Business Development Companies (BDCs) allow public shareholders access to portfolios that resemble private-equity funds. However, BDCs are not for the faint of heart. Most offer liquidity, income, upside potential, professional management and the opportunity to invest in some attractive areas. But there are significant risks includinghigh fees, leverage, conflictsof interest and risky underlying investments, to name a few.
Most BDCs have Web sites where you can find information on types of investments,advisors, leverage employed, expense and payout ratios, distributions, and other important data. All filedocuments with the SEC. Needless to say, you should read very carefully all of the filing materials, including theprospectuses, proxy statements, annual and semi-annual reports as well as their 10-Ks, 10-Qs and 8-Ks (detailing material events).
Take the time to analyze and identify those you want to own at the right price. Then when the time is right and the shares are trading near net asset value, make your move. While it’s ego gratifying to invest with the big guys, don’t pay up for mediocre performance or greedy managers.
Here is a listing of BDCs with company information. In my opinion, a high yield should indicate a stable stock so I like BDCs with a low volatility to confirm it is trading well. I prefer BDCs with average volatility below 30% and find those below 20% as a great indicator. Of course, it’s the yield and monthly income we are looking for in a BDC and maybe a little capital gain.
