The “SaaSpocalyspe” experienced earlier this year clearly rattled private credit markets as institutional and yield-hungry retail investors fretted about private credit funds’ exposure to some software companies purported to be vulnerable to the artificial intelligence (AI) revolution.
Previously reserved for institutional investors and the ultra-wealthy, the $30 trillion private credit market is now accessible to a broad swath of market participants, including advisors, thanks to the debuts of two exchange traded funds. Interestingly, the “SaaSpocalyspe” hasn’t resulted in a material pullback in investor interest in the asset, confirming now is an ideal to revisit differences between private equity and private credit as well as some of the latter’s benefits.
The differences between private equity and private credit are all the more meaningful today because private credit is increasingly accessible to investors of all stripes thanks to launches of a spate of dedicated ETFs.
“Private credit may help investors generate the income they need, while increasing portfolio diversification and helping to maintain an appropriate risk profile. These alternative assets are not traded on public exchanges, so they can carry an illiquidity premium to traditional investments. This also may result in lower correlation to traditional public assets,” according to CION Investments.
Understanding Private Credit
As noted above, the universe of private credit ETFs is burgeoning and includes the State Street® IG Public & Private Credit ETF (PRIV), which debuted in February 2025 and today is an $810.2 million, confirming its success.
A 30-day SEC yield of 4.6% is one reason investors are displaying enthusiasm toward PRIV, but clients cannot afford to be seduced by yield. Actually, the income component and its durability (or not) is essential in highlighting differences between private equity and private credit.
“In short, private credit refers to the many types of privately negotiated loans between a borrower and a non-bank lender. Private credit enables borrowers to access capital with customized financing details, giving them more flexibility and speed of lending,” says State Street of what is now a $40 trillion market.
While there are notable differences between private equity and private credit, there are also some similarities, including potentially enticing yield for investors and what private credit invests. Those areas include asset-backed financing (ABF), direct lending, distressed debt, infrastructure debt, real estate debt and more. Each of those niches have “quirks” advisors should address with clients.
Advisors, Expect More Private Credit Enthusiasm
Advisors should be ready to address to clients the differences between private equity and private credit because even with the aforementioned challenges, clients are inquisitive about private credit.
That situation is heightened by the democratization of the asset class with vehicles like ETFs making it easier to access. Said another way, the $40 trillion measuring the private credit market today is likely to balloon in the coming years, confirming demand and the need for advisor preparedness.
“Investor desire for added portfolio diversification, the retrenchment of bank lending, and borrower preferences for more customizable loans likely will continue to drive the expansion of the private credit market in the years to come,” concludes State Street. “And increasing global capital demands to finance secular megatrends like the growth of AI and the energy transition will also require more diversified sources of capital, with private credit having a significant role to play.”
