Private credit has gone public

The words ‘an exciting new exchange-traded fund’ may sound like an oxymoron, but this one really is different from the thousands of ETFs that already exist.

The SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) launched yesterday on the NYSE.

So, what’s so special about this fund—besides the fact that they tried to fit every letter in the alphabet into its name?

The fund will invest at least 80% of its net assets in investment-grade debt securities, including both public and, for the first time ever, private credit. This is unusual because private credit is illiquid, so it couldn’t traditionally be put in an investment vehicle that trades like a stock. But two firms, Apollo and State Street, worked out a complex agreement to bring the ETF to market.

“Historically, the ETF vehicle has been used to unlock market opportunities for all investors, no matter how big or small. Thanks to ETFs, all investors have transparent access to traditionally less-liquid segments of the markets,” said Anna Paglia, chief business officer at State Street Global Advisors, in a statement.

What the pros think: “This represents a seismic shift,” wrote Morningstar fixed income analyst Brian Moriarty. “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.”

Is this really a good idea?

While the Securities and Exchange Commission approved the fund, the regulators seemed to immediately second-guess themselves.

The agency sent a letter to State Street and Apollo yesterday laying out its three biggest concerns about the fund, according to Bloomberg: 1) The fund’s name being misleading, 2) its inherent illiquidity, and 3) that the fund could struggle to comply with valuation requirements.

Over the past year, ETFs have gone from that thing your grandpa told you to put money into to a vehicle for some of the most risky, complicated, and controversial investment strategies. But with the new SEC Chairman Mark Uyeda at the helm, the SEC might go even further—approving a whole slew of crypto funds.

Before we know it, the SEC might even approve meme coin ETFs. Now that is officially straying too far from John Bogle’s light.—LB