Key Takeaways
- Private credit is entering the public domain, with new ETFs offering liquidity and access to strategies once limited to institutions.
- This shift challenges the illiquidity premium, raising questions about how private credit performs in times of stress when redemption pressure increases.
- SMEs and growth-stage businesses may lose access to capital, as ETFs prioritise larger, scalable borrowers for liquidity and portfolio construction.
- There’s a risk of diluting the asset class, as fund managers pursue scale and liquidity at the expense of bespoke underwriting and disciplined structuring.
- The future of private credit hinges on balance, ensuring accessibility doesn’t come at the cost of what made the market work: patient capital, disciplined lending, and a focus on underserved businesses.
Has Private Credit Gone Public?
For years, private credit has been the quiet success story of global finance. While equity markets have swung between euphoria and despair, private lenders have quietly built a $1.5 trillion industry, filling the gaps left by banks and offering consistent, risk-adjusted returns.
But something interesting is happening. Private credit—by definition an exclusive, illiquid asset class—is being repackaged for public consumption. The arrival of ETFs and publicly traded vehicles offering exposure to private debt suggests that we are witnessing a shift. Has private credit gone public? And if so, is this the next great financial innovation, or are we watching the slow erosion of what made the market so successful in the first place?
The Democratisation of Private Credit
At its core, private credit has always been about flexibility. Unlike public bonds, private credit deals are tailored to the specific needs of borrowers, often providing higher yields in exchange for longer-term commitments. Traditionally, access to these deals was limited to institutional investors—pension funds, endowments, and family offices with the capital and patience to lock up funds for years at a time.
Now, that exclusivity is fading. The launch of products like Apollo’s SPDR SSGA PRIV ETF signals a new phase, bringing elements of private credit into the public domain. These funds allow investors to tap into the same lucrative lending strategies that institutions have enjoyed for years—only now, with the added benefit of liquidity.
For investors who have historically been locked out of private credit, this is an exciting development. It offers a way to access a market that has traditionally outperformed corporate bonds, with potentially higher yields and greater diversification.
The Liquidity Dilemma
But the convergence of private credit with public markets raises important questions. One of the key reasons private credit has thrived is its insulation from public market volatility. Investors in this space have been rewarded for their patience, earning an illiquidity premium by accepting that their capital will be tied up for years at a time.
Bringing private credit into public markets changes that dynamic. If liquidity is available at all times, does the illiquidity premium still exist? More importantly, how well will these products function in moments of market stress?
This isn’t just a theoretical concern. The property funds that promised daily liquidity while investing in illiquid real estate assets seemed like a great idea—until redemption requests exceeded available cash, and investors found themselves locked in. Private credit ETFs may not face the same structural challenge, but the risk remains: what happens when retail investors want to exit en masse from an asset class that isn’t designed for quick turnarounds?
Could ETFs Drain Capital from the Private Market?
A more immediate concern is how this shift could impact businesses that have relied on private credit for capital. The rise of private credit has been a lifeline for SMEs and lower middle-market companies—businesses too small to tap bond markets and often overlooked by traditional banks.
The problem is that private credit ETFs and publicly listed vehicles won’t necessarily favour these borrowers. As ETFs seek to provide liquidity and manage risk, they are far more likely to allocate capital to established middle-market firms—larger businesses with stronger credit profiles that are easier to package into diversified portfolios.
This could have a profound effect on private credit at the smaller end of the market. If capital flows increasingly shift toward ETFs and other publicly traded products, the bespoke lending that has underpinned SME growth could start to dry up. Fund managers will have less incentive to lend to smaller businesses when they can attract larger pools of capital by focusing on the more liquid, more scalable segment of the market.
In other words, the very companies that have benefited most from private credit’s rise may find themselves edged out as capital is redirected toward more ETF-friendly borrowers. The unintended consequence of “democratising” private credit may be to shut the doors on the businesses that needed it most.
A Sign of Maturity - or a Warning?
None of this is to say that private credit shouldn’t evolve. The increasing accessibility of private credit is, in many ways, a sign of the asset class maturing. Institutional investors have been pouring into private credit for years, attracted by its superior risk-adjusted returns. It was only a matter of time before retail investors sought a way in.
The key will be in how these products are structured. If fund managers can strike the right balance—offering access to private credit while ensuring that liquidity remains in line with the underlying assets—then this could be a positive evolution. But if capital simply shifts away from true private credit toward more liquid, public-market-friendly structures, the benefits of the asset class could start to erode.
The Future of Private Credit
So, has private credit gone public? Not entirely. The core of the market—direct lending to private companies—remains intact, for now. But the lines are beginning to blur. More capital is flowing in, new vehicles are emerging, and the old distinctions between public and private markets are softening.
The question isn’t whether private credit is going public—it’s whether this shift will strengthen or weaken the asset class. Will private credit retain its advantages as it becomes more widely accessible, or will it gradually morph into just another extension of public fixed income?
If private credit loses its focus on bespoke lending, SMEs could be left out in the cold, while investors may find that the returns they once associated with private credit aren’t quite what they used to be. The market is opening up, but what that means in the long run is still up for debate.
What is certain is that private credit will continue to evolve. Whether that evolution strengthens or dilutes the market will depend on how investors—and fund managers—navigate the changes ahead.
