Wall Street Builds New Tool to Bet Against Private Credit
Credit-default swap index could help banks reduce exposure to private credit and let hedge funds profit from turmoil
- Large banks and S&P Global are launching a new index, CDX Financials, for investors to bet against private-credit fund managers.
- The index will include private-credit funds, insurers, regional banks, and credit-card companies.
- Banks seek the index to trade and protect against losses, while hedge funds want to bet on a private-credit downturn.
Large banks including JPMorgan Chase are preparing to offer a new way for investors to bet against managers of private-credit funds.
The banks are working with S&P Global SPGI -2.10%decrease; red down pointing triangle to launch an index of credit-default swaps that would protect buyers against defaults by companies included in the index, called CDX Financials. Private-credit funds managed by Apollo Global Management, Ares Management and Blackstone will make up 12% of the index, which also includes insurers, regional banks and credit-card companies.
The index would rise when the market sentiment on those firms turned negative. If it gains traction, the so-called FINDX would give debt investors and traders a fast way to hedge or short what is now a more than $3 trillion industry. Private credit increasingly touches banks, insurance companies and other parts of the financial system.
“Private credit has grown fast and there’s a lot of financial exposure arising in different ways so there is a real demand for this product,” said Dominique Toublan, head of credit strategy at Barclays.
Banks want the index both as a product to trade and as a tool to protect against potential losses from their own loans to private-credit fund managers.
Hedge funds are keen for a way to easily make bets on a downturn in private credit. Stress has been building, as a spate of defaults and losses, combined with fears about the fate of loans to software companies, caused a stampede of individual investors asking for their money back. Some hedge funds began trying to short individual stocks and bonds issued by firms that invest in private credit, but the process was cumbersome and costly, one hedge-fund manager said.
Boaz Weinstein’s Saba Capital is among the investors advocating for the creation of the new product, people familiar with the matter said. Weinstein has had a big win trading similar indexes in the past. He is also stalking private credit in other ways, including his offer in February to buy out shareholders in a fund managed by Blue Owl Capital at discounted prices.
Firms including Bank of America, Barclays, Deutsche Bank and Goldman Sachs will start selling the derivatives next week with more banks possibly to come, people familiar with the matter said.
The new tool could also help the banks solve a sticky problem: They count both hedge-fund clients who want to short private credit and private-credit fund managers as clients. Bank of America proposed a bearish trading strategy that singled out private-credit fund managers in recent weeks, then backtracked and renounced the idea. The new index wouldn’t single out private-credit managers.
Credit-default swaps—long out of favor for their role in the 2008 financial crisis—have been experiencing a renaissance. Most of the activity is in indexes, rather than contracts insuring against default by a single company. Index trading hit a record $38 trillion in 2025, according to S&P.
Two of the most actively traded indexes bundle up credit-default swaps of companies with investment-grade and junk credit ratings, respectively.
S&P and investment banks started discussing an index for a range of financial companies when Silicon Valley Bank and other regional lenders failed in 2023, causing debt markets to spasm, but then stalled out, people familiar with the matter said.
Talks picked up again in the fourth quarter of 2025 when turmoil hit business development companies, private-credit funds that investment firms sell to individual investors.
Bankers hope that by launching a broader index, there will be a bigger push to create a market for credit-default swaps for each individual company that is a part of it. The index will also include banks like Jefferies and Truist Financial, insurers like MetLife and Radian Group and credit-card lenders like American Express and Capital One.
“This will be the first credit-default swap product linked to private credit,” said Nicholas Godec, head of fixed-income tradeables & commodities at S&P Dow Jones Indices. “Now feels like an opportune time.”