I think this is the article you referenced: Here is the complete article for others to read.
Obscure Corner of Wall St. Draws Skepticism From Investors
From the article:
"... One of the most criticized business development companies, however, is Prospect Capital...."
"...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, or about 3.5 percent of its total assets, according to the company’s annual report.
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. . . ."
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I do not own any BDC's, they are too complicated for me to figure out and I have not spent the time to do so. I do know that the fees charged by the management company and/or partner(s) are not exclusive to BDC's.
I own GOV which is now managed by RMR Group (the management team). They also mange many other popular REIT's:
The RMR Group also manages Hospitality Properties Trust, or HPT, a publicly traded REIT that owns hotels and travel centers, Senior Housing Properties Trust, or SNH, a publicly traded REIT that primarily owns healthcare, senior living and medical office buildings, and SIR. The RMR Group also provides management services to Five Star Quality Care, Inc., a senior living and healthcare services company which is a tenant of SNH and manages certain of SNH’s senior living communities, and TravelCenters of America LLC, an operator of travel centers which is a tenant of HPT. An affiliate of The RMR Group, Sonesta International Hotels Corporation, is one of HPT's hotel managers.
Around June 15, 2015, The RMR Group bought the RMR Management Company which was the previous group (not transparent) had vested interests in the deals & properties they acquired (huge commissions for the management company) and charged enormous annual fees. Isn't it interesting that the Portnoy brothers are the largest shareholders in these REITs. Some activist investors claimed that many of their deals benefited the management group (specifically the Portnoy brothers) , paying excess amounts for new properties w/ those proceeds going directly to the two brothers.
The new group structure was forced by activist investors and probably helps. However, the long term shareholders own units that were bought at inflated prices (maybe as much as 35% higher) because of the previous structured deals negotiated by the Portnoy brothers. It's funny how stated NAV's can shrink whne an independent auditor reviews the books.
RMR Managed REITs Acquire Approximately Half of RMR Management CompanyREITs Agree to Distribute Ownership of RMR Management Company to Their Shareholders; RMR Agrees to Seek Listing on National Stock Exchange; RMR Management Agreements Amended and Extended for 20 Year Terms
Further Aligns Interests of RMR Management, REITs and REITs’ Shareholders; Provides Greater Transparency into RMR Management; REITs Continue to Benefit from Low Cost Management Structure
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Lesson learned, always important to have large investors inside the ownership structure and on the BOD. Even the pension funds that owned a large amount of shares could NOT get the BOD to act in the shareholders best interests. It took a group of these funds and an activist investor to get this new management structure.
EKS |
