Active Management, ETFs Offer Access to Private Credit

Asset managers say active oversight is required for private credit. Exchange-traded funds such as the Simplify Private Credit Strategy ETF (PCR) give public investors access by using total return swaps tied to the VettaFi Private Credit Index. PCR reported a distribution rate near 11% as of April 30.

Private credit loans are negotiated directly between lenders and private borrowers and often come with limited public information. Managers conduct detailed research into loan agreements, covenant terms, company management and the resilience of a borrower’s business model. Ongoing monitoring of borrower performance is used to identify issues that could lead to losses.

With fixed-income investors focused on yield, private credit provides income that can be less directly tied to short-term policy rate moves. Active teams adjust portfolio exposure as market and credit conditions change and select credit exposures intended to balance income generation with default risk.

PCR’s stated goal is to invest most of its net assets in securities that make up the VettaFi Private Credit Index. The fund does not hold private loans directly. Instead it uses total return swaps linked to index constituents, a structure designed to reflect index returns while offering the liquidity and trading characteristics of an ETF. The index tracks private credit instruments held by publicly traded U.S. business development companies and closed-end funds that allocate more than half their portfolios to non-public corporate loans, syndicated debt or high-yield bonds.

The fund’s distribution rate near 11% as of April 30 reflects the higher yield profile and risks of the underlying assets. Use of swaps, index linkage and an ETF wrapper creates exposures, counterparty considerations and fee structures that differ from direct ownership of private loans. Investors should review those differences when evaluating the product.

VettaFi LLC serves as index provider for the VettaFi Private Credit Index and receives an index licensing fee. VettaFi is not the issuer, sponsor or seller of PCR and has no obligation or liability related to the fund’s issuance, administration, marketing or trading.