Publicly Traded Business Development Companies (BDCs)
BDCs are a type of closed-end investment fund. They are a way for retail investors to invest money in small and medium-sized private companies and, to a lesser extent, other investments, including public companies. BDCs are complex and have certain unique risks. BDCs also may be structured in different ways. One way that BDCs can differ is in whether their shares are traded on national securities exchanges.
BDCs are not registered with the SEC as investment companies. However, BDCs are subject to many protective provisions of the Investment Company Act, such as governance requirements, compliance and recordkeeping provisions, and prohibitions on certain conflicts of interest.
The main difference between BDCs and other SEC-regulated investment funds is the type of companies they invest in. BDCs invest in debt and equity of small and medium-sized private, or some small public, companies. The companies BDCs invest in are typically in their early stages of development, or are distressed companies that may not be able to obtain bank loans or raise money from other investors. Sometimes BDCs may help manage the companies they invest in.
BDCs are sometimes compared to venture capital funds or private equity funds, which provide exposure to private, often illiquid, investments and may provide assistance to the companies they invest in.
In addition, BDCs have more leeway than other closed-end funds, mutual funds, and ETFs to invest using debt and other leverage.
Before you invest in a BDC:
- Carefully read all of the fund’s available information, including its registration statement, prospectus, and any recent 10-Ks, 10-Qs, and 8-Ks. You can get this information by looking at the fund’s filings on the SEC’s EDGAR database, from your investment professional, or directly from the fund.
- Understand the fees and expenses you will pay for the fund, and compare them to other investment options.
- Be sure that the fund’s investment strategy is consistent with your goals.
- Ask questions about the BDC, including what kind of companies it invests in, what kind of loans the BDC makes, what the most significant risks of investing in the BDC are, how much debt the BDC has taken on, whether the BDC has consistently paid distributions, and what fees and expenses you will pay.
Additional Information:
Publicly Traded Business Development Companies (BDCs): Investor Bulletin
Non-Publicly Traded Business Development Companies (BDCs): Investor Bulletin
Investor Bulletin: Publicly Traded Closed-End Funds
Investor Bulletin: Interval Funds
