Lead Left Interview – Jonathan Bock (Part 2)

This week we continue our conversation with Jonathan Bock, CFA, Senior Analyst, Wells Fargo Securities. Jonathan is one of the foremost experts on BDCs in the banking industry / research community. The BDC Almanac (his primer) and the Wells Fargo BDC Scorecard (his quarterly) are the most read research reports in the market today.  Second of two parts – View part one

TLL: How do you distinguish between publicly traded BDCs, and private ones?

JB: Publics are easy; they trade publicly. The private (or non-traded category) is a little different. These are BDCs that do not trade, but file public financials. Often we’ll see managers raise either private institutional capital (TPG) or private retail capital to build a fund they will eventually IPO/list.  It’s a very attractive way to bring a BDC as it can ease the 3% rule issues on the mutual fund community.

TLL: How so?

JB: 40 Act funds are limited to owning only 3% of another 40 act fund. Remember, BDCs are 40 Act funds. So for a $100 million public BDC, a mutual fund manager can only own a $3 million position—that’s not very attractive if you run a $7B small cap portfolio.