Fears of a private credit crisis are growing as companies at the center of the growing but less liquid and less transparent bond market face redemptions from investors. This stress test came just as private lending was becoming more common in the ETF market. A little over a year ago, the Securities and Exchange Commission approved the first ETF branded “Private Credit Fund.”
The good news for ETF investors is that the risks presented by the asset class are emerging in a more controlled manner, as ETFs that invest directly in private credit issues can still only have limited exposure to the asset class – up to, but not exceeding, 35%.
Some other, older ETF products tied to private credit receive only indirect exposure, according to Todd Rosenbluth, head of research at VettaFi, on CNBC’s “ETF Edge.” They use instruments such as business development companies and closed-end funds that invest primarily in the private credit sector. While this increases liquidity compared to holding private loans directly, it is not without investor concerns in the current environment.
The VanEck BDC Income ETF (WE), which has assets of around $1.5 billion dating back to 2013, is down 13% year-to-date. The reason is clear: BIZD’s top holdings include publicly traded stocks of some of the private credit managers mentioned in the news, including Blue Owl Capital And Ares Capital. Blue Owl shares are down over 46% this year.
The Simplify VettaFi Private Credit Strategy ETF (PCR), down about 20% over the past year, also focused its investments on business development companies and closed-end funds.
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PCR YTD
Liquidity remains the primary concern for investors, and private loans are not intended for daily trading like ETFs, which has caused problems between private loan managers and investors seeking to withdraw their funds. But in the ETF space, daily liquidity and trading always gives investors the opportunity to sell, even though it may come at a cost.
“You can get out, you can just pay up, or you can sell at a discount to net asset value,” Rosenbluth said.
BIZD closed at a discount to its net asset value 37 times in calendar year 2025, and 12 times so far this year.
Private credit funds often restrict withdrawals during stressful times. “You’re out because you said we can’t have a run on the bench,” Rosenbluth said.
Redemption restrictions help prevent forced selling and instability, but do not necessarily help allay market fears.
State highway‘s private credit ETFs developed with an alternative investment manager Apollo Global and which included the first SEC-approved private credit ETF, are examples of how access is structured within ETFs. The State Street IG Public & Private Credit ETF (PRIV) was 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) introduced later in 2025.
These funds are designed to outperform standard bond benchmarks by incorporating investment-grade private credit and can both hold up to 35%, or sometimes less than 10%, of private credit issuance. According to the State Street ETF website, only one of PRIV’s top 10 largest holdings is currently retail credit, with government bonds and mortgage-backed securities dominating the top 10. PRSD’s largest holdings are a mix of government, mortgage and currency holdings.
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Performance of State Street’s Private Credit ETF, the first SEC-approved ETF, over the past year compared to the overall bond index.
PRIV has $831 million in assets under management; PRSD is much smaller, with $48 million in assets under management. Both have posted relatively flat performance since the start of the year. According to State Street data, both PRIV and PRSD hold just over 20% of assets in Apollo investments.
Jeffrey Rosenberg, systematic senior fixed income portfolio manager at BlackRockwho runs a long-short strategy in an ETF wrapper, says private credit investment problems are an example of how much ETFs have transformed fixed income markets. As active portfolio managers in the bond market reach more investors through ETFs, they can more specifically target specific parts of the credit market. “They have just completely transformed the way liquidity provision, pricing…how the credit marketing ecosystem works in a modern credit market,” he said on “ETF Edge.”
According to VettaFi’s Rosenbluth, money has been moving during the recent market volatility as ETF investors “took on some risk” and moved from longer-dated bond funds to shorter-dated funds.
The greatest systemic risk in private credit markets comes from the mismatch between assets and liabilities. “The run on the bank,” said BlackRock’s Rosenberg. However, he believes that this type of risk is less pronounced today because many private credit instruments deliberately limit liquidity. This may not eliminate the risk, but it may allow the risks to emerge more gradually, Rosenberg explained, saying the impact could play out over longer periods of time as companies face higher refinancing rates.
Both Rosenbluth and Rosenberg explained that the result 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 concurrent stress. Both approaches aim to prevent disorderly consequences.
CORRECTION: This article has been updated to correct the spelling of Jeffrey Rosenberg’s name.
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