Monthly Insights From Heron: Private Credit Goes Main Street (June 2025)

Monthly Insights #3, June 2025

In this issue:

• Private Credit Goes Main Street
• What do private credit ETFs and interval funds mean for investors?
• How is Heron different from ETFs and interval funds?
• Quote: Benjamin Franklin on knowledge

Current Events: Private Credit Goes Main Street

What's going on?

Private credit has been having a moment in 2025. Each month, new announcements hit the headlines with more investing products for retail investors. 

Two highly discussed investment vehicles as of late are:

1. Private credit ETFs
2. Private credit interval funds

The private credit ETF and interval fund industry is innovating to win over retail investors. We are all for innovation, moving the industry forward, and serving retail investors. However, at Heron, we have concerns around whether these new approaches can effectively handle the idiosyncrasies of the private credit marketplace.

In this newsletter, we explore some of the potential downfalls of these new approaches to be aware of as an investor.

What do private credit ETFs and interval funds mean for investors?

ETFs and interval funds are easy to invest in. They offer convenience to investors. No doubt about that. 

But there are three issues we see with these types of investments:

1. Not 100% private credit: In ETFs and interval funds, private credit is often co-mingled with a range of other asset classes such as high yield bonds, Treasuries, equities, and interests in other credit funds and joint ventures. Depending on the asset mix, you may end up with a portfolio with lower returns and/or higher return volatility.
2. Lack of diversification: Not all ETFs and interval funds offer adequate diversification across fund managers. Investors have to do their homework to understand what they are getting. In fact, more and more credit managers are launching interval funds that offer exposure to both private and public credit assets, but all of the fund’s assets are mostly originated and internally managed by the same manager.
3. Lack of customization: ETFs and interval funds are one-size-fits-all products that don’t allow changes to asset allocation to meet the goals of an individual investor. You might be looking for options to primarily earn monthly cash income, but without proper due diligence of an ETF or interval fund, you could end up owning a basket of equities and high yield bonds.

Beyond those issues, it’s simply difficult to know which ETF or interval fund is the best choice for your investment strategy. It may sound dramatic, but to truly understand ETFs and interval funds, it can take dozens of hours poring through hundreds of pages of SEC filings, reading dense footnotes, or looking for a financial advisor who knows private credit to help you.

Moody’s and Morningstar have also raised concerns about private credit ETFs and interval funds, with these recent headlines:

• Moody's flags risks from retail investors' push into private credit
• New Private Credit Funds Want Your Money. Here’s Why You Should Be Cautious

Moody’s cautioned that as competition for high-quality assets increases, some private credit asset managers may take on greater risks. This could lead to investing in lower-quality assets to keep pace with surging demand from retail markets.

Morningstar, on the other hand, warns of the asset/liability mismatch between non-traded private credit assets and the fund’s liquidity obligations to investors. Additionally, with hard-to-value private credit, daily loan and NAV pricing can be inaccurate, leading to shares potentially trading at significant premiums or discounts which can lead to investors prematurely realizing losses.

How is Heron different from ETFs and interval funds?

At Heron, our goal is to provide transparency and quality when it comes to the portfolios we build for investors. Unlike most ETFs and interval funds, we offer every client:

• A primary focus on private credit assets.
• Diversification across multiple fund managers, multiple segments of the private market, and all 11 GICS sectors.
• A customized portfolio that seeks to match your risk profile.
• Monthly income distributions.

Plus, we do the heavy lifting and select funds for your portfolio, so you don’t have to spend time comparing dozens of ETFs and interval funds. 

Thanks for reading,

Khang Nguyen

Heron Chief Credit Officer

Invest in private credit with Heron >

From the Heron Blog

• Portfolio Diversification Beyond Stocks and Bonds: The Value of Private Credit
• The 60/40 is Dead. Long Live the 60/20/20

Heron Fund Facts

Fact: Using our proprietary algorithm, the Heron team has scored 60 of the world’s leading private credit funds and selected 12 of the highest-quality funds for the Heron platform. (See our scorecard for all rankings.)

Why That Matters: We leverage our deep knowledge of private credit managers and industry data to select some of the world's most experienced fund managers for you to gain exposure to. 

Quote of the Month

“An investment in knowledge pays the best interest.” 

– Benjamin Franklin