For advisors navigating a landscape of compressed yields, private credit looks quite compelling. By moving into the Simplify Private Credit Strategy ETF (PCR), investors can potentially capture a yield premium over traditional investment-grade or high-yield corporates. Furthermore, because the majority of this issuance is floating-rate, these allocations may effectively dampen a portfolio’s interest rate sensitivity.
Successfully investing in private credit involves four important considerations for advisors.
1. Solving for Liquidity
While the ETF wrapper provides daily liquidity, the underlying asset class remains inherently less liquid. PCR addresses this by utilizing total return swaps (TRS) to track an index of publicly traded business development companies (BDCs) and closed-end funds (CEFs). A key benefit for advisors is that this structure eliminates the reporting of acquired fund fees and expenses (AFFE), a common friction point in private credit for financial advisors.
2. Managing Volatility
The perceived stability of private credit often stems from infrequent price discovery, which means investors may see sharp drawdowns during periods of market stress. In reality, PCR’s underlying index — the VettaFi Private Credit Index — has realized volatility over twice that of high-yield bonds. However, PCR employs a proprietary quality-minus-junk credit hedge to mitigate the severe drawdowns frequently observed during market stress. This hedge offers the additional benefit of alleviating the necessity to precisely time an entry point.
3. Diversifying Manager Risk
The performance gap between private credit managers can be significant. By offering diversified exposure across the complete 52-constituent index, PCR eliminates the need for individual manager due diligence. This allows advisors to focus on the asset allocation decision, avoiding the extra step of manager selection and due diligence.
4. Pursuit of Pure Private Credit Exposure
Many competitors are constrained by the SEC’s 15% limit on illiquid holdings, leading to diluted private credit exposure. PCR circumvents these caps to deliver “unadulterated” exposure — ensuring clients receive 100% of the asset class they intended to target.
Many private credit ETFs intend to offer private credit exposure via direct investment in unlisted securities. However, due to the SEC’s 15% limit on illiquid holdings, most of these funds only manage marginal exposure to private credit. PCR, on the other hand, aims to provide “pure” exposure: exclusively holding private credit investments.
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VettaFi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for PCR, for which it receives an index licensing fee. However, PCR is not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of PCR.
