Fears of a private debt crisis are rising as companies at the center of a growing, but less liquid and less transparent, bond market face investor discounting. This stress test comes as private loans have become more prevalent in the ETF market. A little more than a year ago the Securities and Exchange Commission approved the first ETF branded as a private credit fund.
For ETF investors, the good news is that the risks presented by the asset class are appearing in a more controlled manner, because while ETFs invest directly in private credit issues, they are still limited in how much exposure they can have to the asset class – up to, but not more than, 35%.
Some other, older ETF products tied to private debt get only indirect exposure, according to research head Todd Rosenbluth. Vettafysaid on CNBC’s “ETF Edge.” They use vehicles such as business development companies and closed end funds that invest primarily in the private credit sector. While this adds liquidity compared to placing direct private loans, it is not without concerns for investors in the current environment.
VanEck BDC Income ETF (BIZD), which has about $1.5 billion in assets as of 2013, is down 13% from the beginning of the year. The reason is clear: BIZD’s top holdings include publicly traded shares of some of the private credit managers featured in the news. blue owl capital And Ares Capital. Blue Owl shares are down more than 46% this year.
The Simplify VitaFi Private Credit Strategy ETF (PCR) is down nearly 20% in the past year and has also focused its investments on business development companies and closed end funds.
PCR YTD
Liquidity remains the main concern for investors, and private credit is not meant for daily trading like ETFs, which has resulted in problems between private credit managers and investors wishing to move their funds out. But in the ETF space, daily liquidity and trading always gives investors the option to sell, though it may come at a cost.
“You can get out, you’re just going to pay or you’re going to sell at a discount to the net asset value,” Rosenbluth said.
BIZD closed at a 37x discount to its net asset value in calendar year 2025, and at a 12x discount year to date.
Meanwhile, private credit funds often restrict withdrawals during times of stress. Rosenbluth said, “You’re gating because you said we couldn’t make a run on the bank.”
Limits on redemptions help prevent forced selling and volatility, although they do not necessarily help calm market fears.
state Street’s private credit ETFs, developed with alternative investment managers Apollo Global and which include the first private credit branded ETF approved by the SEC, are examples of how access within ETFs is being structured. The State Street IG Public & Private Credit ETF (PRIV) was the first of its kind, approved by the SEC in February 2025. State Street Short Duration IG Public & Private Credit ETF (PRSD) to be launched later in 2025.
These funds are meant to outperform standard bond benchmarks by incorporating investment-grade private credit, and can hold both. Up to 35% in private loan issuesOr sometimes less than 10%. According to the State Street ETF web site, only one of PRIV’s current top 10 holdings is private credit, with the top 10 dominated by Treasuries and mortgage-backed securities. PRSD’s top holdings are a mix of government, mortgage and currency holdings.
The performance of State Street’s private credit ETF, the first approved by the SEC, compared to a composite bond index over the past year.
PRIV has $831 million of assets under management; PRSD is much smaller, with assets under management at $48 million. The performance of both has been relatively flat since the beginning of the year. Both Personal And PRSD Apollo-sources hold a little more than 20% of assets in investments, according to State Street data.
Jeffrey Rosenberg, Systematic Fixed Income Senior Portfolio Manager black RockThe man who runs the long-short strategy in the ETF Wrapper says the issues with private credit investing are an example of how much ETFs have changed the fixed income markets. As portfolio managers active in the bond market meet more investors through ETFs, it gives them greater precision in targeting specific parts of the credit market. “They have completely transformed liquidity provision, price discovery…how the ecosystem of credit market-making works in the modern credit market,” he said on “ETF Edge.”
According to VitaFi’s Rosenbluth, money has been rising during the recent market volatility, with ETF investors “taking some risk off” and moving from longer-term bond funds to shorter-term funds.
The biggest systemic risk in private debt markets comes from asset-liability mismatches. “A race to the bank,” said BlackRock’s Rosenberg. But his view is that this type of risk is less pronounced today because many private credit vehicles limit liquidity by design. This may not eliminate the risks, but the risks may gradually surface, Rosenberg said, adding that the impact could be long-term as companies face refinancing at higher rates.
Both Rosenbluth and Rosenberg point out that this results in a system that absorbs shocks differently. Private credit funds can restrict redemptions and ETFs allow continuous trading with real-time price adjustments – allowing them to continue to function while reflecting stress as markets evolve. Both approaches, he says, aim to prevent disordered outcomes.
Correction: This article has been updated to correct the spelling of Jeffrey Rosenberg’s name.
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