(Bloomberg) — Apollo Global Management has partnered with State Street to launch the first exchange-traded fund that includes private credit investments.
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State Street registered the SPDR SSGA Apollo IG Public & Private Credit ETF, according to a regulatory filing on Tuesday. A portion of the fund will be allocated to liquid credit, and Apollo will source private credit investments for the fund.
Tuesday’s filing is the first of many, as State Street joins firms including BlackRock Inc. and Invesco Inc. that are seeking to improve access to private assets for individual investors.Apollo Chief Executive Officer Marc Rowan said in May that the firm planned to expand its asset origination business and sell consumer credit into the retail channel.
The private credit market has grown rapidly in recent years, attracting many new entrants as the industry's largest players seek to open it up to a broader range of investors, many of whom have previously focused on institutional investors such as insurers and sovereign wealth funds.
“We are seeing investors increasingly supplement their portfolios with private debt and equity strategies,” Rowan said in a statement. “We believe our partnership with State Street will accelerate this trend.”
The new fund is subject to regulatory approval.
Increased liquidity
Apollo defines the potential private credit market broadly as a $40 trillion market that is mostly investment-grade. While the narrow world of direct lending specializes mainly in leveraged lending, Rowan’s firm is also looking at other areas, including commercial real estate debt, mortgages, corporate lending and railcar and aircraft financing.
Under U.S. regulations, open-end funds are permitted to hold up to 15% of their assets in illiquid assets. This limit is in place to allow funds to meet redemptions and manage market risk in a timely manner.
Private credit is also incorporated into structures such as publicly traded business development companies and real estate investment trusts. Interval funds have also become popular in recent years, but they impose restrictions on how often investors can withdraw their money.
The new ETF, which is pending regulatory approval, aims to “make private markets more accessible and open them to a broader base of investors,” State Street CEO and president Ron O'Hanley said in a statement.
The ETF structure will provide more liquidity to investors. Apollo is also separately working on ways to boost liquidity in the private markets, including plans to build a trading desk for investment-grade private credit loans.
–With assistance from Katie Greifeld and Vildana Hajric.
(Adds executive comment and background starting in fifth paragraph.)
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