A Closer Look at the New SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV)

How PRIV works

PRIV is actively managed by SSGA’s Active Fixed Income Team, which takes a macroeconomic, top-down approach to portfolio construction.

The ETF is benchmarked against the Bloomberg U.S. Aggregate Bond Index, meaning it aims to provide diversified fixed-income exposure while incorporating both public and private credit.

Right now, PRIV holds 148 securities, with a 5.51% yield to maturity and a duration of 6.21 years. On the surface, these figures suggest exposure that closely resembles a traditional aggregate bond ETF.

The fund’s largest holdings are currently cash, Federal Home Loan Mortgage Corporation 2.5, and multiple tranches of Federal National Mortgage Association (Fannie Mae) bonds, which makes the portfolio appear fairly conventional at first glance.

The credit quality also looks similar to an aggregate bond fund. The portfolio consists of 12.28% cash, 1.75% in AAA-rated debt, 24.07% in AA-rated bonds, 17.62% in A-rated bonds, 40.35% in BBB-rated bonds, and 3.93% in unrated securities.

Maturity exposure is also in line with standard bond index funds, with the portfolio leaning toward intermediate-term bonds.

Roughly 13.12% of the holdings mature in less than a year, while 10.26% fall in the three- to five-year range. The five- to seven-year segment accounts for 20.46% of the fund, and the seven- to ten-year range makes up the largest allocation at 45.79%. Longer-dated bonds are less prominent, with only 4% maturing in ten to fifteen years and 3.04% extending out to the twenty- to thirty-year range.

What sets PRIV apart is its ability to allocate between 10% and 35% of its portfolio to private credit, though illiquid investments are capped at 15%.

This cap primarily applies to direct private loans, but the fund can still reach the upper end of its private credit allocation by incorporating BDCs and interval funds.

BDCs are publicly traded investment companies that provide financing to small and mid-sized private businesses, offering a way to gain exposure to private credit without holding direct loans. Interval funds, on the other hand, are closed-end investment vehicles that allow periodic redemptions rather than daily liquidity, making them better suited for holding less liquid assets.

By using these structures, PRIV can expand its private credit exposure while staying within the liquidity limits of an ETF. This exposure is managed by Apollo, which acts as a liquidity backstop by sourcing bids and facilitating transactions in the private credit space.

Concerns about PRIV

The SEC recently sent a letter to State Street Corp. and Apollo Global Management Inc. requesting more information about PRIV, highlighting growing regulatory scrutiny over ETFs incorporating private credit.

The primary concern revolves around liquidity and the mechanics of ETF creation and redemption, particularly how Apollo will source and value the private credit portion of the portfolio while ensuring the fund can handle investor inflows and outflows at a fair net asset value (NAV).

Unlike publicly traded bonds, private credit assets lack real-time market pricing and can be difficult to transact quickly, making it challenging to reconcile an ETF’s daily liquidity requirements with the inherently illiquid nature of these holdings.

The SEC’s inquiry suggests unease about whether Apollo can properly mark these positions to market and adjust for fluctuations in NAV when new shares are created or redeemed. If the fund’s private credit allocation becomes mispriced or difficult to transact, it could lead to liquidity mismatches or tracking errors that impact investors.

You can read more about these concerns in this recent article: Private Credit ETFs: A New Frontier, But Is Liquidity a Concern?

This article is for informational purposes only and does not in any way constitute investment advice. The author may express their own opinions, which may not represent the opinions of ETF Central or its affiliated partners. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.