Private Credit ETFs: Simplifying the Case

Core Insights - Private credit is becoming more accessible to retail investors through vehicles like ETFs, with the introduction of the Simplify VettaFi Private Credit Strategy ETF (PCR) [1][6] Group 1: Private Credit Overview - Private credit offers elevated yields and strong lender protections, providing a diversification opportunity beyond core fixed income for retail investors [2] - The main challenge for ETFs accessing private credit is the SEC's 15% limit on illiquid investments, which most private credit falls under [3] Group 2: Investment Vehicles - ETFs can gain indirect exposure to private credit by holding publicly traded alternative asset managers like Blackstone, KKR, and Ares Management, which generate revenue from private credit strategies [3] - The State Street/Apollo structure allows ETFs to include private credit alongside public credit while adhering to liquidity rules [4] Group 3: Simplify VettaFi Private Credit Strategy ETF (PCR) - PCR is an actively managed ETF that seeks income and capital appreciation by providing exposure to publicly traded BDCs and CEFs that hold over 50% of their portfolios in private credit [6] - The ETF employs a proprietary credit hedging strategy using total return swaps to manage credit risk [6][10] Group 4: Advantages of ETFs - PCR offers daily portfolio transparency, in-kind creation/redemption, and better tax efficiency compared to CEFs and BDCs, which can trade at premiums or discounts to NAV [9] - The expense ratio of PCR is 76 basis points, which is lower than many traditional ETFs of CEFs that have fees ranging from 200 to 300 basis points [10] Group 5: Market Trends - The growth in the market is leaning towards ETFs, making it easier for investors to access private credit through a familiar structure [8]