Investors Should Think Twice About Private Credit ETFs, Says Heron Finance
Heron Finance calls out three reasons that new retail-friendly private credit products might be risky for investors.
SAN FRANCISCO, July 21, 2025 /PRNewswire/ -- As private credit ETFs and interval funds gain traction among retail investors, Heron Finance is urging caution. In its recent Monthly Insights report, the firm warns that these vehicles may offer convenience at the expense of transparency, diversification, and performance.
"Private credit is attracting enormous attention in 2025, but not all access points are created equal," said Khang Nguyen, Chief Credit Officer at Heron. "Many of the new ETF and interval fund structures look appealing on the surface, but under the hood, they may introduce risks that most investors don't fully understand."
Heron Finance Cites Three Reasons for Concern:
- It's Not All Private Credit: Many ETFs and interval funds labeled "private credit" actually hold a mix of high yield bonds, Treasuries, and equities—diluting the risk-return profile and reducing the private credit allocation investors expect.
- Lack of Diversification: Some funds are managed by a single credit manager and include only that manager's own deals, which increases concentration risk rather than offering a diversified investment strategy for retail investors and RIAs seeking private credit exposure.
- No Room for Customization: These off-the-shelf products don't allow for tailoring portfolios to individual goals—whether monthly income, capital preservation, or lower volatility.
Heron also cites warnings from Moody's and Morningstar, both of which have raised red flags about the growing mismatch between liquid fund structures and illiquid private credit assets.
- Moody's warns that rising competition for deal flow could lead fund managers to pursue lower-quality loans to meet investor demand.
- Morningstar highlights the risks of NAV mispricing and redemption pressure, which could cause ETFs and interval funds to trade at deep discounts or force premature losses.
A Smarter Approach to Investing in Private Credit
Heron Finance positions itself as an independent, transparent alternative for accredited investors. Using a proprietary credit scoring system, Heron implements an ongoing review and monitoring process of private credit managers, selecting only top-ranked funds for its clients' portfolios.
Unlike ETFs and interval funds, Heron portfolios:
- Focus primarily on private credit assets
- Are diversified across industry sectors, market segments, fund managers, and deal types
- Offer customization to meet an investor's unique risk profile and income goals
"Private credit investing, especially in the retail context, isn't something you can just bundle into a wrapper and call it a day," Nguyen added. "Investors, who have different income, diversification, and liquidity goals, have become more keen on retaining control of their investment options. It's increasingly less about what the credit managers bundle and sell, and more about what clients want to buy."
About Heron Finance
Heron Finance is a private credit investment platform serving accredited retail investors and RIAs. By building custom, diversified portfolios from institutional-quality private credit funds, Heron helps clients access income-producing assets without the complexity or opacity of public market wrappers.
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SOURCE Heron Finance
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