Ready or Not: ETFs Are Rushing into Private Markets

Liquidity Mismatch

Private market assets—including private credit, infrastructure, and private equity—are inherently illiquid. Unlike public equities or bonds, they cannot be easily priced or sold daily. Embedding these assets in a vehicle promising daily liquidity could lead to significant risks during market stress, where selling pressure may outpace the ability to accurately value or liquidate holdings.

NAV Pricing Challenges

Pricing private assets is part science, part art. Unlike public securities, private loans and infrastructure investments rely on appraisals, valuation models, and manual adjustments. NAVs (net asset values) for private asset ETFs will almost always lag reality, particularly in volatile markets.

Recent market swings—including the sharp equity market selloff and renewed uncertainty around tariffs and global trade—highlight just how fast public market valuations can shift.

In environments like these, do we really believe that every private credit, infrastructure, or private equity asset embedded in an ETF gets updated with fresh, accurate fair value marks on a daily basis?

The answer, almost certainly, is no.

Investors relying solely on reported NAVs may have a false sense of security about the real value of their investments, especially during periods of heightened market stress.

Modest Initial Investor Interest

Despite the buzz, actual adoption of private credit ETFs has been modest. For example, the SPDR SSGA IG Public & Private Credit ETF

currently has approximately $55 million in assets under management (AUM), according to ETF Central data.

Early traction is critical for ETF health: low assets under management can limit secondary market liquidity, widen bid/ask spreads, and make funds less attractive to new investors.

Total Cost of Ownership (TCO)

Fees associated with private asset ETFs tend to be higher than traditional ETFs—not just from management fees but also from transaction costs, appraisal costs, and liquidity management overlays. Investors must evaluate the true cost of ownership, not just the stated expense ratio.

Capital Markets and Ecosystem Readiness

Perhaps most critically, the ETF ecosystem—market makers, APs (Authorized Participants), custodians, exchanges, and service providers—must be fully equipped to handle these new products. Managing custom basket creation/redemption, handling irregular cash flows, pricing hard-to-value assets, and maintaining tight spreads require significant expertise.

However, even the strongest infrastructure can only go so far without issuer leadership and engagement.

At the end of the day, it really comes down to the issuer and the strength of their capital markets team—particularly the capital markets expert assigned to the fund.

Their role is essential:

• Explaining the creation and redemption process clearly,
• Setting expectations around potential issues with custom baskets,
• Proactively easing concerns from the trading community (market makers, APs, liquidity providers),
• And equipping the sales team with accurate, confident answers to address investor questions about liquidity, pricing, and fund operations.

Without strong communication and hands-on management, these products risk widening spreads, trading reluctance, and diminished investor confidence—especially during periods of market volatility or scrutiny of private asset valuations.

Without careful planning, infrastructure support, and issuer leadership, private asset ETFs could face major stress during periods of volatility.

Beyond broad structural risks, emerging operational lapses provide fresh examples of the challenges that private market ETFs must address to build lasting investor confidence.

Emerging Data and Quality Control Risks: A Real-Time Example

Recent observations from market participants have highlighted growing concerns about operational risks in private market ETFs. For example, Conor MacWilliams of Outer Beach Consultants noted in a recent update on SSGA's SPDR SSGA IG Public & Private Credit ETF (PRIV) that even fundamental operational practices, such as portfolio reporting, have been inconsistent.

In just a day's time, Conor observed that PRIV's reported data exhibited multiple issues:

• Changes in naming conventions and identifiers for portfolio holdings.
• Corrections to erroneous ISINs that had been present since issuance.
• Zeroing out the market value of a private asset without adjusting its par value.
• A reported total portfolio value summing to only 99.015992%, a significant deviation from the expected 100%.

These errors introduce meaningful risks to both price discovery and investor confidence. While such issues are often correctable, their occurrence highlights the urgent need for more rigorous internal controls and quality assurance processes. Moreover, the lack of proactive communication from the fund sponsor regarding these discrepancies compounds the concerns.

Interestingly, the updated data did reveal a bit more transparency into the seniority structure of some Apollo-sourced private assets, including the identification of Payment-In-Kind (PIK) loans—a type of financing arrangement where interest payments are deferred rather than paid in cash. While this added granularity is welcome, it also hints at the potential for weaker underlying credit quality in portions of the portfolio.

This real-time example underscores the operational and transparency challenges that private asset ETFs must overcome. In an environment where accurate pricing, reporting, and governance are paramount, even small lapses can erode market trust—particularly when dealing with opaque and illiquid private credit instruments.

As more private asset ETFs come to market, ensuring operational excellence—from clean data reporting to proactive communication—will be just as critical as managing liquidity and pricing risk.

The Need for Standardization and Transparency Across Private Asset ETFs

For private market ETFs to gain long-term investor and trading community trust, the industry must move toward consistent, standardized practices around asset disclosure, pricing, and labeling.

Key areas for improvement include:

• Consistent valuation methodologies to ensure fair, reliable daily NAVs.
• Standardized naming conventions to clearly reflect asset seniority, structure, and risk (e.g., differentiating between senior secured loans, subordinated PIK notes, etc.).
• Accurate and stable symbology (ISINs, CUSIPs, identifiers) to prevent operational errors and breakdowns in trading systems.
• Transparent update cycles so that participants know when private asset valuations are refreshed and what assumptions drive them.

Without these industry-wide efforts, fragmentation and inconsistency will continue to erode confidence among market makers, APs, investors, and regulators alike.

If ETF sponsors, index providers, data vendors, and exchanges can collaborate early to create clear standards, they can help ensure that innovation in private asset ETFs grows on a foundation of trust, not confusion.

Is the ETF Wrapper Even the Right Fit for Private Markets?

As the industry races to package private markets into ETFs, it's worth asking: is the ETF wrapper even the right vehicle?

Given their inherent illiquidity, infrequent pricing, and complex structures, private market exposures may ultimately be better suited for formats like ETNs (Exchange-Traded Notes) or closed-end funds, which offer greater flexibility around liquidity management, pricing transparency, and investor expectations.

The daily creation/redemption feature that makes ETFs attractive could become a liability when paired with assets that simply cannot support daily liquidity.

In some cases, forcing private markets into an ETF structure may represent more of an overreach than a true innovation—creating risks not just for individual products, but for broader investor trust in the ETF ecosystem itself.

The Bottom Line

The march into private markets via ETFs is exciting—and perhaps inevitable—but it must be paired with realism.

Success in this space will require more than marketing: it demands operational rigor, ecosystem coordination, and an unwavering commitment to investor protection.

Without it, these funds risk not just disappointing investors, but undermining the very principles that made ETFs trusted vehicles in the first place.

About the Author

Nicholas Phillips | President of ETF Capital Markets Advisors LLC
With over 25 years of experience in ETF market making and capital markets, Nicholas Phillips is recognized as a subject matter expert in the ETF industry. He started his career spending the first ten years as a lead market maker for SIG and Goldman Sachs.

At the helm of MCAP LLC's ETF Desk, Nicholas built and scaled the division, enhancing its operations through innovative pricing and risk models, and robust relationships with market makers and issuers. His tenure at VanEck Associates as Director of ETF Capital Markets further solidified his expertise, managing critical facets of operations and deepening connections within the trading community.

Beyond market making, Nicholas is an avid content creator, sharing insights that demystify complex market dynamics. He is keen on exploring board member roles that benefit from his extensive background and forward-thinking approach to ETF strategies. His dual US/Ireland citizenship complements his global perspective, enriching his professional endeavors in diverse markets.

Disclaimer

Please note that this article reflects the author's personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.