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The US Securities and Exchange Commission expressed concerns over a much-anticipated private credit exchange-traded fund from Wall Street giants State Street Corp. and Apollo Global Management Inc., asking the firms for more information in a letter Thursday.
The regulator’s worries center on the fund’s liquidity, its name and its ability to comply with valuation rules, according to the letter. It also noted that the fund continued to respond to staff questions by email even when instructed not to, and questioned why a filed copy of a key agreement between the firms was redacted to the extent that it was.
The letter came after the ETF officially launched on Thursday, debuting on the New York Stock Exchange under the ticker “PRIV.” It’s a swift response to an ETF that brings together the very private world of direct lending and a more democratic market for trading. Apollo’s Chief Executive Officer Marc Rowan in particular has been predicting the convergence of private and public markets, noting that there will come a time when people will question the difference between the two.
A State Street representative said they have received the SEC’s inquiry and will respond, but declined to comment further. And a spokesperson for Apollo said “we saw a significant volume of shares trade yesterday and remain confident in the value the convergence of public and private markets can offer to investors.”
The ETF got net inflows of $1.2 million on its first day of trading, according to data compiled by Bloomberg. The fund’s price was little changed as of 9:40 a.m. in New York, though it saw turnover of around $2.5 million.
Brent Fields, the associate director of the SEC’s division of investment management, said in the filing that the SEC has “concerns regarding the Fund’s liquidity risk management program.”
The ETF will 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, a separate filing shows.
Historically Illiquid