Controversial private credit ETF faces new regulatory challenges

The SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) has faced significant challenges following its launch. This new exchange-traded fund from State Street Global Advisors is designed to invest a majority of its net assets in investment-grade debt securities, but it has come under scrutiny for its exposure to illiquid assets, specifically private credit.

Regulators have raised concerns about the ETF, noting “significant remaining outstanding issues” with its structure. State Street has committed to complying with the SEC’s 15% limit on illiquid assets, despite targeting a 10% to 35% exposure to private credit. This asset class is generally considered non-liquid, raising eyebrows about the fund’s risk profile.

Moreover, the fund’s name, which implies an exclusive tie to alternative asset manager Apollo, is misleading. State Street has acknowledged that other parties will be involved with the fund, prompting the need for a potential renaming. These changes to the asset mix and name composition are unusual and not typically made post-launch for an ETF.

One analyst, Todd Sohn, pointed out that these adjustments were not initially disclosed in the fund’s prospectus, which was submitted to the SEC in September. The fund began trading on the New York Stock Exchange in late February, with unexpected changes surfacing after its debut.

Sohn speculates that the transition to a new administration may have resulted in oversight, allowing this ETF to “fall through the cracks.” While modifications are not uncommon for existing funds, questions linger about how the ETF managed to sidestep these issues during the approval process. Typically, the SEC provides feedback and allows issuers a 75-day window to address concerns before making a final listing decision.

The fund’s rocky start has not deterred investors, as it currently holds $55 million in assets under management as of the latest data. Despite the uncertainties surrounding its structure and oversight, the fund continues to attract investor interest.

In the realm of ETFs, regulatory oversight and adherence to guidelines are critical factors in maintaining market integrity. The debate around the SPDR SSGA Apollo IG Public & Private Credit ETF highlights the importance of transparency, risk management, and regulatory compliance in the investment landscape. As this ETF navigates regulatory hurdles and investor scrutiny, its future performance and reputation remain uncertain.