Get ready for a fresh addition to the ETF landscape. The SPDR SSGA Apollo IG Public & Private Credit ETF, or PRIV, is set to start trading at the NYSE on Thursday.
This intriguing new fund plans to allocate at least 80% of its net assets to investment-grade debt securities, combining both public and private credit. What’s particularly noteworthy is the significant presence of private credit within this ETF, something that’s not typically seen due to its illiquid nature. The challenge with ETFs is that they need liquidity, and traditionally, private credit doesn’t offer that.
To tackle this issue, Apollo will provide credit assets and step in to repurchase those investments if necessary, ensuring the liquidity that ETFs require. It’s not the first time ETFs have ventured into illiquid investments; bank loan ETFs have faced similar hurdles. However, the push to democratize access to private equity and credit via ETFs is gaining momentum, making them the perfect vehicle.
ETFs generally have a cap, allowing only up to 15% of illiquid investments in a fund. Yet for PRIV, the SEC has allowed the share of private credit to swing between 10% and 35%, with the possibility of going higher or lower.
This filing hasn’t been without controversy. Some have expressed concerns that if Apollo is the sole liquidity provider, there could be questions about the pricing State Street might receive. However, it appears State Street has the option to purchase from other firms if better prices are available.
There’s also a stipulation that Apollo must buy back loans, albeit only up to a certain daily limit, leaving some uncertainty about what happens beyond that limit. The acceptance of private credit instruments for redemption by market makers remains an open question.
In essence, this ETF presents a groundbreaking yet complex opportunity and will be under close scrutiny for its liquidity.
Stay tuned: Anna Paglia, the Executive Vice President and Chief Business Officer for State Street Global Advisors, will be discussing how this ETF functions in more detail on ETF Edge this coming Monday.
