Will Advisors Embrace ‘Breakthrough’ Private ETF From State Street, Apollo?

The world’s top money managers would like to personally invite you to a very private party. 

State Street and Apollo’s latest exchange-traded fund packages private credit — traditionally the playground of the world’s rich — into an indexed product for everyman. It was quickly heralded as a “breakthrough” for the asset management industry during its launch last week. But are advisors ready to trade in their tried-and-true index funds for actively managed private investments?

“The concept is promising,” said Aaron Cirksena, CEO of the advisory firm MDRN Capital. “But let’s see how it actually performs before we start calling it revolutionary.”

Liquid Diet

Some $6 trillion in assets are now expected to pour into private credit over the next decade as new strategies, many targeting retail investors, are adopted by asset managers, according to research from McKinsey. For clients who want exposure, cost-effective and liquid ETF structures might just fit the bill. State Street’s fund, the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV), is generally expected to hold between 10% to 35% in private credit with the rest in publicly traded debt, according to Bloomberg. As of Monday, it had attracted just over $50 million in assets. 

But for those truly looking for private market benefits, there are plenty of other options available, said Ben Loughery, CFP and founder of Lock Wealth Management in Atlanta. And private funds make up just a small portion of a well-diversified portfolio. “If investors already view this as money they won’t need to tap into, why not go directly to the real thing rather than a hybrid ETF structure?” He said. “You just need to coach clients on the illiquidity trade-off.”

Keep in mind, the products might not be suited for your run-of-the-mill retirement savers, but a more affluent clientele that can “stomach” the illiquidity, Cirksena said. “Just because it’s in an ETF doesn’t mean it’s automatically liquid, cheap, or low-risk,” he said. “Advisors need to read the fine print.”

Save Some for Me. Advisors should be particularly careful when it comes to most non-traded assets, like hedge funds, venture capital, and private equity, said George Gagliardi, CFP and an advisor at Coromandel Wealth. By the time the investments open up to Main Street, the quality of what is being offered is far below what sophisticated investors are able to access. In other words, the smart money usually gets first crack at the best products. 

And, while private investments have a certain allure, advisors are better off preaching long-term, buy-and-hold strategies that are supposed to be boring. “Stay away,” Gagliardi said. “If one wants financial excitement, go to Las Vegas with $500 in your wallet and no credit or debit cards to limit the losses.”