Is This the Year of the Private Credit ETF? Not So Fast!

Private credit is one of the biggest themes in the ETF industry right now. 

The launch of the SPDR SSGA IG Public & Private Credit ETF (PRIV) in February fueled talk that the private credit ETF era has officially arrived. But according to Aniket Ullal, head of ETF research & analytics at CFRA, the reality is much more nuanced.

Private Credit Exposure in 3 Waves

Wave 1

Ullal explained that private credit exposure in exchange-traded funds has unfolded in three distinct waves. The first began with ETFs focused on publicly traded business development companies—funds like the VanEck BDC Income ETF (BIZD), which invest in BDCs. 

These BDCs lend to private firms, giving investors indirect exposure to private credit. BDC ETFs have been around for years, though they haven’t quite caught on with investors.

The aforementioned BIZD is the largest ETF in the space with $1.5 billion in assets under management—which is decent but nothing to write home about for a fund that launched in 2013. 

Wave 2

The second wave, Ullal said, arrived last year with the introduction of private credit CLO-based ETFs, like the Virtus Seix AAA Private Credit CLO ETF (PCLO) and the BondBloxx Private Credit CLO ETF (PCMM). 

These funds hold securitized pools of private loans to small or mid-sized companies—offering another indirect path to private credit exposure.

Unlike BDC ETFs, CLO ETFs seem to be garnering interest from investors. PCMM has accumulated nearly $100 million in AUM after just three months.

Wave 3

Then there’s the third wave: ETFs that hold private credit directly. The first and only ETF in this category was launched by State Street in February, the aforementioned PRIV, which has $55 million in assets under management. 

It’s aim is to offer more targeted exposure to private credit—but as Ullal pointed out, many of the holdings are far from what you’d expect. 

Looking Under the ETF Hood

"If you take the narrowest definition of private credit, it’s a nonbank lender making a non-syndicated loan to a private, mid-sized company,” Ullal explained, adding, “Very little of what’s in this new ETF fits that bill."

"If you actually dig into each of the individual holdings, a lot of them look like mortgage-backed securities. Some of them are real estate loans. Some of them are private placements. Yes, they're privately negotiated loans, but the loans are made to pretty large publicly listed companies,” he said.

In fact, when CFRA analyzed the fund’s portfolio, they found the median security was held by 110 other entities, indicating a high degree of overlap with existing, publicly accessible assets. In other words, this isn't exactly rare or exclusive exposure. 

That doesn’t mean the innovation isn’t meaningful. Ullal views this evolution as a work in progress. 

The structure of these funds—particularly when it comes to sourcing and pricing—is still being figured out. But for now, investors hoping for direct access to private lending markets may want to take a closer look under the hood.