From Institutional to Public Portfolios: Access Private Credit With PCR

Private equity has been one of the investment trends garnering attention from the retail audience despite the more recent macro challenges. The advent of the ETF further democratized access that used to only be available to institutional and accredited investors. A derivation of private equity is private credit, creating an opportunity for the Simplify Private Credit Strategy ETF (PCR).The investment case for private equity/credit arises from more companies either looking to stay private longer or public companies that are pivoting to private equity. The strength of the private equity environment often points to the number of mergers and acquisitions occurring in the space. See More: Private Credit ETFs: Simplifying the CasePrivate Credit Is More PublicIf the idea of alternatives investing in the private market sounds plausible, the question becomes, “How does it apply to fixed income investors?” This is where private credit comes in, which involves non-traditional lenders providing capital to borrowers to fund their business ventures. Private credit typically involves higher borrowing rates and thus, higher yields. When it comes to income diversification, private credit offers fixed income investors even more alternatives. That’s imperative in an economic landscape like now, where the Fed is mulling over the direction of interest rates. For portfolios primarily consisting of bonds, it warrants income alternatives to help diversify income sources. Private credit might be the answer. Nonetheless, there are nuances that come with private credit. By nature, private credit investments are inherently illiquid, opaque, and highly reliant on floating-rate debt structures. However, when you securitize this and make it available in a flexible investment vehicle like an ETF, it opens up various opportunities.PCR's AdvantageSince it’s still a nascent area in the fixed income ETF space, investors may be hesitant to dive head first into private credit. This is where a fund like PCR is ideal. First of all, the fund is actively managed, following the trend of ETFs seeing a record number of active fund launches this year. Private credit brings its own nuances in the fixed income market, and an actively managed fund can help. PCR’s goal is to generate income and capital appreciation by investing the majority of its net assets in securities from the VettaFi Private Credit Index. It primarily executes this strategy through total return swaps linked to the constituents found within the Index. The Index specifically tracks private credit instruments held by publicly traded U.S. Business Development Companies (BDCs) and closed-end funds (CEFs) that allocate over 50% of their portfolios to non-publicly traded corporate loans, syndicated debt, or high-yield bonds. Additionally, PCR’s active mandate empowers its portfolio managers to apply rigorous, real-time credit underwriting and manager selection. The fund can dynamically tilt its asset allocation toward top-tier institutional private credit managers when macro conditions require greater quality to mitigate risk. This is imperative in the current market environment. Summarily, PCR utilizes active oversight to transform private credit from a blind structural risk into a highly disciplined, risk-mitigated income diversifier. It makes for a compelling option in a flexible and efficient ETF investment vehicle.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, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of PCR. For more news, information, and analysis, visit the Institutional Income Strategies Content Hub.