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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (25989)	2/13/2007 2:41:55 PM
From: jhelmers	Read Replies (1) \| Respond to of 78816

Madharry, I doubt you will ever see PSEC trade at a discount to NAV, although it got interesting this morning. It is very rare for a BDC to trade below NAV, except during its early years or a headline event occurs, a la resume-gate with MCGC's CEO a few years ago. The BDC structure is very similar to REIT's in that they pay no Federal taxes if they distribute most of their income to shareholders. Thus, there are a lot of yield-hog, retail investors who buy BDC's. As a BDC matures, dividend yield becomes the driver of price, with price/NAV being secondary. Not saying PSEC won't trade below NAV, just that it will take something significant to drive it there, which takes a gut check to buy when everyone is heading to the exits. Not pumping PSEC, as I do not own it, but I have been following BDC's for a bit and find them interesting and often misunderstood. Paul Senior, I am glad you mentioned ACAS because I have some additional comments on them. I like their management team, as they have been very creative. In the past year, they have created several funds. One is ECAS, which invests in Europe. BDC's are restricted in foreign ownership, so ACAS only owns the management company that manages ECAS. ACAS "just" collects management fees. They are also starting their own private equity funds. In one case, they contributed $670 million of equity investments into a private equity fund called ACAS I, and act as the manager. That was clever because they converted equity into management fees while retaining a portion of the upside in the equity investments. ACAS is becoming part asset manager, which is much sexier than a BDC (witness the irrational exuberance over FIG). One could argue that ACAS deserves to trade at a lower dividend yield because a portion of their income is smoother and has a higher ROIC.