State Street, Apollo team up to launch first of its kind private credit ETF

A new ETF is set to make its debut on the NYSE – the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) will begin trading on Thursday.

This innovative fund aims to allocate at least 80% of its net assets into investment grade debt securities, encompassing both public credit and private credit. What sets this ETF apart is the inclusion of a substantial portion of private credit within its portfolio.

Typically, incorporating private credit in an ETF can be challenging due to its illiquid nature. ETFs require liquidity, and private credit assets often lack the necessary liquidity. To address this issue, Apollo will provide the credit assets for the ETF, with a commitment to repurchase these investments if needed.

While ETFs have held illiquid investments in the past, such as bank loan ETFs, the inclusion of private credit remains a relatively novel concept. The financial industry is keen on democratizing access to private equity and credit, with ETFs serving as a convenient vehicle.

Traditionally, ETFs are limited to holding illiquid assets up to 15% of the fund. However, the SEC has granted flexibility for PRIV, allowing private credit exposure to fluctuate between 10% and 35%, with the possibility of exceeding these limits.

Despite its innovative approach, the ETF has raised some concerns. One issue revolves around the reliance on Apollo for liquidity provision, leading to questions regarding pricing dynamics. State Street, the ETF issuer, has stated its ability to source from other providers for competitive pricing.

Another point of contention is the buyback mechanism mandated for Apollo, which is subject to daily limits. The process beyond these limits and the acceptance of private credit instruments for redemption by market makers remain uncertain.

In summary, the PRIV ETF represents a groundbreaking yet intricate investment vehicle. Market observers will closely monitor its liquidity dynamics and operational effectiveness.

Stay tuned for Anna Paglia, Executive Vice President and Chief Business Officer at State Street Global Advisors, on ETF Edge for an in-depth explanation of PRIV’s operational framework.