A fresh exchange-traded fund (ETF), known as SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV), is about to make its debut at the New York Stock Exchange. Notably, the fund’s investment strategy includes allocating a minimum of 80% of its total assets to investment-grade debt securities, which will comprise both public and private credit.

What stands out in this scenario is the significant portion of private credit included in the ETF structure. Given the illiquid nature of private credit, incorporating it into an ETF, which requires liquidity, has been a challenging task.

The solution? Apollo, the provider of credit assets, will buy back the investments if necessary. While this isn’t the first instance of ETFs owning illiquid investments (bank loan ETFs have done it before), it’s an important step in Wall Street’s drive to make private equity and credit accessible to the general public.

Typically, ETFs are allowed to hold illiquid investments up to 15% of the fund’s total. However, the Securities and Exchange Commission (SEC) has permitted private credit to range from 10% to 35% in this case, with the possibility of going above or below this range.

There has been some controversy surrounding this filing. One early concern was the exclusive reliance on Apollo for liquidity, which raised questions about the pricing State Street would receive. However, it seems State Street has the option to source from other firms if they offer better prices.

Another issue is the requirement for Apollo to buy back loans, but only up to a daily limit. The course of action beyond that limit remains unclear, as does the willingness of market makers to accept private credit instruments for redemption.

In conclusion, this pioneering and complex ETF is set to be scrutinized closely for its liquidity. It represents a promising development for investors looking to tap into private equity and credit markets.