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.