State Street, Apollo to Rename Private Credit ETF on SEC Concern

State Street Global Advisors (SSGA) and Apollo Global Management (Apollo) have agreed to rename their joint private credit exchange-traded fund (ETF) following concerns raised by the U.S. Securities and Exchange Commission (SEC). The ETF, initially named SPDR SSGA Apollo IG Public & Private Credit ETF, will now be known as SPDR SSGA Private Credit ETF. The name change aims to address the SEC's concern that the original name could be misleading, as Apollo does not have an obligation to sell any debt to the fund and is not an adviser or sponsor to it.

The SEC's concerns regarding the ETF's liquidity risk management program and potential conflicts of interest remain, despite the name change. The ETF's exposure to private credit securities, which are typically less liquid than publicly traded assets, has raised questions about the fund's ability to meet redemption demands from investors during market stress. The SEC has noted that the ETF's liquidity risk management program may not be sufficient to address these concerns.

To address these concerns and ensure investor protection, the ETF's sponsors should scrutinize the filing carefully and ensure compliance with the Investment Company Act. This may involve strengthening the liquidity risk management program to better address potential redemption demands during market stress. Diversifying the portfolio to include a mix of liquid and illiquid assets can also help mitigate liquidity risks. Implementing redemption limits or gates can help manage redemption demands during market stress, and enhancing transparency and disclosure regarding the ETF's liquidity risk management program, investment strategy, and potential risks can help investors make informed decisions.

The potential conflict of interest between State Street and Apollo, arising from their longstanding relationship and State Street's ownership of approximately $1.2 billion in Apollo stock as of May 2024, could create a conflict if Apollo does not provide liquidity for the ETF during times of market stress, benefiting State Street at the expense of ETF investors. To mitigate this risk, the ETF should provide clear and comprehensive disclosure about the relationship between State Street and Apollo, as well as the potential conflicts of interest. Engaging an independent liquidity provider, in addition to Apollo, can also help reduce the reliance on Apollo and mitigate the potential conflict of interest.

In conclusion, the renaming of the State Street-Apollo private credit ETF addresses one of the SEC's concerns about the fund's name and clarifies Apollo's role. However, the ETF's sponsors must still address the SEC's concerns about liquidity risk management and potential conflicts of interest to reassure investors and comply with the SEC's regulations. By implementing a robust liquidity risk management program, diversifying the portfolio, enhancing transparency and disclosure, and mitigating potential conflicts of interest, the ETF can better protect investors and maintain their confidence in the fund.