Private Credit in a Public Wrapper: Inside the $PRIV ETF
Investors are saying "Pass". Why?
If you’ve been following the recent headlines in ETFs or private credit, you’ve probably noticed State Street and Apollo making another push to bring private credit ETFs to a broader audience, just months after launching their first-of-its-kind product earlier this year.
State Street and Apollo’s back-to-back launch of private credit ETFs begs the question: why the urgency? Because so far, demand hasn’t exactly taken off.
As of the most recent filing, PRIV holds just $54 million in assets: a rounding error for a firm like State Street. And according to Bloomberg, it’s only seen two days of net positive inflows since launch.
(Then again, maybe it’s the 70 basis point management fee, for what’s essentially a bond fund, that’s giving investors pause.)
Today, we’ll dig into what’s really inside the SPDR SSGA IG Public & Private Credit ETF (PRIV), why its supposed “liquidity” is far more nuanced than the marketing suggests, and the key questions every investor should ponder.
I’ll also share how I used AI to sift through hundreds of pages of quarterly filings and offering documents to quickly highlight the important items.
📚 Need a refresher on how to evaluate private credit funds?
Background
Quick reminder: this is not financial advice, nor a solicitation to sell securities. All information is shared strictly for educational purposes.
Let’s start with the basics. State Street’s PRIV ETF is marketed as a way to blend investment-grade public and private credit, with up to 35% of the portfolio in private credit instruments (most sourced by Apollo). The rest is a mix of:
government bonds,
corporate credit,
and the usual suspects you’d find in a high-grade bond fund.
The pitch to retail investors: higher yields, diversification, and exposure to private credit’s “illiquidity premium”, all in a wrapper you can buy or sell with a click.
I’m not going to shock anyone when I say this, however: private credit, by definition, is illiquid. The ETF structure, by definition, is liquid. When you try to marry the two, you get a product that’s neither fish nor fowl - and, I’m sorry to report, the risks don’t disappear.
What’s Really in the Box? (And How Do You Know What It’s Worth?)
PRIV’s “private credit” sleeve is a mix of direct originations, privately placed bonds, and other bespoke credit instruments, most of which aren’t traded, aren’t quoted, and aren’t easy to value.
As of April 2025, about 6.6% of the fund’s assets are priced using Level 3 inputs (that’s accounting speak for “we’re making our best guess.”) These assets are fair-valued by a committee, typically using discounted cash flow models and whatever market comps they can find (if any).
The rest of the private allocation may be held through interval funds, BDCs, or similar vehicles, each with its own valuation quirks and liquidity constraints.
Apollo does offer intra-day bids on a portion of the portfolio (the “AOS Investments”), but that’s not true liquidity - it’s a contractual backstop, and it only applies to part of the private credit sleeve.
Valuation Risk
Here’s the part that should make every LP nervous: Level 3 valuations. I wrote about this earlier:
When a portion of NAV is based on unobservable inputs, you’re trusting a committee’s assumptions about discount rates, recovery values, and market comparables.
The ETF Liquidity Mirage
Let’s talk about the ETF wrapper for a minute. On paper, you can buy or sell PRIV any time the market is open. But the ETF’s liquidity is only as good as the liquidity of its underlying assets. So when a chunk of the portfolio is in hard-to-value, hard-to-trade private credit, things can get out of hand.
To be clear, I don’t expect a fund (or ETF) with a small portion of its portfolio allocated to illiquid assets to be very likely to run into liquidity issues. But it’s worth keeping in mind the nuts and bolts of the process:
If there’s a rush for the exits, the ETF relies on “authorized participants” (APs) to create and redeem shares, keeping the market price close to NAV. But if the APs can’t offload the underlying private credit at fair value (or at all) you can see discounts to NAV widen, or, in extreme cases, the ETF could even face delisting risk.
There’s no explicit “gating” language in the prospectus, but the possibility of trading at a material discount to NAV is real, especially in stressed markets. And while Apollo’s bid on AOS Investments helps, it’s not a panacea.
Apollo’s Liquidity Backstop: Feature or Bug?
Speaking of Apollo: their role here is unique. For certain private credit assets (the AOS Investments), Apollo has agreed to provide intra-day, executable bids, essentially acting as a liquidity provider of last resort. That’s a clever workaround to the ETF’s liquidity mismatch problem, but it raises its own questions: