(Bloomberg) -- A novel private-credit ETF from State Street Corp. and Apollo Global Management Inc. started trading on Thursday, in a watershed moment for the $1.6 trillion industry.
The SPDR SSGA Apollo IG Public & Private Credit ETF debuted on the New York Stock Exchange under the ticker “PRIV.”
The two finance behemoths appear to have gained ground over rivals by offering an ETF with outsized exposure to the asset class, after Apollo pledged to originate a portion of investments for the vehicle, while also helping to provide intra-day price data.
While the ETF will cap investments deemed illiquid at 15% to conform to Securities and Exchange Commission requirements, its private-credit exposure is generally expected to comprise between 10% and 35% of the portfolio, the filing shows.
“This represents a seismic shift,” wrote Morningstar analyst Brian Moriarty in an online publication, who expects a boom in copycat funds. The agreement with Apollo amounts “to a creative way around the SEC’s definition of illiquid, thereby allowing the ETF to own more than the expected 15% limit,” he added.
Bloomberg News first reported that PRIV was set to begin trading as soon as Thursday, after the fund’s information was listed on the website of the New York exchange.
Private credit has historically been illiquid and difficult to trade. Apollo, like some of its industry peers, has been looking to change all that by building a marketplace devoted to the asset class in a bid to change the assumption among regulators and market participants that it’s inherently illiquid. So far, Apollo has traded about $2 billion of assets that it’s originated and has about 60 active clients.
Apollo Chief Executive Officer Marc Rowan has also made a case for private assets to be a core part of mass-market portfolios, including those owned by wealthy retail investors.
The ETF may also “achieve exposure” to private-credit instruments by investing in interval funds or business development companies, though these will be limited to 15% of its net assets, the filing shows. BDCs are publicly traded vehicles focused on investing in direct, often middle-market, loans.
ETF Race
State Street and Apollo’s initial filing for PRIV in September made waves through the ETF industry, sparking a race to offer private-asset funds to the masses — in one form or the other. A handful of ETF issuers have introduced funds that mimic private-equity returns, while others have added this kind of exposure via special-purpose vehicles, though capped at the 15% threshold.
“We’ve seen some signs that there is a lot of unmet demand to get private assets in the ETF wrapper,” said Eric Balchunas of Bloomberg Intelligence. He pointed to demand for the ERShares Private-Public Crossover ETF (XOVR), which has had $130 million of inflows so far this year — fueled by its exposure to Elon Musk’s SpaceX.
While PRIV’s launch is significant because it allows investors exposure to assets that were previously difficult to invest in, “the main concern is how you value non-publicly traded assets in a publicly traded vehicle,” said Will Rhind, founder of ETF issuer GraniteShares.
--With assistance from Laura Benitez.
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