Tony Kelly, Co-founder of BondBloxx, joined Keith Black, Managing Director of RIA Channel, to discuss investing in private credit CLOs through a liquid ETF structure.
The diverse private credit market can offer attractive risk-adjusted returns with a low correlation to the public markets. McKinsey estimates a market of $30 trillion in private credit assets, ranging from infrastructure debt to consumer loans to aircraft leases.
While many clients may not have access to private credit markets, the BondBloxx Private Credit CLO ETF (PCMM) offers access to middle-market private credit in an ETF structure. Compared to interval funds and private funds, ETFs can offer greater liquidity with lower fees. Evans defines the middle market as companies with EBITDA (earnings before interest, taxes, depreciation, and amortization) of $100 million or less. In the US, over 300,000 middle-market companies employ a total of 50 million people.
While private credit loans are generally illiquid, tranches of collateralized loan obligations (CLOs) have tickers and CUSIPs and trade similar to bonds. Asset managers purchase private credit loans and structure them into CLOs, which are actively managed pools of loans. The PCMM ETF is a multi-manager product that purchases CLOs managed by firms including Blue Owl and Ares. While some liquid private credit funds focus their CLO investments on the lowest-yielding and highest-rated AAA tranche, PCMM invests beyond the AAA tranche to increase the fund’s yield while targeting an average A credit rating.
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