SEC approves State Street and Apollo private credit ETF

ng exposure to illiquid assets in a liquid wrapper is an age-old dilemma,” commented Kenneth Lamont, a strategist at Morningstar. Lamont alluded to the persistent issue of balancing the accessibility of illiquid assets within a seemingly liquid investment vehicle like an ETF.

State Street Global Advisors and Apollo Global Management revealed their intentions to introduce the SPDR SSGA Apollo IG Public & Private Credit ETF as far back as last September. The ETF will encompass investments in both private and public credit. Following the recent regulatory endorsement by the SEC, it is now poised for an impending market launch, trading under the symbol PRIV.

Outlined in the SEC filing, the fund’s composition suggests that private credit holdings could range from 10% to 35% of the entire portfolio. Typically, the SEC restricts illiquid investments to a maximum of 15% within an ETF. To address these limitations, Apollo has agreed to repurchase private credit assets as requested by State Street, allowing them to circumvent the regulatory cap.

While the collaboration between State Street and Apollo aims to enhance the accessibility and liquidity of private assets over time, concerns have been voiced by industry participants regarding the inclusion of private credit within a relatively liquid investment vehicle like an ETF. The core concern revolves around the potential risks that such an inclusion may pose to retail investors.

“The question we need to grapple with is whether we can facilitate secure access to an illiquid asset class without compromising the inherent benefits that make these assets appealing in the first place,” Lamont remarked, underscoring the challenge of navigating the dichotomy between liquidity and illiquidity in investment products like ETFs.

This development comes against the backdrop of increasing interest in private credit as an investment option, necessitating a closer inspection of the mechanisms governing its integration within broader investment platforms. As the launch of the SPDR SSGA Apollo IG Public & Private Credit ETF looms, the industry awaits further insights into how this notable ETF will navigate the complexities of balancing private credit investments with liquidity considerations, aiming to deliver value to investors without undermining the distinctive advantages of illiquid asset classes.