You may have recently heard the names Blackstone, KKR, or Apollo in the news. These are some of the largest private credit and equity asset management firms in the world. One might ask, what exactly are private credit and private equity? Private credit and private equity fall under the alternative asset class in the investment management industry. Private equity involves acquiring an ownership stake in a company that is not publicly traded. While private credit refers to loans that are privately negotiated, typically between a business and what is considered in the industry as a non-bank lender. Currently, 87% of U.S. companies with revenues exceeding $100 million are privately held. This represents a significant portion of the U.S. economy which is not publicly traded on the markets. The private credit market has been growing over the last 10 years and has seen increased demand from both institutional and retail investors. The private capital industry has been advocating for deregulation to gain access to trillions of dollars in assets held in U.S. 401(k) plans. Mark Rowan CEO of Apollo is seeing this as an untapped opportunity for the industry to access retail investors. In line with this, a new Private Credit ETF was launched at the end of February 2025, but it has already faced backlash and encountered numerous regulatory challenges following its controversial debut. Let’s explore how these new investment products might work or whether they could add value to the average retail investor’s portfolio.
Following the contentious launch of State Street’s Apollo Private Credit ETF (PRIV), we have already seen regulators from the SEC outlining numerous issues with the transparency and liquidity of the fund. State Street, the company who launched the product, has already announced that it would be renaming the fund. One of the concerns outlined by the SEC is that the fund’s holdings are not exclusively tied to the asset manager Apollo. With Apollo’s name prominently featured in the fund’s title, it’s clear how this could potentially deceive investors purchasing the product. Another key point addressed was the fund’s actual exposure to private credit assets. Initially, State Street targeted 10% to 35% exposure to private credit, with the remainder coming from public markets. Despite private credit being in the fund’s name, how much real exposure were investors actually getting? The Essence of putting alternative assets like private credit into an ETF wrapper is to allow for not only daily liquidity but for retail investors to have the ability to access what has been an exclusive investment for high net worth individuals. Private credit is typically used by high-net-worth investors to diversify their portfolios beyond publicly traded stocks and bonds. It also offers the opportunity to earn higher yields than those available through publicly traded investment bonds and debt securities. This typically involves a lock up period, but provides higher returns over a longer-term. In this case we are taking private credit which has been generally known to be illiquid assets and jamming them into a liquid tradable product. I can already see potential areas of risk that could pose threats to investors. One being that private credit assets are not typically valued on a daily basis in the public markets. Unlike publicly traded stocks and bonds, these private assets have less transparency to determine fair value. This calculation of the daily fair market value of public assets, known as “mark-to-market,” is central to the ETF industry, where assets are valued on a daily basis. At first glance, the combination of the two might seem confusing for investors.
In my opinion, innovation within the financial services industry is something I fully support. The creation of new financial products that give investors access to newly accessible markets, offering real value and diversification to their investment or retirement portfolios, is a great opportunity for the everyday investor. My skepticism about this product arises when you look beneath the surface, where transparency issues start to become apparent. The first question that comes to mind is: what exactly do I own, and how are these assets valued, considering they are not publicly traded? Additionally, you can expect higher fees for investing in these types of products, as they are marketed as premium offerings. Despite being told that these products add value through diversification due to their low correlation to the public markets, I still don’t see an avenue currently where most investors would need this in their portfolio. Wall Street, like any savvy storefront, knows how to package and sell you financial products you never asked for—and likely don’t need.
