The bank has also slashed the worth of certain loans to private credit funds after assessing the effect of the market turmoil involving software firms, two individuals with intimate knowledge of the matter told.

The relocation is amidst the growing investor concerns of the $2 trillion sector with regard to the diminishing credit quality and the looming danger of artificial intelligence disrupting the business models of the software firms.

Financial Times, which broke the news first on Wednesday, said the markdowns apply to the loans advanced to software companies.

It is a type of loan JPMorgan offers to the private funds, which then use the funds and leverage to purchase middle market ⁠loans, one of the sources said.

The credit arrangements of the bank in the area of private credit enable them to re-mark the valuations of the collateral of the fund in case there is a dislocation of the market, the source said, and the marks are not substantial.

​The bank took each and every loan through its financing portfolio name by name, sector by sector and then made various marks on loans like those affected by underlying software exposure, the source said.

The existence of private credit has been tarnished by the fact that the quality of credit is getting worse and that it has exposure to the software industry, a sector that is perceived to be ready to be disrupted by the development of artificial intelligence.

The re-marking of the loans is not common, but the first source informed Reuters that it is not the first time the bank has re-marked loans. The source further stated that one of the reasons for re-marking is that it is important to do it when “markets should not be allowed to wait until a crisis comes along.”

The ⁠shares of JPMorgan were trading approximately 0.8% lower in the afternoon.

The shares of private-credit companies were also down. Ares fell 4.5%, and Blue Owl, KKR, and Carlyle fell around 2.6%.

INVESTOR WITHDRAWALS

The category of loans that are provided by non-bank financial institutions is known as private credit, which is normally provided to riskier borrowers or those companies financing big-time buyouts.

Although these loans are fast to establish and cater to the best-risk borrowers that banks would not accept, escalating worries about credit quality and exposure to software companies at risk of being displaced by AI are obscuring the booming sector.

There has been an influx of investor withdrawals in the industry this year related to the fear of possible defaults by the software firms.

BlackRock reported last week that it restricted redemptions in one of its flagship debt funds, the Credit One fund, because of a flood of redemption requests, and Blackstone reported that its private credit fund, the BCRED, was experiencing a surge in redemptions in the first quarter.

Valuation and transparency have also been sponged by questions, including the fact that some players had been exposed to the bankruptcies of a U.S. auto parts supplier and a subprime auto lender last year, and that Blue Owl had been substituting client redemptions with promised payouts.

JPMorgan Chief Executive Jamie Dimon informed investors at the leveraged finance conference at the bank last week that it was being more cautious in lending on software assets and cited two sources.