Fixed income investing received an interesting jolt when the SPDR SSGA IG Public & Private Credit ETF (PRIV) came to market earlier this year. The actively managed PRIV debuted in February and is off to a solid start as highlighted by its nearly $139 million in assets under management.
That’s enough to get on many of the platforms advisors custody with. Throw in the intrigue surrounding “private” and a 30-day SEC yield of 4. 57% and it’s possible if not likely that income-hungry investors will continue kicking PRIV’s tires. So why not add a shorter duration equivalent to the private credit mix?
State Street Investment Management did just that with the Sept. 10 launch of the State Street Short Duration IG Public & Private Credit ETF (PRSD). Like PRIV, the new PRSD is actively managed and represents another partnerships with Apollo Global Securities LLC. PRSD lives up to its short duration billing by targeting a duration of one to three years, well below the comparable metric of 5. 83 years (option-adjusted) on PRIV.
“PRSD may invest in private credit instruments sourced by Apollo Global Securities LLC; private credit will generally range between 10-35% of the Fund’s portfolio though it may comprise less than 10% or more than 35% of the Fund’s investment portfolio at any given time,” according to the issuer.
Peering Into PRSD
Private credit is considered an alternative investment. Alone, that potentially increases the use case and audience for PRSD because more clients, particularly those in the high-net-worth camp and those in younger age brackets, are interested in “alts. ”
As alternative assets, both PRIV and PRSD provide ordinary investors with an alluring combination of income and reduced correlations to equities – traits private credit has long been known for. The correlation element is noteworthy because, as advisors know, there are periods when various forms of public corporate debt behave like stocks, diminishing the diversification properties of those bonds.
That exposes clients and investors to risk they likely didn’t bargain for when allocating to those bonds. No one wants that. Speaking of risk and volatility, PRSD’s focus on short duration could, over time, mitigate some of those issues.
“Notably, to help manage interest rate risk, PRSD, with a duration target between 1 and 3 years, provides the potential for greater high-quality income than ultra-short exposures while limiting the volatility associated with intermediate- and longer-term bond strategies. Relative to core bonds, short-term exposures have historically provided 70% less volatility but only 24% less return,” according to State Street.
Understanding PRSD Plumbing
As the new ETF’s name implies, PRSD holdings are not publicly traded, but that doesn’t imply the private credit market is small or lacks for offerings or participants. It’s a $40 trillion space that includes equipment financing, debt secured by music royalties, Commercial Property Assessed Clean Energy (CPACE), mortgages and much more.
Predictably, there are concerns regarding private credit liquidity, which are reasonable and have accompanied ETFs like PRIV, PRSD and others. The State Street products may have a liquidity advantage over rivals owing to the partnership with Apollo.
“Apollo’s credit platform originated more than $220 billion of transactions in 2024, supported by its credit business and broader origination ecosystem currently spanning 16 standalone businesses that provide novel access to directly sourced private credit originations, including both corporate lending and asset-based finance,” adds State Street.
