The sortable list below contains the most complete list of non-traded BDCs online. Use the links to navigate directly to each BDCs’ SEC filings for the most recent information.
What are non-traded BDCs?
Non-traded BDCs are just like their publicly-traded peers, except they cannot be bought and sold on a stock exchange. Non-traded BDCs will have investment portfolios that are largely made up of loans to middle-market companies. From an operating standpoint, non-traded BDCs don’t act differently than publicly-traded BDCs.
The big difference is that there are limitations on your ability to sell shares of a non-traded BDC. Typically, the BDC’s manager will allow for investors to redeem their investment for cash at certain times through the year through tender offers. These tender offers are subject to remdemption limitations, usually equal to 2.5% of all investments in the BDC. Shares are redeemed at their most-recent net asset value.
When credit spreads blew out in 2016, non-traded Business Development Corp. of America had to suspend redemptions, as investors tried to cash out more than the BDC allows in any given quarter. The Wall Street Journal reported that it had redemption requests for 7.4 million shares, but only 41% were allowed under its limits on redemptions.
Publicly-traded BDCs don’t cash out investors through the same process. Instead, investors can cash out only by selling their shares on the open market. See the list of publicly-traded BDCs.
Because private BDCs do not trade on an open market, their shares are theoretically less volatile. Private BDCs always sell for NAV — assuming you can actually sell them — whereas publicly-traded BDCs can trade at premiums and discounts to NAV. The chart below was taken from an FS Investments sales page. It prominently displays FS Investments’ high sharpe ratio, but the details are in the footnotes — its sharpe ratio was higher because it always sold at NAV, unlike the publicly-traded BDCs it compares itself to.
Why do non-traded BDCs exist?
It’s all about the fees — lots and lots of fees.
Financial advisors can earn a 7% commission by selling non-traded BDCs to their clients. Sell $1 million of non-traded BDC stock to your clients and you’ll make $70,000 on the spot. It’s obviously a pretty lucrative deal for the financial advisor.
The downside is that all this money comes out of the investor’s pocket. In many cases, commissions and other fees can add up to 10% of the total amount invested. If you invest $10,000 in a non-traded BDC, you’ll likely end up with an investment that is only worth $9,000 on day one. It’s hard to argue that non-traded BDCs are a good deal.
Commissions are just one part of the cost of investing in private BDCs. The managers of non-traded BDCs usually charge higher management and incentive fees on these private BDCs than they could charge on public BDCs. In fact, FS Investment Corp (FSIC) was a non-traded BDC that listed on the NYSE in 2014. Around the time of listing, it dropped its management fee, and instituted a structure that more closely align management and incentive fees with investors’ returns. The public markets demand more of BDC managers than private markets do.
Not all BDCs work in this way. Notably, a non-traded BDC by the name of Owl Rock has raised billions from institutional investors with the promise of low fees and no incentive fee until it becomes publicly-traded.
Financial industry regulator, FINRA, has routinely warned about the risks and costs of BDCs, and recently engaged in sweep actions to better understand the industry and its relationships with financial advisors.
Eventually, most private BDCs have a goal to go public. FSIC Investment and TCG BDC are two of the most successful non-traded BDCs that eventually listed on public markets through the IPO process.
Many of private BDCs share the same manager as a publicly-traded BDC.
Here are a few:
- CĪON Investment Corporation is managed by Apollo Global, which manages Apollo Investment Corp (AINV).
- Four non-traded FS BDCs share the same manager as FS Investment Corporation.
- HMS Income Fund is managed by a manager owned by Main Street Capital shareholders.
- Sierra Income Corporation is managed by the same group as Medley Capital Corp.