Controversial private credit ETF encounters fresh regulatory challenges

The SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) has made a controversial debut by drawing attention to the Securities and Exchange Commission’s oversight in the ETF listing process. This new exchange-traded fund from State Street Global Advisors aims to invest at least 80% of its net assets in investment-grade debt securities.

Regulators recently pointed out “significant remaining outstanding issues” with PRIV. Despite this, State Street has agreed to adhere to the SEC’s 15% cap on illiquid assets. It is important to note that the fund is planning for an exposure of 10% to 35% to private credit, a non-liquid asset class. Additionally, State Street has committed to changing the fund’s name as it is not solely associated with Apollo.

Todd Sohn, Senior ETF and Technical Strategist at Strategas, raised concerns about the lack of transparency surrounding the involvement of other counterparties beyond Apollo. He questioned why this information was not disclosed in the initial filing with the SEC back in September before the fund commenced trading on the New York Stock Exchange in late February.

Sohn also suggested that the oversight issues with PRIV may have arisen due to a change in administration, causing it to “fall through the cracks.” It is uncommon for the SEC to request modifications to existing funds, leading to uncertainty about how PRIV managed to bypass regulatory scrutiny before its launch. Typically, the SEC gives ETF issuers a 75-day period to address comments before making a decision on listing.

Despite its rocky start, PRIV has accumulated $55 million in assets under management as of Wednesday. The ETF is still navigating regulatory hurdles and changes following the SEC’s inquiry into its operations. State Street’s willingness to adjust the fund’s structure and name reflects a commitment to compliance and transparency despite the challenges it has faced.

Overall, the unveiling of PRIV sheds light on the complexities of regulatory oversight and the importance of transparency in the ETF industry. As the fund continues to navigate these obstacles, investors and industry experts will be closely monitoring its progress to determine its long-term viability and success in the market.