Investor CAFÉ

Why My Favorite ‘Private Equity’ Sector is under Selling Pressure

I’ve been recommending a small sector of private equity called business development companies (BDCs) for many years. These are small-time lenders and specialty-finance companies such as Ares Capital, Apollo Investment Group, Prospect Capital and Main Street Capital that finance small- and middle-size private companies that want to expand. They get paid interest and fees on their loans and often take equity positions in these private companies. When they go public or are bought out, the BDC profits handsomely.

BDCs tend to pay generous dividends, anywhere from 6-8% a year, thus attracting many investors.

In the past couple of years, they have been popular and beaten the market, as investors searched for higher yields in a low-interest-rate environment. They get knocked down from time to time when they issue new shares or get overvalued.

Read more about the SEC-induced problem for BDCs at Eagle Daily Investor.

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