Navigating Private Credit: Simplify’s Christopher Getter on PCR

Core Insights - The Simplify Private Credit Strategy ETF (PCR) offers a yield of 12.27% and addresses key challenges in private credit investing, including liquidity, volatility, manager selection, and purity of exposure [1][2]. Group 1: Challenges in Private Credit - Liquidity is a concern as private credit is less liquid; PCR mitigates this by including Business Development Companies (BDCs) and Closed-end Funds (CEFs) that trade daily and utilizing Total Return Swaps (TRS) for flexibility [5]. - Volatility in private credit is often masked by infrequent trading, leading to "stored volatility" that can result in sharp drawdowns; PCR employs a proprietary Quality minus Junk credit hedge to cushion against these drawdowns [6]. - Manager selection is critical, as performance varies significantly among funds; PCR provides diversification across the VettaFi Private Credit Index, reducing the burden of due diligence for advisors [7]. - Purity of exposure is enhanced in PCR, which aims for consistent exposure to private credit, unlike many funds limited by SEC regulations on illiquid holdings [8]. Group 2: Role of Private Credit in Portfolios - Private credit is increasingly viewed as an alternative investment, with low correlations to traditional 60/40 asset allocations, making it a compelling option for advisors [9][10]. - The Quality minus Junk equity hedge is considered more effective for protecting against tail risk than traditional credit instruments, which can be costly and require precise timing [11][12]. - The hedge strategy involves long positions in Quality stocks and short positions in Junk stocks, which historically perform better during periods of credit market stress [13][14]. Group 3: Historical Context and Management Strategy - Current trends in private credit mirror historical emerging market debt cycles, driven by banks reducing lending due to regulatory changes; private credit fills this gap [16][17]. - The management of PCR focuses on building a resilient portfolio that targets structural stability across market cycles, leveraging index-like exposure combined with a credit hedge [19].