BDCs vs. Private Credit Funds: Key Differences for Investors

Yield, Risk, and Volatility Considerations of BDCs

Both BDCs and private credit funds are designed to generate income, but the investor experience can differ meaningfully.

Income Potential of BDCs

BDCs often offer attractive yields primarily because they lend to smaller, less-established companies that command higher credit spreads as compensation for increased credit risk. While many BDC loans are floating rate, which has boosted income in higher-rate environments, the underlying driver of yield is the elevated spread above base rates earned on middle-market credit. Private credit funds may target similar or higher headline yields, but those returns are often tied to longer holding periods, less frequent pricing, and reduced liquidity.

Risk Factors to Consider with BDCs

Key risks across both structures include credit risk, economic sensitivity, borrower defaults, and interest rate risk related to the floating-rate nature of most private credit loans. While floating-rate structures can increase income when rates rise, they may also lead to declining income and loan repricing pressures if base rates fall. Publicly traded BDCs may also experience market price volatility, particularly during periods of broader equity market stress. However, diversification through an ETF structure can help mitigate single-issuer risk.

How Investors Can Access BDCs and Private Credit Through ETFs

Exchange-traded funds have expanded access to income-oriented strategies by offering diversified exposure, daily liquidity, and operational simplicity.

Accessing BDCs with the VanEck BDC Income ETF (BIZD)

The VanEck BDC Income ETF (BIZD) provides diversified exposure to publicly traded BDCs in a single, liquid vehicle. By focusing on exchange-listed public BDCs, BIZD allows investors to access private credit-oriented income streams while maintaining daily liquidity, real-time market pricing, and ease of trading.

For investors seeking income from middle-market lending without the lock-ups and access limitations of private funds, BIZD may serve as a practical solution.

The VanEck BDC Income ETF (BIZD) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS®US Business Development Companies Index (MVBDCTRG), which tracks the overall performance of publicly traded business development companies.

Accessing Alternative Asset Managers with the VanEck Alternative Asset Manager ETF (GPZ)

The VanEck Alternative Asset Manager ETF (GPZ) provides exposure to the publicly traded equity of alternative asset management companies. Rather than offering direct or income-focused exposure to private credit, GPZ is designed to give investors a public, liquid, and indirect way to participate in the growth of private markets more broadly.

The companies held in GPZ typically earn management fees and performance-based revenues across a range of alternative strategies, including private equity, private credit, real assets, and other non-traditional investments. As a result, GPZ is better viewed as a growth-oriented complement to alternative income strategies, rather than a yield-focused solution.

The VanEck Alternative Asset Manager ETF (GPZ) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the MarketVector Alternative Asset Managers Index (MVAALTTR), which is intended to track the overall performance of alternative asset managers across private equity, venture capital, private credit, private real estate, and private infrastructure.

BDCs vs. Private Credit: Which May Be Right for Investors?

BDCs May Appeal To:

• Investors seeking high income with daily liquidity
• Those who value transparency and public market access
• Investors using ETFs as part of a diversified income strategy

Private Credit Funds May Appeal To:

• Investors able to commit capital for longer periods
• Those comfortable with limited liquidity
• Institutional or accredited investors seeking bespoke structures

Complementary Approaches to Private Lending

BDCs and private credit funds are not mutually exclusive. In fact, they can serve complementary roles within a broader income-focused portfolio. Publicly traded BDCs offer liquidity and transparency, while private credit funds may provide longer-term, less liquid exposure for investors with appropriate time horizons.

For many investors, ETFs that focus on publicly traded BDCs can help bridge the gap, providing access to private lending markets with the flexibility of public markets.