US Regulators Raise Concerns Over New Private Credit ETF

In an unusual move, US regulators have expressed concerns over a new private credit exchange-traded fund (ETF) launched by Apollo Global Management Inc. and State Street Corp. The Securities and Exchange Commission (SEC) has raised several regulatory concerns regarding the fund, which is set to provide retail investors with access to private credit investments.

The SEC's concerns center around the fund's liquidity risk management program, its name, and its ability to comply with valuation rules. In a letter dated February 27, 2025, the SEC noted that the fund's liquidity risk management program may not be sufficient to manage liquidity risks, given the illiquid nature of private credit investments. The fund plans to cap investments deemed illiquid at 15% to conform with SEC requirements, but its private credit exposure is generally expected to comprise 10% to 35% of the portfolio.

The SEC also raised concerns about the fund's name, SPDR SSGA Apollo IG Public & Private Credit ETF, as Apollo does not have an obligation to sell any debt to the fund and is not an adviser or sponsor to it. The regulator considers this "misleading" and has asked the firms for more information.

Additionally, the SEC highlighted the fund's ability to redeem its securities on demand from shareholders at a price approximating their proportionate share of the fund's net asset value at the time of redemption. The ETF may also "achieve exposure" to private credit instruments by investing in interval funds or business development companies, which focus on providing direct loans, though these will be limited to 15% of its net assets.



The private credit market has been growing rapidly in recent years, with assets under management (AUM) expected to jump to $3 trillion by 2028. This growth has attracted the attention of regulators, who are concerned about potential risks, such as inadequate valuations and the riskiness of borrowers. The emergence of private credit ETFs, such as the one launched by Apollo and State Street, is drawing increased scrutiny from regulators, particularly the SEC.

As private credit seeks integration into public markets through ETFs, balancing innovation with regulatory oversight is crucial. The sector's evolution underscores the need for transparency and risk management, particularly as it engages with retail investors. While the potential for democratizing access to private credit is significant, ensuring robust regulatory frameworks and market discipline will be key to navigating the challenges ahead. The SEC's impending decisions on private-credit ETFs will likely shape the future trajectory of this dynamic financial landscape.