Expanding access to private credit

They’re generally reserved for the ultrawealthy and financial institutions.

But the exchange-traded fund industry is looking to give retail investors more access to alternative investments including private credit.

BondBloxx’s Joanna Gallegos thinks it’s a great idea despite the asset class’ reputation for charging high fees and academic research that have shown sluggish returns. Her firm launched the BondBloxx Private Credit CLO ETF (PCMM) about three months ago.

“We don’t believe in the velvet rope. We believe in connecting markets,” the firm’s co-founder and chief operating officer told CNBC’s “ETF Edge” this week. “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.”

The fund invests around 80% of its holdings in private credit collateralized loan obligations, according to the BondBloxx website. Since its Dec. 3 debut, Gallegos’ fund is up 1%.

While the S&P 500 and tech-heavy Nasdaq just saw their worst weekly performances since last September, the BondBloxx Private Credit CLO ETF closed virtually flat.

Gallegos, who’s the former head of global ETF strategy at J.P. Morgan Asset Management, thinks criticism surrounding alternative investment ETFs will fade.

“We heard the same push back [on] high-yield ETFs: ‘Oh, you can’t price that. It’s too expensive,”‘ she said. “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.”

But Strategas Securities’ Todd Sohn contends the so-called velvet rope isn’t worth going through. He said skeptical access to alternative investments will provide meaningful benefits to retail investors.

“Most people don’t need it,” the firm’s managing director of ETF and technical strategy said. “If you have a diversified portfolio of five low-cost ETFs, you’re pretty good, right?”