J.P. Morgan CEO Jamie Dimon warned that if problems occur in the private credit sector, which has a market size of more than 1 trillion dollars, the consequences will be serious, especially as retail customers enter this booming asset class.

On Wednesday, when talking about the alternative asset class of private credit (that is, non-bank entities mainly provide loans to private companies), Dimon said that the asset class “has a lot of good things”, “but not everyone who does it is good,” and that some people will “make mistakes” with products that have not been stress tested or properly labeled.

Dimon said, “Do you want retail investors to buy less liquid products? The answer is maybe, but don't act like the investment is completely risk-free. Retail investors will call senators and congressmen in their constituencies.”

There is no systemic risk in private credit, Dimon said, “but I do expect problems to occur.”

According to information, the Federal Reserve said earlier this year that the private credit industry has “grown exponentially” in recent years, reaching nearly 1.7 trillion US dollars. J.P. Morgan Chase and other banks have been competing with the private credit industry, and giants such as Apollo Global Management are making larger and larger deals. But banks are also seeking their own breakthroughs: J.P. Morgan has allocated more than $10 billion from its balance sheet for direct loans, and is establishing co-loan partnerships. The company's asset management company is also looking to buy a private finance company, according to reports last week.

Dimon said on Wednesday that his company wants to not consider products when providing loans to customers, and that the bank also provides banking services to many key private credit institutions.

As Dimon issued the warning, there were signs that trouble might be brewing. Former Apollo partner Sachin Khajuria said this month that as capital continues to pour in, there are cracks in the direct loan market. Currently, Khajuria runs the family financial management company Achilles Management and invests in private assets. Meanwhile, Moody's last month downgraded the ratings outlook for direct loan funds linked to some of the biggest fund managers in the sector, including BlackRock, KKR & Co., and Oak Capital Management.

In his annual letter to shareholders, Dimon wrote that the private credit industry has not been tested by bad markets, which often reveals “weaknesses in new products.”

Dimon said on Wednesday, “I've seen a few transactions like this rated by rating agencies, and I must admit, I was shocked by their ratings. It reminds me of a mortgage.”