Business Development Companies

An interesting segment of financial markets comprises business development companies (BDCs), which tend to invest in the debt of small and mid-size businesses.  BDCs are often attractive to income-seeking investors because they are incentivized by tax law to distribute at least 90% of their income to investors. 

As this article notes, “total assets under management in private-debt and direct-lending companies had grown to more than $740 billion by the end of September [2019] from about $125 billion in 2006,” which highlights the increasing popularity of this asset class. 

Unfortunately, middle-market lenders can come under significant pressure when defaults increase, and funding subsequently becomes more difficult to raise.  Investors should understand a BDC’s underlying value drivers and the impact of economic developments before investing in them.

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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management