Concerns about a private credit crisis are growing as companies at the center of a growing but illiquid and transparent bond market face redemptions by investors. This stress test was conducted just as private financing was becoming more prevalent in the ETF market. It was a little more than a year ago that the Securities and Exchange Commission approved the first ETF branded as a private credit fund.
The good news for ETF investors is that the ETF’s exposure to the asset class, which invests directly in private credit stocks, remains limited to a maximum of 35%, but not more than that, so the risk the asset class represents is manifested in a more controlled manner.
Todd Rosenbluth, head of research at VettaFi, said on CNBC’s “ETF Edge” that some of the other older ETF products tied to private credit only get indirect exposure. These primarily use vehicles such as business development companies and closed-end funds that invest in the private credit sector. While this increases liquidity compared to directly holding private loans, it is not without investor concerns in the current environment.
The VanEck BDC Income ETF (BIZD), which has about $1.5 billion in assets and dates back to 2013, is down 13% since the beginning of the year. The reason is obvious. That’s because some of BIZD’s major holdings include public stocks in several private credit management companies that have been in the news, including Blue Owl Capital and Ares Capital. Blue Owl stock has fallen more than 46% this year.
The Simplify VettaFi Private Credit Strategy ETF (PCR) is down about 20% over the past year and also focuses on investments in business development companies and closed-end funds.
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PCR Since the beginning of the year
Liquidity remains a major concern for investors, and private credits are not intended for day-to-day trading like ETFs, creating issues between private credit managers and investors who want to withdraw their funds. However, in the ETF space, day-to-day liquidity and trading always gives investors the option to sell, although it may come at a cost.
“You can walk out. You can just pay up, or you can sell it at a discount to net asset value,” Rosenbluth said.
BIZD has closed at a discount to net asset value 37 times in calendar year 2025, 12 times so far this year.
Private credit funds, on the other hand, often limit withdrawals during stressful times. “You’re gating because you said you can’t do a bank run,” Rosenbluth said.
Redemption limits help prevent forced sales and instability, but they do not necessarily help calm market fears.
State Street’s Private Credit ETF, developed with alternative investment manager Apollo Global and containing the first private credit branded ETF approved by the SEC, is an example of how access is structured within an ETF. The State Street IG Public & Private Credit ETF (PRIV) is the first of its kind to be approved by the SEC in February 2025. The State Street Short Duration IG Public & Private Credit ETF (PRSD) was launched in late 2025.
These funds aim to outperform standard fixed income benchmarks by incorporating investment grade private credit and may hold up to 35%, and in some cases less than 10%, in private credit issuance. According to the State Street ETF website, only one of PRIV’s current top 10 holdings is private credit, with Treasury and mortgage-backed securities dominating the top 10. PRSD’s top holdings are a mix of government, mortgage and currency holdings.
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Comparison of the past year’s performance of State Street’s Private Credit ETF, the first SEC approved by the SEC, to the Aggregate Bond Index.
PRIV has $831 million in assets under management. PRSD is much smaller, with $48 million in assets under management. Both have had relatively flat performance since the beginning of the year. Both PRIV and PRSD hold just over 20% of Apollo-derived investment assets, according to State Street data.
Jeffrey Rosenberg, a senior portfolio manager for systematic fixed income at BlackRock who runs long-short strategies in ETF wrappers, said the private credit investment issue is an example of how much ETFs have changed the fixed income market. Portfolio managers who are active in the fixed income market can meet more investors through ETFs, allowing them to more precisely target specific parts of the credit market. “They have completely changed the way the credit market-making ecosystem functions in modern credit markets, including liquidity provision and price discovery,” he told ETF Edge.
Money has been moving amid recent market volatility, with ETF investors “taking some risk” and moving from longer-duration bond funds to shorter-duration funds, Rosenbluth said.
The greatest systemic risk in private credit markets arises from the mismatch between assets and liabilities. “It’s a bank run,” Rosenberg said. However, in his view, this type of risk is now less pronounced because many private credit institutions have limited liquidity by design. Rosenberg explained that while this does not eliminate risk, it may surface over time, and the impact could be long-term as companies face refinancing at higher interest rates.
The result, Rosenbluth and Rosenberg explained, is a system that absorbs shock differently. Private credit funds can limit redemptions, and ETFs allow for continuous trading with real-time price adjustments, allowing markets to continue to function while reflecting stresses as the market develops. Both approaches aim to prevent chaotic outcomes, they say.
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