We conclude our series on business development companies by answering your questions: Is it better for a BDC to be internally or externally managed? The costs of running an internally managed BDC are typically less than externally managed ones. That’s because it doesn’t pay a fee (which includes a profit margin) to an outside manager,…

When business development companies were created by Congress in 1980, they were designed in response to concerns about liquidity. Specifically, a provision in the 1940 Act limited the number of holders of investment company securities to 100 persons. That, of course, effectively eliminated public ownership. Private equity and venture capital firms argued this would put…

One of the many benefits of business development companies is their ability to easily hold a wide range of investments. From senior term loans, to unitranche loans, second-lien term loans, mezzanine debt, and even preferred stock, BDCs are incredibly versatile asset management vehicles. Historically, BDCs allocated more capital to higher-yielding, thus more risky, assets; particularly…

In the first installment of our special report on business development companies, we reviewed their history, summarized the basic precepts that govern them, and discussed some of their key features. This week, we take a closer look at BDC structures. As we wrote last week, BDCs are companies which issue stock to investors whose capital forms…

This past summer we ran a four-part series on collateralized loan obligations [“Why CLOs Matter”]. The excellent response to that special report encouraged us to publish another white paper, this time on business development companies. We will simultaneously be coming out with interviews with top players and experts in the BDC space. This week we…