The identity of an investor that dramatically boosted assets in State Street Corp.’s private credit ETF has been revealed as a $60 billion sovereign wealth fund that provides funding to Texas public schools.
The Texas Permanent School Fund bought more than 29 million shares totaling about $740 million worth of the State Street IG Public & Private Credit ETF, trading under the ticker PRIV, in the first quarter, according to a filing Friday.
The emergence of a large institutional buyer in such an ETF is a relatively new development, as the vehicles have largely been utilized by individual investors and advisers looking for exposure to private credit. The Texas fund owns a majority of the shares of the ETF, Bloomberg data show.
“We are delighted to have PRIV’s strategy validated by a large asset owner,” a spokesperson from State Street Investment Management said in a statement after the latest filing. “As it has crossed the one-year mark, we believe a combination of proven track record and investor education will pave the way for broader adoption.”
State Street, in partnership with Apollo Global Management Inc., debuted the ETF last year as part of an effort to bring private credit to a broader group of investors, in a watershed moment for the $1.8 trillion industry. The ETF offered outsize exposure to the asset class after Apollo agreed to originate a portion of the investments and provide intra-day price data.
The ETF drew a lackluster response from investors in its initial months. But earlier this year, the fund took in a record one-day inflow that brought its assets to about $496 million from $100 million. The Texas fund later invested about $347 million, helping to boost PRIV’s assets more than $840 million.
The inflow came from a “large client,” State Street said at the time, without providing further details. The Texas fund revealed the holding Friday in a quarterly report disclosing its equity holdings.
The ETF has returned 5% since it launched, compared to just over 4% for its benchmark.
State Street, for its part, is ramping up its efforts to bring private credit to ETFs, launching two additional vehicles alongside Apollo: one with short-duration debt and a third asset-backed offering.
With PRIV, the large holding by a single backer may raise concerns from other investors. Private credit has attracted scrutiny in recent months over concerns about its exposure to the software industry, which some investors believe is primed for disruption by artificial intelligence.
Many of those worries have focused on sub-investment-grade credit, however, while PRIV concentrates on investment-grade securities.
“It’s not unheard of for a large fund to have what we refer to as an ‘anchor tenant’ investor, but this is particularly large considering it makes up 87% of the fund,” Bloomberg Intelligence ETF analyst James Seyffart said. “As a fund company you have to worry about them exiting as quickly as they entered.”
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