Wealthsimple’s Private Credit Push vs. BDCs: A Yield Comparison

Updated June 27, 2025
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Wealthsimple, the Canadian brokerage known for zero-commission ‌trades, is aggressively moving into private credit, advertising a 9% target yield​ through a partnership with sagar. This ‌offer⁣ aims to‍ attract investors seeking higher yields,but some experts suggest caution.

One⁣ concern is the high barrier to entry. Investors need a $50,000 account ⁢and must commit a ‌minimum of $10,000 to the private credit offering. Fees also factor in: Wealthsimple levies a 1.25% management fee on top of its standard⁤ robo-advisor ⁢fee, plus a 15% performance fee above a 5% hurdle.

Liquidity is another consideration. Investors face a ‍quarterly redemption window⁣ with redemptions capped at 5% of the fund’s value.A ⁤60-day notice is required before the end of the quarter, and investors must wait‌ an additional 30 days to receive thier funds. Redemption might ⁣potentially be suspended during downturns.

An ⁣alternative to Wealthsimple’s private credit offering is​ business development companies (BDCs). These⁢ publicly traded entities specialize in private lending and can‍ be traded like stocks or ETFs. For Canadian⁣ investors, the Accelerate Diversified Credit Income‌ Fund (INCM) offers ​exposure to U.S.-listed BDCs.

What are BDCs?

In the U.S., BDCs operate as pass-through investment vehicles, similar to Real ⁢Estate Investment Trusts (REITs) and‍ Master Limited partnerships (MLPs). They avoid corporate ‍income ⁢tax if they meet specific requirements.

BDCs focus on providing debt and, in some instances, ⁢equity financing​ to small- and mid-sized private companies, often⁤ referred to as ⁢”middle market” businesses. These firms typically ‌generate $10 million to $250 million in⁣ annual revenue, making them too large for small-business loans but too small ‍to issue bonds or go public.

BDCs typically issue private loans, often senior secured, meaning⁣ they are backed ‌by the⁣ borrower’s assets and have priority in case of default. These loans usually feature floating ‌interest rates and high⁤ coupons. Some ⁤BDCs also ⁤negotiate warrants, preferred shares, or convertible notes, providing equity upside if the borrower ‌performs well.

Like REITs, BDCs are legally required ​to distribute at least 90% of their taxable income to ‍shareholders, resulting in high yields, ‌often exceeding those of conventional bond funds or dividend-paying stocks.

BDCs are not uniform. Some are internally managed, ​which can lead to lower expenses ⁢and better alignment with shareholder interests. ‍Others‍ use⁤ external managers who charge layered fees.

Size isn’t always an advantage. Smaller BDCs frequently enough outperform, trading consistently above net asset value (NAV), indicating the market values their loan portfolio and management expertise.

How INCM Works

INCM ‍(TSX:) is an ETF that holds a diversified portfolio of leading U.S.-listed bdcs, selected based on their fundamentals. Top holdings include Ares Capital⁢ Corporation, Blue Owl Capital Corporation, Golub ⁤Capital BDC, and Blackstone Secured Lending.

The portfolio offers an estimated yield of ‍around 11.5% ⁣across its ⁤three share classes: INCM (unhedged), INCM.B (CAD-hedged), and INCM.U (USD). Monthly distributions are currently set at $0.165 per unit.

As an ETF,INCM offers liquidity,allowing investors to buy or sell shares during market hours without lockups or‍ redemption windows.

The fund charges a ⁣0.75% management fee, which is considered reasonable given its status as the only ETF of​ its ⁣kind in Canada. Investors also indirectly bear the internal costs of the underlying BDCs.

What’s next

Investors should carefully ‌weigh the pros and cons of Wealthsimple’s⁣ private credit offering against alternatives​ like bdcs,considering factors such as fees,liquidity,and risk tolerance before making investment decisions regarding private lending investments.