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Public/Private-Credit ETF PRIV with Liquidity Provider Apollo
This public/private-credit etf PRIV from State Street & Apollo has some unusual twists – it will hold private-credits in 10-35% range and Apollo will act as daily liquidity provider to overcome the SEC limitations on illiquid holdings to 15%. So, basically, Apollo will buy units if there are excessive daily redemptions and State Street can buyback those on demand.
I don't know of ANY similar arrangements in the listed funds (ORFs, ETFs, CEFs). But there has been a similar Liquidity Guarantee for the TIAA Real Estate Account VA (QREARX) since 1995! TIAA charges a fee for this Liquidity Guarantee. TIAA buys QREARX units when there are excessive redemptions and QREARX buys them back later. This feature has been triggered twice, once during the GFC, and recently in 2023. TIAA hasn't lost money on this Guarantee - in addition to collecting fee (included in the ER), it has been able to get out of the units bought at decent profits. It's the magic of deep-pockets.
Evidently, SEC raised these questions for SSGA to address before trading began but SSGA went ahead with the launch without clearing the queries. May be SSGA thought they are too big to be bothered by such queries in a promised unregulated environ. They made a business decision.
@BaluBalu, I don't know. I was under the impression that the SEC issues an authorization letter for trading that is transmitted to the exchange. I think that such a letter may have been issued in the confusion of transition at SEC and it seems to be backtracking now.
Going ahead with trading without SEC approval is a VERY SERIOUS issue. Charles Schwab learned this very early in his career. He had a fund that started trading while the SEC questions were pending. SEC threw the hammer down on him and required recision (or recission) - i.e. the refunds to investors at the IPO price (unlucky for Schwab, the fund had declined since the IPO). The relations between Schwab and SEC were soured forever. Others watched and learned a good lesson not to try to outsmart SEC. This was probably the reason that when Schwab was caught again in the SEC vice (tool) for the mess created by ultra-ST funds during the GFC, Schwab was almost the last to settle with the SEC.
"I was under the impression that the SEC issues an authorization letter for trading that is transmitted to the exchange."
Yes but as your Schwab example illustrates that letter is a separate track than the one between SEC and the issuer to clear SEC queries. I think the protocol is from the pre-internet time and probably should change but the protocol you alluded to which would be investor centric is not what the issuers would like and as such I do not expect change to the current protocol for another 4 years. We must accept that we are in a deregulation to no regulation phase.
"I think that such a letter may have been issued in the confusion of transition at SEC and it seems to be backtracking now."
I am not suggesting that everything is working and will work like a well oiled machine. I personally am bracing for accident rate to increase and with more severe consequences than we are used to.
Somewhat related and as an aside, I think it will require more alertness on our part to be able to parse through what is a symptom of systemic risk and what is a symptom of routine risk (i.e., normal imperfection of a system) so we take the right risks.
Using the public markets to monetize illiquid assets if taken to the extreme (and Americans are great at it) can result in a systemic risk.
Comments
Current Name: SPDR SSGA Apollo IG Public & Private Credit ETF
New Name: SPDR SSGA IG Public & Private Credit ETF
https://www.cnbc.com/2025/03/06/sec-in-hot-seat-over-private-credit-etf-approval.html
SSGA Filings
https://www.sec.gov/Archives/edgar/data/1516212/000000000025002259/filename1.pdf
https://www.sec.gov/edgar/browse/?CIK=1516212
Edit/Add, 3/11/25. Morningstar's critical take on this issue,
https://www.morningstar.com/funds/will-sec-force-changes-ssga-apollo-private-credit-etf
Going ahead with trading without SEC approval is a VERY SERIOUS issue. Charles Schwab learned this very early in his career. He had a fund that started trading while the SEC questions were pending. SEC threw the hammer down on him and required recision (or recission) - i.e. the refunds to investors at the IPO price (unlucky for Schwab, the fund had declined since the IPO). The relations between Schwab and SEC were soured forever. Others watched and learned a good lesson not to try to outsmart SEC. This was probably the reason that when Schwab was caught again in the SEC vice (tool) for the mess created by ultra-ST funds during the GFC, Schwab was almost the last to settle with the SEC.
Yes but as your Schwab example illustrates that letter is a separate track than the one between SEC and the issuer to clear SEC queries. I think the protocol is from the pre-internet time and probably should change but the protocol you alluded to which would be investor centric is not what the issuers would like and as such I do not expect change to the current protocol for another 4 years. We must accept that we are in a deregulation to no regulation phase.
"I think that such a letter may have been issued in the confusion of transition at SEC and it seems to be backtracking now."
I am not suggesting that everything is working and will work like a well oiled machine. I personally am bracing for accident rate to increase and with more severe consequences than we are used to.
Somewhat related and as an aside, I think it will require more alertness on our part to be able to parse through what is a symptom of systemic risk and what is a symptom of routine risk (i.e., normal imperfection of a system) so we take the right risks.
Using the public markets to monetize illiquid assets if taken to the extreme (and Americans are great at it) can result in a systemic risk.