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ETF provider Global X expects inflows into private credit and banking credit as bank hybrids mature. With over $40 billion in hybrids set to roll off by 2032, investors are seeking new alternatives. Global X has seen growth in its Australian bank credit ETF, which has gathered $95 million in assets under management since its launch. Private credit is also an attractive option, with the market expanding to $2.5 trillion globally and $40 billion flowing into Australian private credit funds.

The financial landscape is evolving, with exchange-traded funds (ETFs) increasingly incorporating private credit assets. This shift is driven by the growing demand for higher yields and the expansion of the private credit market. Global X, a prominent ETF provider, expects significant inflows into private credit and banking credit ETFs as bank hybrids mature. With over $40 billion in hybrids set to roll off by 2032, investors are seeking new alternatives. Global X's Australian bank credit ETF has already gathered $95 million in assets under management since its launch, demonstrating the growing interest in this asset class [1].

The private credit market has expanded to $2.5 trillion globally, with $40 billion flowing into Australian private credit funds. This growth is attracting the attention of ETF providers who are eager to offer retail investors access to these higher-yielding assets. However, the integration of private credit into ETFs is not without challenges. Private credit refers to loans between private companies and nonbank financial institutions, making these assets inherently less liquid and harder to value than publicly traded debt instruments [1].

One of the key challenges is the liquidity mismatch between the illiquid nature of private credit and the daily trading requirements of ETFs. The Securities and Exchange Commission (SEC) has a 15% illiquid-asset limit for open-end funds, including ETFs, to manage liquidity risk. ETF issuers are navigating this rule by partnering with large private credit managers like Apollo Global Management to ensure that their private credit holdings can be quickly sold back to the fund if needed [1].

State Street's SPDR SSGA IG Public & Private Credit ETF (PRIV) is a notable example of this strategy. PRIV has a private credit exposure of up to 35% of its portfolio, but it partners with Apollo to provide daily and weekly buyback options for its private credit holdings. This arrangement allows PRIV to classify its private credit holdings as liquid and thus exempt from the 15% illiquid-asset limit [1].

Despite these efforts, the integration of private credit into ETFs is a complex process. The traditional divide between public and private debt is becoming increasingly blurred, with some public corporate bonds already exhibiting illiquidity. Industry leaders like Marc Rowan, CEO of Apollo Global Management, predict that investors will not be able to distinguish between public and private credit in the near future [1].

The push to include private assets in retirement plans, such as 401(k)s, is also gaining traction. The Office of the Investor Advocate at the SEC has prioritized private market investments in retirement accounts for 2026. Meanwhile, asset managers like BlackRock are preparing to offer 401(k) target-date funds with allocations to private investments [1].

However, the inclusion of private assets in retirement plans is not without controversy. Lawmakers like Elizabeth Warren have expressed concerns about the potential risks to financial stability posed by nonbank financial institutions engaged in private-credit activities. As regulators and industry leaders work to draw clearer lines around what qualifies as illiquid, investors should remain vigilant and understand the risks associated with private credit ETFs [1].

In conclusion, the rise of private credit ETFs represents a new frontier for retail investors seeking higher yields. However, the integration of these assets into ETFs is complex and fraught with challenges. As the private credit market continues to expand, investors should stay informed about the risks and benefits of these investments.

References:
[1] Wang, I. (2025, August 5). Private-credit exchange-traded funds aren't in 401(k)s yet - but they are Wall Street's latest effort to bring private assets to the masses and, eventually, into retirement plans. Morningstar. Retrieved from https://www.morningstar.com/news/marketwatch/2025080582/private-credit-etfs-are-here-why-your-retirement-account-may-be-their-next-target