Omar Marquez | Lightrocket | Getty Images
There is a new ETF in town. The SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) will trade in NYSE on Thursday.
The fund plans to invest at least 80% of its net worth in investment-grade debt securities. What’s surprising is that there is a key element of private equity in ETF rappers. Private credit is illiquid, and ETFs need liquidity, so there is a problem getting this with an ETF wrapper.
They are trying to solve this problem by having Apollo provide credit assets and will buy those investments if necessary.
ETFs have owned illiquid investments in the past (bank loan ETFs have illiquid investments), so this is not the first time this issue has been addressed. But Wall Street is keen to provide access to private equity and public credit, and ETF is an obvious rapper.
Normally, ETFs are allowed to own only illiquid investments of up to 15% of the fund, but the SEC says that in this case private credits range from 10% to 35%, but they could be more than that.
This filing is controversial. One of the early concerns was that it naturally questioned what kind of pricing State Street would get if Apollo was the only company offering liquidity. However, State Street appears to be able to source from other companies if they can get a better price.
Another issue: Apollo will have to buy back the loan, but only up to the daily limit, and it’s not clear what will happen after that. It is not clear whether market makers will accept private credit measures for redemption.
Conclusion: This is a groundbreaking, but extremely complex ETF. Liquidity is monitored closely.
Note: Anna Paglia, Chief Business Vice President of State Street Global Advisors, will be joining ETF Edge Monday to explain how this ETF works.
