Summary of The “Private BDC” Alternative
- A private BDC is regulated as a business development company under the Investment Company Act of 1940 but conducts private offerings to accredited investors;
- Attractive option for asset managers that have robust stable of accredited investors;
- Attractive option for asset managers that lack a public track record;
- Private BDCs not subject to some of the restrictions that have limited fundraising by publicly-registered non-traded BDCs;
- Recent increase in filings by private BDCs;
- Eventual liquidity can be a listing, initial public offering, liquidation or merger.
FS Investment Corporation launched the first publicly-registered, non-traded BDC in January 2009. From 2010 – 2014, fundraising for non-traded BDCs saw tremendous increases, but subsequent years have seen sharp declines, consistent with declines experienced by non-traded REITs and similar products. Aggregate fundraising by non-traded BDCs peaked in 2014, when approximately $5.5 billion was raised.