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There is a new ETF in the city. SPDR SSGA Apollo IG Public & Private Credit ETF (private) will act at NYSE on Thursday.
This fund intends to invest at least 80% of its net assets in guilt titles in investment classes, including a combination of public loan and private loan. It is surprising that there is a significant component of the private loan in the ETF wrapper. Since private credit is illiquid, it was a problem to get this in an ETF wrapper because ETFs need liquidity.
You try to solve this problem by offering Apollo credit assets and you will buy these investments again if necessary.
ETFs have had illiquid investments in the past (there are bank loans with illiquid investments), so this problem was not tackled for the first time. However, Wall Street strives to ensure the mass access to private equity and credit, and ETFs are the obvious packaging.
Usually, ETFs may only have illiquid investments of up to 15% of the fund, but the SEC says that in this case private loan can be between 10% and 35%, but can be above or below.
This submission was controversial. An early concern was that Apollo is the only company that delivers liquidity, naturally raises questions about the type of price state State Street. However, the State Street can apparently get from other companies if it can achieve better prices.
Another problem: Apollo has to buy back the loans, but only up to a daily border, and it is not clear what happens afterwards. It is not clear whether the market makers would accept private credit instruments for redemption.
Conclusion: This is a groundbreaking but very complicated ETF. It is monitored exactly for liquidity.
Monday update:
An update to a story that we reported about last week. The SPDR SSGA Apollo IG Public & Private Credit ETF (private) started last Thursday. This enables retail investors to buy private credit assets. Late that day, the SEC sent a letter to the company, which said that there were “significant remaining outstanding problems” and concerned about the liquidity of the fund, the use of the name Apollo in the title and its ability to comply with the evaluation rules. The State Street replied on Friday evening that they would revise the name of the fund as soon as possible (probably remove the name Apollo). He made it clear that the fund's illiquid products are not exclusively bound with Apollo and that other brokerers can provide quotes and that the fund's navy is calculated daily.
The State Street announced CNBC that they would not have any further comments at that time.
It is unusual that a fund becomes effective and that the SEC draws attention to concerns. As a rule, a fund can be effective after 75 days, unless the SEC increases objections. In this case there were several extensions, but it is unclear why the SEC raised additional questions after the fund started trading.