A new exchange-traded fund is bringing private credit to the masses and could open the door to more products following suit. The ETF from State Street and Apollo Global Management, SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) , launched last Thursday . It aims to have at least 80% of its assets in investment-grade private and public debt securities. Still, there are some lingering questions about the fund and what it means for access to private credit moving forward. After the ETF started trading Thursday, the Securities and Exchange Commission in a letter on its website highlighted “significant remaining outstanding issues” on the fund, including the use of Apollo’s name in the title and the ability to comply with valuation rules. On Friday, State Street said it would revise the name of the fund as soon as practical. The company also explained the ETF’s illiquid products won’t be exclusively tied to Apollo and that its net asset value will be calculated daily. State Street told CNBC it would have no further comment at this time. Morningstar said the ETF represents a “seismic shift” in the industry. “We eagerly await what sort of firms will follow suit and try to launch some sort of copycat vehicle,” said Ryan Jackson, senior manager research analyst at Morningstar. “This is truly a first-of-its-kind product and I think one can safely assume there’s a lot of latent demand for true private assets in an ETF vehicle.” Sizing up liquidity The roadblock to this sort of product has been the illiquid nature of private credit. ETFs are typically allowed to have up to 15% in illiquid investments. With PRIV, private credit can range between 10% and 35% of its assets, although it can go below or above that. In order to provide the liquidity needed for the fund, Apollo not only provides the assets but will also repurchase them if needed. “What we’re most interested in is what kind of precedent does that set for ETF providers moving forward to who want to flip some private investments,” Jackson said. “If State Street and Apollo can do it with sort of a soft cap, does that same set of rules apply to every other provider?” Investors should also be aware that the liquidity comes at a price, said Neal Epstein, vice president of private credit at Moody’s Ratings. “If Apollo is setting the prices and making the market, it seems like there could be, implicitly, a conflict. It may not be the fairest outcome, but if people really want liquidity, you do expect prices to change dramatically in favor of the acquirer,” he said. “That’s what it means to seek liquidity. You’re willing to give up the price.” Still, he called the fund “a big, incremental step” in the expansion of private credit as an asset class. With an expense ratio of 0.70%, it is a lot cheaper than traditional private credit allocations, Jackson said. “Anytime the price tag is cheaper, that’s great for investors. But you have to wonder, are they getting the third, fourth, fifth best ideas, while the absolute best deal available for any given private credit provider kind of goes to their top-paying clients,” he said. Appetite for private credit Moody’s predicts global private credit assets under management (AUM) will reach $3 trillion by 2028. While that is largely from institutional investors, individual investors have been showing more interest in recent years. “Expansion of retail private debt AUM has been accelerating and, while still less than 20% of total private debt AUM, is growing at a faster pace than institutional AUM,” Moody’s Ratings wrote in its global private credit outlook for 2025. Separately, an MSCI report released in January said that 82% of wealth managers globally expect to make larger allocations to private assets, including private credit. The firm surveyed 20 wealth industry professionals in June 2024. Consider that the BondBloxx Private Credit CLO ETF (PCMM), which launched in December, offers liquidity because it focuses on private collateralized debt obligations. The ETF, which has a 30-day SEC yield of 7.44% and a 0.68% expense ratio, has since grown to $63.5 million in net assets . Investors in the ETF also get the benefit of diversification, said Tony Kelly, co-founder at BondBloxx. The ETF currently owns 42 CLOs. “There’s also diversification, even like the next layer down, that each CLO owns, on average, about 100 different loans,” he said. “So you’re looking at about 4,000 different different loans.” PCMM has about 80% of its assets invested in private credit. The weighted average rating is an A and duration is only about a quarter of a year, Kelly said. Investors can also get private credit exposure through interval funds and other ETFs, like Virtus Private Credit Strategy (VPC) , said Morningstar’s Jackson. The latter tracks the Indxx Private Credit Index, which provides passive exposure to private credit. The index holds assets such as business development companies (BDCs), which lend money to businesses, and closed-end funds. These assets are “one layer removed from the real deal,” Jackson said. Meanwhile, BondBloxx registered for another ETF in December that will offer private credit exposure to consumer-type loans, or fin-tech loans, Kelly said. It is awaiting approval from the SEC. On the equity side, investors can buy shares of the BDCs themselves. They include names like Blue Owl Capital , Oaktree Specialty Lending and Ares Capital . —CNBC’s Bob Pisani contributed reporting.
