The Rise of Private-Credit ETFs and Their Potential Inclusion in 401(k)s

In the evolving landscape of global finance, the rise of private-credit exchange-traded funds (ETFs) marks a pivotal shift in how investors access alternative assets. These vehicles, which bridge the liquidity of public markets with the yield potential of private credit, are reshaping retirement portfolios and challenging the dominance of traditional fixed-income allocations. As regulators and policymakers increasingly consider their inclusion in 401(k) plans, the implications for retail investors—and the broader economy—are profound.

The Market Dynamics Driving Private-Credit ETFs

Private credit has surged in popularity since 2023, fueled by structural shifts in the financial system. The regional banking crisis of that year accelerated the retreat of banks from lending to small- and medium-sized enterprises (SMEs), particularly those with weaker credit profiles. This void has been filled by private-credit providers, who offer tailored financing solutions with higher returns than traditional bonds. By 2025, the market has grown to over $2 trillion, with projections suggesting it could reach $2.8 trillion by 2028.

Private-credit ETFs, such as the VanEck BDC Income ETF (BIZD) and the VanEck Alternative Asset Manager ETF (GPZ), have become gateways for retail investors to tap into this growth. BIZD, for instance, aggregates exposure to Business Development Companies (BDCs), which specialize in leveraged loans to SMEs. GPZ, on the other hand, tracks firms managing private credit, private equity, and real estate. These ETFs offer the dual advantages of daily liquidity and diversification, mitigating the illiquidity risks traditionally associated with private markets.

Regulatory Shifts and the 401(k) Frontier

The potential inclusion of private-credit ETFs in 401(k) plans is no longer a theoretical exercise but a regulatory priority. The Securities and Exchange Commission's Office of the Investor Advocate has placed private assets—including private credit—on its 2026 agenda, signaling a willingness to streamline access for retail investors. Meanwhile, the Trump administration's push for deregulation has accelerated momentum: an upcoming executive order is expected to direct the Department of Labor and SEC to issue guidance permitting employers to include private assets in retirement accounts.

This development could democratize access to alternative income sources, particularly for pre-retirees seeking to hedge against inflation and low-yield environments. For example, a 401(k) participant in a high-tax state could allocate a portion of their portfolio to a private-credit ETF within a Roth account, enjoying tax-free growth. However, the path is not without risks. Illiquid assets, such as collateralized loan obligations (CLOs) or direct private loans, may complicate withdrawal strategies for retirees.

Balancing Risk and Reward

The inclusion of private-credit ETFs in retirement portfolios hinges on their ability to balance yield generation with liquidity. While BDCs and alternative asset managers provide daily tradability, the underlying assets—often long-dated loans or private equity investments—can be less flexible. This duality requires careful structuring by fund managers and fiduciaries. For instance, target-date funds incorporating private-credit ETFs must ensure that maturity profiles align with retirees' liquidity needs.

Fees also remain a concern. Private-credit ETFs typically charge higher expense ratios than traditional bond funds, reflecting the complexity of managing alternative assets. Retail investors must weigh these costs against the potential for enhanced diversification and inflation protection. For context, the average expense ratio for BIZD is 0.50%, compared to 0.15% for the Bloomberg Aggregate Bond Index.

The Road Ahead

As the SEC and Department of Labor finalize rules, investors must prepare for a paradigm shift in retirement asset allocation. The inclusion of private-credit ETFs in 401(k)s could reduce reliance on traditional bonds, which have struggled to deliver meaningful real returns in a low-interest-rate environment. However, this transition demands rigorous due diligence. Retail investors should prioritize ETFs with transparent holdings, strong governance, and a track record of managing credit risk.

For policymakers, the challenge lies in crafting guardrails that protect investors without stifling innovation. Stress tests for nonbank lenders, as proposed by Senator Elizabeth Warren, could enhance financial stability. Meanwhile, investor education will be critical: many retail investors lack the expertise to navigate the nuances of private credit, from covenant structures to default rates.

Conclusion

The rise of private-credit ETFs represents more than a market trend—it is a redefinition of how investors, particularly those in retirement accounts, approach yield and diversification. While regulatory progress offers new opportunities, it also demands a recalibration of risk management and investor education. For those seeking to future-proof their portfolios, a measured allocation to private-credit ETFs—within the bounds of liquidity and fee discipline—could prove both strategic and transformative. The next decade will likely see these vehicles become a cornerstone of retirement savings, reshaping the very fabric of long-term investing.