How market’s private credit crisis fears are spreading to bond ETFs

Fears of a private credit crisis are growing as the bond market, which is at the heart of growth but is less liquid and less transparent, faces investor repayments. This stress test comes as private loans become more common in the ETF market. It’s been just over a year since the Securities and Exchange Commission approved the first private credit fund-branded ETF.

The good news for ETF investors is that the risks represented by the asset class are exposed in a more controlled manner; Because ETFs invest directly in private credit issues, the amount of exposure they can have to the asset class is still limited to up to, but not exceeding, 35%.

Some other legacy ETF products tied to private credit have only indirect exposure, according to head of research Todd Rosenbluth. VettaFiThey use vehicles such as business development companies and closed-end funds that invest primarily in the private credit sector, he said on CNBC’s “ETF Edge.” While this adds liquidity compared to holding private loans directly, it is not without investors’ concerns in the current environment.

VanEck BDC Income ETF (BIZD), which has assets of approximately $1.5 billion and dates back to 2013, has fallen 13% since the beginning of the year. The reason for this is clear: BIZD’s largest holdings include publicly traded shares of some private credit managers. Blue Owl Capital And Capital of Ares. Blue Owl shares are down more than 46% this year.

The Simplify VettaFi Private Credit Strategy ETF (PCR) is down nearly 20% in the past year while also focusing its investments in business development companies and closed-end funds.

Liquidity remains a key concern for investors, and private credit is not for day trading purposes like ETFs; This has caused problems between private credit managers and investors who want to withdraw their funds. However, daily liquidity and trading in the ETF space always gives investors the option to sell, but this can come at a cost.

“You can exit, you just pay it off or sell it at a discount to net asset value,” Rosenbluth said.

BİZD closed at a discount to its net asset value 37 times in the 2025 calendar year and 12 times so far this year.

Private loan funds, meanwhile, often restrict withdrawals in times of stress. “You’re closing the door because you said we couldn’t run to the bank,” Rosenbluth said.

While redemption limits help prevent forced sales and instability, they do not help calm market fears.

State StreetPrivate credit ETFs developed with alternative investment managers. Apollo Global and are examples of how access is structured within ETFs, including the first private credit-branded ETF approved by the SEC. The State Street IG Public and Private Credit ETF (PRIV) is the first of its kind to be approved by the SEC in February 2025. State Street Short Term IG Public and Private Credit ETF (P.R.S.D.) Released in late 2025.

These funds aim to outperform standard bond benchmarks by including private credit for investment purposes, and both can hold. up to 35% for private loan issuancesor sometimes less than 10%. According to the State Street ETF website, only one of PRIV’s 10 largest current holdings is private credit; treasury and mortgage-backed securities are in the top 10. PRSD’s largest holdings are a mix of government, mortgage and foreign exchange holdings.

PRIV has $831 million in assets under management; PRSD is much smaller, with $48 million in assets under management. Both have had relatively steady performance since the beginning of the year. both SPECIAL And P.R.S.D. They hold just over 20% of assets in Apollo-related investments, according to State Street data.

Jeffrey Rosenberg, senior portfolio manager for systematic fixed income Black RockPrivate credit investment issues are an example of how much ETFs are changing fixed income markets, says one who runs a long-short strategy in an ETF wrapper. As portfolio managers active in the bond market reach more investors through ETFs, this gives them greater precision in targeting specific segments of the credit market. “They have completely transformed how the ecosystem of providing liquidity, price discovery and credit market making functions in a modern credit market,” he said on “ETF Edge.”

Money has been on the move during recent market volatility, with ETF investors “taking on some risk” and moving from long-term bond funds to shorter-term funds, according to Rosenbluth.

The biggest systemic risk in private credit markets arises from asset-liability mismatch. “Escape to shore,” Rosenburg said. But in his view, such risk is less pronounced today because many private credit instruments limit liquidity by design. Rosenburg stated that this cannot eliminate the risk, but it can ensure that the risks surface more gradually, and that the impact may occur over longer time periods as companies face higher rates of refinancing.

The result of this, both Rosenbluth and Rosenburg explained, is a system that absorbs shock differently. Private loan funds can restrict redemptions, and ETFs allow continuous trading with real-time price adjustments, allowing markets to continue functioning while reflecting evolving stress. They say both approaches aim to prevent erratic results.

Disclaimer