The term private credit is often reduced to its most literal meaning – lending money privately. While accurate, Chris Getter, managing director and portfolio manager at Simplify Asset Management, believes that definition does a disservice to the asset class. The real story is the influence on yields and returns. According to Getter, the private nature of these negotiated securities creates a yield profile that public markets simply cannot match in the current environment.
During a recent episode of ETF Prime, Getter pointed to a stark divergence in the credit stack to illustrate this premium. While investment-grade yields currently average around 4.8% and high yield sits near 6.5%, the dividend from securities captured in the VettaFi Private Credit Index is around 15%.
It’s important to note this isn’t just a short-term spike. Over the index’s eight-year history, these yields have translated into returns roughly three times those of investment-grade debt and 1.5 times those of high yield.
The Floating-Rate Advantage of Private Credit
The floating-rate nature of the indebtedness is an important structural advantage. In an era of interest rate uncertainty, traditional fixed income carries significant duration risk. High yield typically carries a duration of about 3, while investment-grade corporates’ duration is almost double, according to Getter. Because private credit is predominantly floating rate, it offers a defensive position against rising rates that public bonds lack.
The private credit asset class can be viewed as a unique paradox – one that “trades but doesn’t trade,” Getter said. The loans are issued directly and held by creditors, yet through vehicles like the Simplify Private Credit Strategy ETF (PCR), advisors can access this “pure” exposure with daily liquidity.
By focusing on the yield and return implications of the private structure, advisors aren’t just buying debt; they are capturing a fundamental defensive play for the alternative sleeve of their portfolios.
