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There is a new ETF in town. The SPDR SSGA Apollo IG Public and Private Credit ETF (PRIV) will be traded on the New York Stock Exchange on Thursday.
The fund intends to invest at least 80% of its net assets in investment-grade debt securities, including a combination of public and private credit. Surprisingly, there is a large private equity component in the ETF packaging. Since private credit is liquid, it is a problem to include it in the ETF wrapper because ETFs require liquidity.
They are trying to solve this problem by having Apollo provide credit assets and they will buy these investments if needed.
ETFs have had under-liquid investments in the past (there are some bank loan ETFs that invest in liquidity), so this is not the first time this is solved. But Wall Street is eager to provide private equity and credibility to the masses, and ETFs are the obvious wrapper.
Typically, an ETF can only have liquidity investments up to 15% of the fund, but the SEC says that in this case, the private credit range may be between 10% and 35%, but can be higher or lower than the fund.
The document caused controversy. An early concern was that if Apollo was the only company offering liquidity, it would naturally raise questions about what type of pricing state street would get. But if State Street can get better prices, State Street can obviously be sourced from other companies.
Another problem: Apollo needs to buy back the loan, but can only meet the daily limit, and it is not clear what will happen after that. It is not clear whether market makers will accept private credit instruments for redemption.
Bottom line: This is a groundbreaking but very complex ETF. Liquidity will be closely monitored.
Note: Anna Paglia, Executive Vice President, Chief Business Officer of State Street Global Consulting, will be at ETF Edge on Monday to explain how the ETF works.
