On September 10th State Street filed a Form N-1A to start the process of seeking approval for a novel exchange-traded fund (ETF) that would include a significant slice of private credit originated and backstopped by Apollo Global Management. These are two of the largest players in their respective industries, ETFs and Private Asset Management.
Since the filing, we have been lucky to be included in dozens of conversations with folks throughout both industries about the likelihood of approval, challenges and opportunities of the structure, and the ripple effects that have been released by the filing. We have no doubt conventional thinking about illiquid assets in exchange-traded vehicles has been disrupted.
The consensus in these conversations has been a bit surprising to us in that most pundits are pessimistic on the idea and tend to conclude that, “this will never happen”. We wholeheartedly disagree. This will happen. It will take several iterations between fund sponsors and the SEC, but we believe Private Asset ETFs will be an easier lift than crypto/asset ETFs were. And we would venture that the SEC approves these Private Asset ETFs before they bless the broad use of an ETF share class in mutual funds … just a guess.
Why are we Confident that this Will Happen? Three reasons.
- Mainstreet (Retail) Investors want (and should have) more access to alternative assets. The largest inaccessible markets for these Mainstreeters are early-stage venture, growth-stage private equity and privately originated credit. Today, most “alternatives” are only available to Accredited Investors or Qualified Purchasers. This constraint is an antiquated regulatory framework built on a view that wealthy individuals and institutions are “more sophisticated” and can better understand the complexity and navigate the illiquidity of private assets. We see the evolution of digital assets as a direct rebuttal to this assumption as that category matured with involvement of all sorts of small and large players. We’d also pose that broader retail access to private assets will operate the other way – it will incent a wave of education and products that will improve transparency, implementation and lower the cost of private asset funds. Retail access will shed light on a huge, but shadowy, element of our economy.
- Liquidity, or converting an asset to cash efficiently, is a function of capital depth, clarity of exposure and transparency. Each of these components is improving within private capital markets. Capital depth is clearly here. McKinsey estimates the overall Private Capital market at $13.1 Trillion, as of June 2023, with Private Credit at about $2 Trillion and an addressable market of $30 Trillion.1 Clarity of exposure is improving, particularly with the help of artificial intelligence (AI) research tools that are becoming common in private capital underwriting. Blackrock’s acquisition of Preqin, one of the leading providers of private capital data, is an important milestone in the evolution of tools to define exposures and help price factor risks associated with private assets. Transparency will follow the capital. As vehicles that require better transparency are approved and capital flows in, more private originators and borrowers will volunteer to provide increasingly detailed and timely financial information to support efficient pricing. Liquidity begets liquidity and eventually the reporting lines between public registered securities and private unregistered exposures will blur. Transparency will win.
- Wall Street is as innovative as Silicon Valley. A quick study of Wall Street history shows a clear path of innovations that steadily increase liquidity and evaluability of various assets, from the founding of the CBOE in 1973 to the crypto exchanges and ETFs of today. Markets will find a way to open growing markets to ever-wider pools of capital. In this vein, it’s easy to brainstorm methods for liquidity consortiums to backstop the tradability of private assets held in exchange-traded vehicles. ETFs, in particular, are well built to accommodate this multi-layered arbitrage market because they already involve market makers that use custom baskets to represent various hedge-able risks. There will need to be innovation among Authorized Participants to coordinate with contingent liquidity providers (i.e. we believe catastrophe (CAT) bonds, contingent convertible (CoCo) bonds, asset-backed securities (ABS), certificates of deposit (CDs) and collateralized loan obligation (CLO) markets all have structures that can be repurposed to backstop ETF holdings of private assets) but it’ll be an evolution, not a revolution. The point is that intellectual property already exists.
There will be many more comments shared over the ensuing year about the risks and opportunities – and apparent contradiction of Private Capital Exchange-Traded Funds – but the idea is out there and will not disappear. Global financial markets are complex, adaptive systems. This is what they do. This will happen. Probably in ways none of us can exactly predict.
Important Disclosures & Definitions
1 McKinsey & Company, McKinsey Global Private Markets Review 2024, March 2024.
AAI000776 10/15/2025
