Market
Memos from Howard Marks: Ruminating on Asset AllocationBusiness Development Companies (BDCs)
Offering income-seeking investors access to the debt and equity of private or developing public companies
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An Introduction
Investing in small and medium-size U.S. businesses
Business development companies (BDCs) are closed-end, continuously offered investment products that invest in small and developing U.S. businesses via secured debt, unsecured debt or equity. They may also provide management/consulting services to portfolio companies. BDCs often finance companies that are too small to access capital markets or qualify for traditional bank loans and often extend credit at higher interest rates. BDCs must invest at least 70% of their capital in private or public U.S. companies with a market cap of less than $250 million and must pay at least 90% of their income to shareholders.
Features
BDCs have the following features and potential benefits:
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Alternative credit
Investments that individuals cannot typically access
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Attractive distributions
High dividend income potential
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Portfolio diversification1
Historically low correlation to public equities and bonds
1Diversification does not ensure a profit or protect against loss.