As I said, I don't follow PSEC but the article raised a number of red flags that would give me pause. I hope it works well for all here holding it, but thought I should mention the article. Below are a few other excerpts in case anyone interested can't access it.
GLTA and Happy Holidays.
Max
By comparison, Malon Wilkus, chief executive of the largest internally managed business development company, American Capital, earned $16.9 million in 2014.
Some investors who specialize in business development companies avoid Prospect stock partly because, they said, the firm inflates the fees it pays its management firm, Prospect Capital Management, a separate company owned largely by Mr. Barry.
“They have earned incentive fees even though they have lost shareholder value on a per-share basis,” said David Miyazaki, who focuses on specialty finance companies at Confluence Investment Management in St. Louis.
Prospect’s fees, like those of many business development companies, are similar to those of private equity funds. Its external manager charges a 2 percent annual management fee on all assets plus an incentive fee of 20 percent of certain income gains — and administrative expenses — at the high end of the sector. For its fiscal year that ended in June, the Barry-owned manager received fees and expenses totaling $240 million.
Some analysts say Prospect has often paid out dividends above its earnings, and sold stock below its book value, both of which can hurt investors. Both moves have helped Prospect raise its assets tenfold since 2008, also increasing fees.
“Dividends in excess of earnings aren’t really dividends, they are returns of investors’ capital, and they lead directly to falling net asset value per share,” David B. Golub, chief executive of Golub Capital BDC, a low-fee competitor, said about business development companies in general. |
