate more assets on the private side and, I wouldn't say distribute those assets, but partner with clients to originate those assets and I think that's a big part of the deployment. So, whereas two, three years ago, it was how much balance sheet can you give us and that was the finite commodity, now, it seems like the binding constraint is origination and deployment and those are the conversations that we're having. You're nodding your head because you're in the meetings because it really spans both the markets and the banking side. It's not just markets that originates an asset. It's often banking that is working not only with our own balance sheet, but seeing if we could come to some solutions with clients with their balance sheet as well, maybe on one asset or two assets.

Adam Schwarzschild: Yeah, it's an interesting point. For many of these firms, their business really has been, again, asset gathering versus necessarily relationship building as a whole, right?

Adam Walker: Yeah.

Adam Schwarzschild: And that's what we are really good at as an investment bank and a firm. We have a lot of relationships with corporates, with other private equity firms really globally and throughout different parts of the economy, and that is something our clients are actively trying to partner with us to find ways to leverage our relationships to help them actually deploy capital. It's a little bit of a new world.

Adam Walker: Yeah, and I think that a lot of people think about J.P. Morgan or any investment bank really and they think about bankers, they think about salespeople, they think about traders. In reality, we invest heavily in product, structuring, and research as well. And those are some of the parts of the institution that maybe is not front and center, but we're spending every day trying to come up with solutions in our structuring team that both spends... our structuring team, your product teams on the banking side, and really coming together to create real solutions that we may not hold ourselves, that we may distribute as well to clients, so we can help their deployment.

Adam Schwarzschild: That unlock for our clients, particularly on your side, I think is a little bit new in terms of trying to figure out how do they partner with us not in the traditional private equity sense to buy a company for majority control, but how do you deploy credit? How do you look at other type balance sheet solutions for this client base that they may not have developed the same kind of relationships that we have?

Adam Walker: The most interesting evolution that we've had has been how large our financing business has become in our markets business. You may look at it and say, "Why is there a financing business in a trading business?" To your point, it has to do with relationships. It's usually the same people at the clients that are looking at their credit portfolio and also looking about how to lever their credit portfolio. For us, it's the same expertise. We're not just going to take a large line item portfolio and say, "Wow, it's diversified. We will just take it and we'll trust the client that they made good decisions." We're trading those individual credits often, and then we're also financing them as a portfolio for clients. So, it's actually very symbiotic that we lend in some of the businesses that we trade in. The relationship that we have with the people that are underwriting, with the people that are trading, it matters on the financing side as well.

You mentioned clients breaking down silos on their part. Sometimes, the clients didn't even have the silos, but we've obviously built our businesses in a way that mimicked finance over the last 30 or 40 years, and we have to make sure that we're evolving our businesses for what it's going to look like for the next 10 to 20 years, and we're very intentional about it. The opportunity costs sometimes of making too much change is that you decouple relationships that have been built over the last 20 to 25 years. Some of those relationships are the most important part of how we do business and the trust that we've gained over the last 20 to 25 years. So, you don't want to disrupt too many things all at once and you want to make sure that you still have the most important part, which is that trust in that relationship.

This is a classic example of that. The loan salesperson for a credit fund that has grown into a large asset manager that has multiple lines of business may have the best relationship with some of the senior folks. The sponsor banker, like yourself, may have done the biggest deal the company it did five or seven years ago and was in a war room together. We want to make sure that we keep those relationships intact while also being able to serve the client across many businesses that maybe the loan salesperson doesn't have the expertise, but we want to build upon that trust. So, it's very difficult for us to have one point of contact or two points of contact. The only way I think to solve that is to be intentional and to say, "Okay, we are silo-agnostic. We don't care where the business goes. It doesn't matter if it falls in banking or markets. It's more important that we do the business and even more important than that is that we serve the client."