The controversial debut of SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV), a new exchange-traded fund from State Street Global Advisors that intends to invest at least 80% of its net assets in investment-grade debt securities, is raising questions around the Securities and Exchange Commission’s oversight of the listing.
Following a letter in which regulators outlined “significant remaining outstanding issues” with the ETF, State Street said it would comply with the SEC’s 15% cap on illiquid assets. However, a separate filing shows the fund is targeting 10% to 35% exposure to private credit, an asset class generally thought to be non-liquid.
State Street has also promised to rename the fund, since its illiquid holdings are not exclusively tied to alternative asset manager Apollo, as its current title may suggest. Both the asset mix and name changes are not ones typically made after an ETF’s debut.
“[State Street] mentioned that other counterparties are going to be involved with the fund instead of just Apollo,” Todd Sohn, Strategas’ senior ETF and technical strategist, said on CNBC’s “ETF Edge” on Monday. “Why wasn’t any of that brought up in the initial filing?”
State Street originally submitted its prospectus with the SEC in September, filings show. The fund began trading on the New York Stock Exchange Feb. 27.
“It seems like maybe the new administration came in and this fell through the cracks,” Sohn said.
While it is not unprecedented for the SEC to require changes to existing funds, questions remain as to how the ETF bypassed many of the issues now plaguing it. Prospective funds have a 75-day window in which the agency provides comments and gives ETF issuers the opportunity to adjust before the SEC makes a decision on listing.
“For some strange reason, none of the questions were really addressed publicly,” Sohn pointed out.
Amid its turbulent start, the fund has $55 million in assets under management as of Wednesday, according to FactSet.
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