FUNDRAISING NEWS | September 13, 2024
Just days after State Street Global Advisors (SSGA) and Apollo Global Management shook up the ETF world, announcing on September 10 their plan to team up on a private credit ETF, BondBloxx filed its own application for such a fund on September 13, signaling what could be the start of a private credit ETF race among Wall Street firms looking to tap into strong retail demand for private credit as institutional interest eases.
Both the State Street-Apollo linkup and the BondBloxx strategies propose to provide investors with private credit exposures, though they may do so in slightly different ways. The SSGA/Apollo ETF intends to put 80% of assets in investment-grade securities and 20% in high-yield bonds, while BondBloxx has more specifically revealed in its own filing that it intends to invest 80% of its assets in collateralized loan obligations (CLOs), backed by a pool of loans made to private companies. According to Bloomberg, ETFs utilizing CLOs have quickly grown to $15B since the first fund employing the strategy launched four years ago, with Janus Henderson AAA CLO ETF leading the way.
For its part, the SSGA/Apollo fund intends to manage regulatory requirements related to liquidity by having Apollo backstop the private credit portion of the fund through offering intraday, executable bids. According to Bloomberg, State Street has also been working to build out its trading desk for investment-grade private credit loans to provide liquidity as well.
In the case of SSGA and Apollo, the fund links up two leaders in their respectives spaces, with State Street managing over $1.3T in ETF assets as of June, according to Bloomberg, and Apollo, through its “Accord” private credit strategy raising over $15B in the series since its inception in 2017. Apollo reported raising over $11B in funds for its Accord strategy as of the November 2022 close of its $2.4B Accord+ Fund, which it subsequently followed with the Accord V ($1.92B) and Accord VI ($1.7B) vehicles.
The union of actively managed ETFs and private credit funds could tap into the high demand from retail investors for both, while offsetting declining interest from institutional investors in the latter. In June, Bloomberg said actively run ETFs could set a record annual haul of $260B in 2024, almost doubling 2023’s then-record of $140B. That contrasts with institutional demand for private credit, which The Wall Street Journal (WSJ) on September 13 said could see a third straight year of decline, driven by low levels of cash distribution. According to the WSJ, private credit fundraising hit $118.8B through August 22, putting 2024 on pace to fall short of 2023’s mark of $215.4B, which in turn was down from $245.8B in 2022.
Providing retail investors with access to private credit exposure could therefore help offset cooling institutional interest.
“It’s not surprising that they’re sitting out there in labs everywhere trying to figure out how to ETF-ize private credit and private equity,” Bloomberg Intelligence ETF analyst Eric Balchunas said in a September 10 interview. “Investors out there definitely want access, so whoever can bridge that gap is going to make out, so there is incentive to do it. We saw what happened with Bitcoin. They figured that out and, boom, you saw the success there, so same deal here.”
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