The title of the new fund hitting the market on Tuesday includes a phrase familiar to ETF investors: “Private Credit.” The BondBloxx Private Credit CLO ETF (PCMM) will be listed on the Nasdaq on Tuesday, part of a broader effort to make lending by non-bank financial companies more easily available to everyday investors. Private credit has grown rapidly in recent years, with companies like Blackstone and Blue Owl Capital increasingly replacing banks as lenders to mid-sized companies. There are currently trillions of dollars of private credit assets under management, but the total addressable market for this asset class in the United States could exceed $30 trillion, according to consulting firm McKinsey & Company. More mainstream financial institutions are also looking to get a piece of that growth, with wealth management giant BlackRock announcing Tuesday that it will buy private credit firm HPS Investment Partners for $12 billion. However, because private credit is not traded like traditional corporate bonds, liquidity issues make it difficult to put private credit into an investor-friendly wrapper like an ETF. One approach is to use collateralized debt financing, which pools a number of private credit loans. Tony Kelly, co-founder of BondBloxx, told CNBC: “The big hurdle to clear when investing in private credit in an ETF is liquidity. That's the problem you have to solve. And CLOs are securitizations. We will resolve it through this process.” Incorporating private credit and other illiquid assets into ETFs is expected to be a major focus of the ETF industry in the coming years. One high-profile example is the SPDR SSGA Apollo IG Public & Private Credit ETF, a proposed collaboration between ETF giant State Street and Apollo's private credit expertise. The proposed fund will primarily invest in public and private credit assets raised by Apollo and will also provide liquidity to the fund. It is not yet clear whether the fund will be launched in the proposed form or at all. The application to the State Street Apollo Fund raised eyebrows in the industry. The advocacy group Better Markets sent a letter to the Securities and Exchange Commission objecting to the fund, citing concerns about liquidity and how loans are valued. BondBloxx's Kelly said the PCMM ETF invests in CLOs from multiple different asset managers. “We're not dependent on any one asset manager. We're not a private credit manager ourselves, so companies like Apollo, Blackstone, Blue Owl and AllianceBernstein manage us,” Kelly said. “We intend to invest in CLOs that Another way to gain indirect exposure to private credit markets is to buy shares in asset management or business development companies active in this sector. The Virtus Private Credit Strategy ETF (VPC) takes this approach, but the fund only has about $50 million in assets and is thinly traded. Several other CLO funds have already found success, even if they don't have an explicit focus 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 just over four years on the market. Kelly said the new fund will focus on debt from smaller companies than existing CLO products. He said companies participating in the fund typically have earnings before interest, taxes, depreciation and amortization of less than $200 million. PCMM is an actively managed fund with an expense ratio of 0.68%.
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