WASHINGTON, D.C.—Director of Securities Policy Benjamin Schiffrin issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission (SEC) in connection with a filing submitted by State Street and Apollo Global Management seeking approval for a private credit exchange-traded fund (ETF):

“This application for a private credit ETF further blurs the line between the public and private markets. Exchange-traded funds normally offer retail investors a way to diversify their risk while investing in the public markets. But this ETF will expose retail investors to private credit, a subset of the private markets usually open only to sophisticated market participants. Retail investors may not understand the risks of this asset class. Consequently, rather than mitigating their risk, this ETF could leave retail investors unprotected.

“Private credit involves lending by non-bank institutions, which means that private credit funds typically invest in illiquid debt investments. So the loans that private credit funds make are difficult to value because they rarely trade. As a result, the difficulty of valuing the loans in a private credit portfolio could lead investors in the funds to experience losses. In addition to unreliable valuations, the illiquid nature of the loans that private credit funds make poses additional risks. Investors in ETFs normally expect high liquidity. But it is unclear how retail investors could easily withdraw money from funds filled with illiquid assets.

“The risks of private credit mean that any attempt to form a private credit ETF must include rigorous investor protection measures. But this application does not contain sufficient information to ameliorate the concerns about potentially unreliable valuations and a lack of liquidity. The application lacks the necessary protections that retail investors deserve.”

The Comment Letter is available here.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.