Controversy Surrounds SPDR SSGA Apollo IG Public & Private Credit ETF Debut
The recent debut of the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) has sparked concerns regarding the oversight of the U.S. Securities and Exchange Commission (SEC) following the fund’s entry into the market. Managed by State Street Global Advisors, the ETF aims to invest a minimum of 80% of its net assets in investment-grade debt securities which raises questions, particularly regarding its exposure to illiquid assets.
SEC Raises Concerns
In a letter to State Street, the SEC outlined "significant remaining outstanding issues" related to the fund. These issues primarily revolve around the ETF’s compliance with the SEC’s regulations, specifically a 15% cap on illiquid assets. Despite assurances from State Street that they would adhere to this requirement, a subsequent filing revealed that the fund is targeting a considerable 10% to 35% in private credit. This asset class is generally regarded as non-liquid, accentuating concerns over the fund’s structure and compliance with SEC guidelines.
Potential Name Change and Compliance Measures
In response to feedback from regulators, State Street has announced plans to rename the fund. The existing name suggests a close affiliation with alternative asset manager Apollo, whereas the firm clarified that other counterparties would also contribute to the fund’s holdings. This change in naming and asset mix is a notable departure from the standard protocol observed post-debut of an ETF.
"We learned that other counterparties are going to be involved with the fund instead of just Apollo," noted Todd Sohn, senior ETF and technical strategist at Strategas, during an interview on CNBC’s "ETF Edge." He further questioned the lack of transparency surrounding these changes, asking, "Why wasn’t any of that brought up in the initial filing?"
A Closer Look at the Approval Process
State Street submitted its prospectus to the SEC in September 2022, with the ETF commencing trading on the New York Stock Exchange on February 27, 2023. The approval timeline generally allows the SEC a 75-day window to provide feedback and enable ETF issuers to make necessary adjustments. Amid irregularities in the oversight and communication process, Sohn remarked, “It seems like maybe the new administration came in and this fell through the cracks."
Underway Development and Market Performance
Despite these emerging challenges, the SPDR SSGA Apollo IG Public & Private Credit ETF has managed to gather $55 million in assets under management as of Wednesday, according to data from FactSet. However, the ongoing questions around its liquidity and asset management strategy continue to shadow its nascent performance.
As the ETF landscape evolves, the SPDR SSGA Apollo IG Public & Private Credit ETF serves as a reminder of the complexities involved in regulatory compliance and the importance of transparency in investment management. The future performance of the fund remains contingent on how well State Street addresses these concerns and adheres to SEC guidelines in the weeks and months ahead.
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