A new fund hitting the market on Tuesday has a phrase in the title that ETF investors are about to become very familiar with: private credit. The BondBloxx Private Credit CLO ETF (PCMM) debuts Tuesday on the Nasdaq, and it’s part of a broader push to make loans made by non-bank financial firms more easily accessible to every day investors. Private credit has boomed in recent years, as firms like Blackstone and Blue Owl Capital have increasingly replaced banks as the lender for mid-sized companies. There is now a few trillion dollars in private credit assets under management, but the total addressable market for the asset class in the U.S. could top $30 trillion , according to consulting firm McKinsey & Company. More mainstream financial firms are trying to get a piece of that growth, such as asset management giant BlackRock announcing Tuesday that it was buying private credit firm HPS Investment Partners for $12 billion. However, private credit doesn’t trade like traditional corporate bonds do, which makes it tricky to put them in an investor-friendly wrapper like an ETF because of liquidity issues. The use of collateralized debt obligations, which pool a bunch of private credit loans together, is one approach. “The big hurdle to clear in investing in private credit in an ETF is liquidity. That’s the problem that your solving for. And the CLOs through the securitization solve for that,” Tony Kelly, co-founder at BondBloxx, told CNBC. Putting private credit and other illiquid assets into ETFs is expected to be a key focus of the ETF industry in the years ahead. One high profile example is the proposed SPDR SSGA Apollo IG Public & Private Credit ETF, a collaboration between ETF giant State Street and Apollo’s private credit expertise. The proposed fund would invest primarily in public and private credit assets sourced by Apollo, which would also providing liquidity for the fund. It is not yet clear if the fund will launch in its proposed form, or at all. The filing for the State Street-Apollo fund has raised eyebrows in the industry. Advocacy group Better Markets sent a letter to the Securities and Exchange Commission opposing the fund, citing concerns about liquidity and how the loans will be valued. For BondBloxx’s part, Kelly said that the PCMM ETF will be investing in CLOs from several different asset managers. “We are not beholden to one particular manager. We’re not a private credit manager ourselves. So we will be investing in CLO that are managed by firms like Apollo and Blackstone and Blue Owl and Alliance Bernstein,” Kelly said. Another way of getting exposure to private credit markets indirectly is through buying shares in asset managers or business development companies that operate in this space. The Virtus Private Credit Strategy ETF (VPC) takes this approach, though the fund has only about $50 million in assets and is thinly traded. Some other CLO funds have already found success, even if they aren’t explicitly focused on private credit products like the new BondBloxx ETF. For example, Janus Henderson’s AAA CLO ETF (JAAA) has grown to more than $15 billion in assets in a little over four years on the market. Kelly said that the new fund is focused on debt from smaller companies than the existing CLO products. The companies represented in the fund will typically have earnings before interest, taxes, depreciation and amortization of below $200 million, he said. PCMM is an actively managed fund and carries an expense ratio of 0.68%.
New ETF gives regular investors access to booming new market on Wall Street
Dec 4, 2024
