Apollo Global Management is working on its first exchange-traded fund, teaming up with State Street on an offering that will include private credit investments.
State Street registered the SPDR SSGA Apollo IG Public & Private Credit ETF, according to a filing Tuesday. A portion of the fund, which requires regulatory approval, will be allocated toward liquid credit, while Apollo will seek to originate a pocket of private credit investments for the vehicle.
State Street joins firms such as BlackRock and Invesco that are looking to make private assets more accessible to individual investors, with Tuesday's filing being first out of the gate. Apollo CEO Marc Rowan said in May that he was planning to expand its asset-origination business to sell private credit to retail channels.
At least 80% of the fund's net assets will be investment-grade securities in public or private markets, according to the filing. As much as 20% may be allocated to high-yield bonds.
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Apollo also "contractually agreed to provide intraday, executable firm bids" on investments that it sources, according to the filing. Separately, the asset manager has been working on ways to make private markets more liquid, including plans to build out a trading desk for investment-grade private credit loans.
"The big challenge has always been: How do you put something illiquid into a liquid wrapper?," said Bloomberg Intelligence analyst Eric Balchunas. "The way this ETF attempts to solve it is by Apollo providing the liquidity for the private credit portion of the portfolio."
The private credit universe has grown rapidly in recent years, drawing a host of new entrants. It has largely been reserved for institutional investors such as insurance companies and sovereign wealth funds, although the biggest firms in the industry have been looking to open it up to a wider range of investors.
"We believe investors will increasingly supplement their portfolios with private fixed-income and equity strategies," Rowan said in a statement. "We are confident our relationship with State Street will help accelerate this trend."
Greater liquidity
Apollo more broadly defines the potential private credit market as a $40 trillion one that's mainly investment grade. While the narrow world of direct loans has been largely dedicated to leveraged lending, Rowan's firm also has looked toward commercial real estate debt, residential mortgages, corporate loans and financing for rail cars and aircraft, among other categories.
U.S. regulations allow open-ended funds to put as much as 15% of their holdings in illiquid assets. The limit is designed to help ensure funds can meet redemptions and manage market risks in a timely manner.
"This is a baby step, but a big and important one, toward ETF-izing private markets for retail investors and puts State Street in the pole position in this increasingly heated race," Balchunas said.
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Private credit has been bundled into structures such as publicly traded business development corporations and real estate investment trusts. Interval funds have also become popular in recent years, though there are limitations on how often investors can withdraw funds. The ETF structure would offer greater liquidity to investors.
The new ETF is designed to "increase accessibility to private markets, opening them to an even larger cross section of investors," State Street CEO Ron O'Hanley said in the statement.
