LIVE MARKETS-The contradiction of retail investors and private credit - BofA

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THE CONTRADICTION OF RETAIL INVESTORS AND PRIVATE CREDIT - BOFA

Private credit is booming and efforts to push more retail money into this part of the market are cropping up everywhere.

There are now private credit ETFs, private credit assets in retirement funds, along with growth of "interval" funds - a type of privately traded fund that can hold a variety of assets that offers a portion of their outstanding shares at certain intervals.

Bank of America highlights seven ETFs with a total AUM of $516 million, most created in the last 11 months.

More and more private credit fund managers are launching vehicles that allow everyday investors to buy into the space on a monthly or even daily basis.

BofA's credit strategists, however, point to the seeming contradiction between new private credit products aimed at retail, and the illiquidity that is typical of this market.

They say retail investors require more frequent mark-to-market valuations than professional participants, risking inaccurate pricing and ETF discounts during periods of volatility, even if the underlying assets are performing well. And retail investment in private credit has yet to be tested in such a scenario.

"While several of the largest PC managers have noted recent credit "roaches" were not in the PC market, with so much PC dry powder chasing a finite amount of assets, and in a falling rate environment that lowers yields, credit investors should be on watch for relaxed credit standards to locate more assets," says BofA.

(Lucy Raitano)

EARLIER ON LIVE MARKETS:

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