State Street, Apollo to Launch 2nd Public-Private ETF

Ladies and gentlemen, State Street may have just done it again. 

The leading asset manager filed to launch a second exchange-traded fund that would give investors exposure to both private and public investments in a single vehicle — something that had never been done until just a few months ago. The SPDR SSGA Short Duration IG Public & Private Credit ETF is expected to allocate at least 80% of the fund’s net assets in a portfolio of investment-grade debt securities, and typically anywhere from 10% to 35% in private credit, according to a filing on Friday. It will mark the second such fund from the powerhouse partnership between State Street and Apollo Global as a laundry list of firms try to open up private credit to Main Street investors. 

“An ETF with a short-duration profile makes sense,” said Jason Kephart, a senior principal at Morningstar. “It’s easy to slice-and-dice based on maturities.”

Life’s Too Short

States Street’s Short Duration IG Public & Private Credit ETF will invest in a “wide range” of private credit, like instruments that are directly originated, issued in private offerings or to private companies, and even by non-bank lenders, according to the release. What stands out about the filing — and differentiates it from the company’s first public-private ETF launch PRIV in February — is the duration. Bond products, and credit, generally have short, intermediate and long-term varieties that give investors time-period options to lock up their money. 

Short-duration products, in particular, are attractive to investors dealing with less stable businesses, Kephart said. “Investors that want to lend to riskier companies can get their money back faster — and that probably does have some appeal to people,” he said. While details are still emerging, the filing revealed:

• The product may invest up to 20% of its net assets in high-yield securities, known as “junk” bonds, according to the filing.
• The ETF may also use derivative instruments, like futures contracts, swaps, and options, to hedge currency exposure and manage yield. Fees and a ticker for the fund were not disclosed. 

“For regulatory reasons, we cannot discuss funds that are pending SEC review,” said a State Street spokesperson. “We are in a quiet period.”

What Gives? State Street’s PRIV, the OG of public-private ETFs, launched in late February, but has pulled in just $55 million in assets since, leaving some experts to worry about investor demand for the new products. Just $5 million in assets flowed into the fund in the first two weeks, and new investments have now almost completely dried up. “Are financial advisors as excited about getting private assets into client portfolios as asset managers are about selling them?” Kephart said. “We don’t really know as of yet.”

Some advisors have voiced concern that private asset managers may be looking to offload junk assets. They’re also worried about liquidity, and if the interests of asset managers selling the products are actually aligned with those of their clients. “It’s a way to stand out,” Kephart said. “If it’s in the best interest of investors, it’s fair to say … maybe.”