A Groundbreaking New ETF Arrives #NewsETFs

Regulators allowed State Street and Apollo’s groundbreaking private-credit exchange-traded fund today. The SPDR SSGA Apollo IG Public & Private Credit ETF will trade under the ticker PRIV and charge 0.70%.

Initially filed back in September 2024, the proposal attempts to offer private-credit exposure through an ETF. That raised several concerns and questions, such as how the ETF would address the illiquidity and valuation of those private-credit holdings.

The ETF plans to overcome those concerns through a contractual agreement with Apollo, which will supply private-credit assets for the fund to buy and provide it with bids, or prices, on those same assets. Apollo has further agreed to purchase those investments from the fund up to an undefined daily limit. In other words, Apollo is selling these instruments to the fund and promising to buy them back at the request of State Street.

As we noted in our September article, Apollo’s bid and promise to buy amounted to a creative way around the SEC’s definition of illiquid, thereby allowing the ETF to own more than the expected 15% limit. The SEC seems to have accepted that argument: The new filing clarified that private credit is likely to range between 10% and 35% but may be above or below that—basically, no limit, and certainly more than 15%.

This represents a seismic shift. It opens the door to similar liquidity facility arrangements between advisors and liquidity providers, which could facilitate a proliferation of public/private hybrid portfolios in mutual funds and ETFs.

However, the question remains how effective this arrangement will be. In the case of this ETF, Apollo’s liquidity facility is subject to a daily limit, and this daily limit remains undefined; it’s possible the fund could have to meet way more redemptions in a day than the limit. That could force State Street to sell more-liquid public securities first, potentially leaving the ETF with more in illiquid private credit instruments as a percentage of assets and increasing the risks of a liquidity crunch. When this happens, the portfolio often begins to manage the advisor, rather than the other way around.

If redemptions are greater than Apollo’s daily limit and the ETF has few public securities, there are many more questions that the filing doesn’t answer. Authorized participants may be reluctant to accept private-credit instruments for in-kind redemptions, potentially forcing State Street to draw on a line of credit for bridge financing, directly inject its own capital into the fund, or ultimately shut down the fund. A lot depends on Apollo’s daily liquidity limit and its ability to satisfy it as the ETF grows. This isn’t an imaginary risk, either; the filing makes it clear that “assets that were deemed liquid by the Adviser may become illiquid” if Apollo is unable to provide a bid or unable to purchase those assets.

A small positive is the new filing does clarify that State Street doesn’t have to buy or sell its private-credit assets through Apollo; rather it can source those from another firm if the price is better. That partially addresses the fairness question since, under the prior filing, Apollo was providing the private-credit assets to the ETF, pricing those assets, and buying them back at the price they provided. That relationship and the question of fairness remain, but at least State Street now has the flexibility to transact outside of Apollo’s pipeline should the need arise.

This is a groundbreaking proposal that could open the door for a multitude of copycat vehicles. But it remains to be seen how it works in practice, given the liquidity mismatch. It also remains to be seen how willing the market will be to accept illiquids in such a liquid wrapper. It’s a wide new ETF world out there.