Business Development Companies (BDCs)
Created by Congress in 1980, BDCs were established to encourage the flow of capital to small- and medium-size companies to help them grow. They provide investors with exposure to investments in predominantly private companies, which are typically hard to invest in directly. BDCs may help to provide diversification when added to an overall portfolio.
Attributes of Business Development Companies
Allows “pass through” tax treatment if at least 90% of income and capital gains are distributed to shareholders annually
Regulated by the Investment Company Act of 1940 Act; Board of Directors with majority independent directors
Required to file quarterly 10-Qs and annual 10-K (audited financial statements) and detailed disclosure of each investment included in a schedule of investments
Quarterly valuation of each investment by an independent third party
At least 70% of portfolio must be invested in private U.S. companies or public U.S. companies that have a market capitalization of less than $250 million; within BDC portfolios, position concentration restrictions can promote diversification
