Retail Investors Gain Access to Private Credit Investments
Private credit investments have long been a domain for the ultra-wealthy and financial institutions, but the landscape is shifting. The exchange-traded fund industry is on a mission to democratize access to alternative investments like private credit for retail investors. This move has sparked a debate on whether the potential rewards outweigh the risks associated with this asset class.
BondBloxx, a notable player in this space, recently launched the BondBloxx Private Credit CLO ETF (PCMM). Joanna Gallegos, the firm’s co-founder and chief operating officer, is a vocal advocate for expanding access to private credit. Gallegos believes that private credit is a valuable addition to a diversified portfolio, despite the asset class’s reputation for high fees and lackluster returns in some academic studies.
“We don’t believe in the velvet rope. We believe in connecting markets,” Gallegos shared in a recent interview with CNBC’s “ETF Edge.” “People have not had access to it. It makes sense in a portfolio. People should have access to … a power tool like that in their portfolio.”
A Closer Look at the BondBloxx Private Credit CLO ETF
The BondBloxx Private Credit CLO ETF primarily invests in private credit collateralized loan obligations, with around 80% of its holdings allocated to this asset class. Since its debut on December 3, the fund has seen a modest 1% increase in value. This growth has been particularly noteworthy amidst recent market volatility, with major indices like the S&P 500 and Nasdaq experiencing significant downturns.
Gallegos, who brings a wealth of experience from her time at J.P. Morgan Asset Management, is confident that the skepticism surrounding alternative investment ETFs will dissipate over time. Drawing parallels to the evolution of high-yield ETFs, she believes that increased accessibility can drive market efficiencies and benefit investors in the long run.
“We heard the same push back [on] high-yield ETFs: ‘Oh, you can’t price that. It’s too expensive,”‘ Gallegos recalled. “Then, the ETF connected that market in a way that allowed investors to participate, [and] drove the prices down in the category in terms of distributed funds.”
Expert Perspectives on Retail Investors and Private Credit Investments
While proponents like Gallegos champion the democratization of private credit, not everyone is convinced of its merits for retail investors. Todd Sohn, the managing director of ETF and technical strategy at Strategas Securities, cautions against unnecessary complexity in investment portfolios.
“Most people don’t need it,” Sohn remarked. “If you have a diversified portfolio of five low-cost ETFs, you’re pretty good, right?”
Sohn’s perspective underscores the importance of aligning investment strategies with individual financial goals and risk tolerance levels. While the allure of private credit investments may be enticing, investors must carefully evaluate whether these assets align with their broader financial objectives.
As the debate continues to unfold, the growing accessibility of private credit investments for retail investors introduces a new dimension to the evolving landscape of alternative investments. Whether this trend marks a significant shift in investment paradigms or merely a passing fad remains to be seen. However, one thing is clear—retail investors now have more options at their disposal than ever before.
