State Street Global Advisors’ highly anticipated private credit exchange-traded fund, created in collaboration with alternative investment firm Apollo Global Management, commenced trading on Thursday on the New York Stock Exchange.
The SPDR SSGA Apollo IG Public & Private Credit ETF marks the initial offering affording retail investors direct access to a diversified portfolio of private credit assets.
Michael Weisz, CEO of YieldStreet, a private market investment platform, expressed, "Having those private assets is fundamental to building a healthy portfolio nowadays." Weisz noted that private credit has been a recognized asset class for over 30 years and now, through the ETF delivery mechanism, ordinary investors can incorporate it into their portfolios.
One challenge for ETF providers in developing a private credit ETF is the U.S. Securities & Exchange Commission’s limitation on illiquid assets within a fund, capped at 15%. State Street indicated the potential to hold up to 35% in private securities due to a liquidity agreement with Apollo.
Brian Moriarty, an analyst with Morningstar, described the arrangement as "a creative way around the SEC's definition of illiquid."
The final prospectus outlines Apollo's role in sourcing the private credit held by the ETF and its commitment to ensure liquidity. State Street's revisions granted flexibility to source and trade with other private credit asset buyers and sellers as well as Apollo.
The ETF, with a 0.7% fee, slightly declined on its first day of trading, closing at $25.09, down by 4 cents or 0.14%. Moody's Ratings foresees approval for similar private credit ETFs but has reservations about the new fund, citing the inherent illiquidity of private credit.
In situations of a market downturn, investors may seek to swiftly sell ETFs, triggering the issuer to sell underlying securities. Chambers from VettaFi highlighted uncertainties about the availability of buyers.
Nate Eisenberg, product manager of private credit for Allvue, believes concerns over liquidity are exaggerated, noting that the market can now offer more liquidity to support these ETF products.
Apollo did not immediately respond to requests for comment via email or phone.
This new ETF is the initial outcome of a series of recent partnerships State Street has established with non-traditional investment firms over the past year.