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

To: Grommit who wrote (47857)	5/8/2012 6:42:48 PM
From: Paul Senior	2 Recommendations Read Replies (1) \| Respond to of 78670

Afaik and in my experience, it seems that all these bdc's are structured so that the managers/insiders who do all these deals get a VERY substantial piece of the action. As in bonus when loan is made, large profit percentage if bdc sells warrants or stock in a company that's been on the bdc books, etc. Sometimes (or more?) there's no financial risk to the managers themselves if the deals don't work out. Certainly a troubling aspect of this business. I can tolerate it if the dividend/distribution is high enough, seems safe enough, and if the managements aren't giving me my own money back again (i.e. if return of capital is a big component of the distribution.)

To: Grommit who wrote (47857)	5/8/2012 7:54:01 PM
From: Sergio H	3 Recommendations Respond to of 78670

BDC management fees. From Barrons Investment Ideas column: <Given the active management of BDC assets, companies in the sector typically pay a base management fee to external asset managers of around 2% of assets, and an incentive fee of 20% of the upside over pre-defined hurdle rates. This is very different than a passively managed ETF which typically has a management fee ofbetween 0.15% and 0.5%… Investors will need to account for the above factors when assessing the attractiveness of BDC equities.> March 20, 2012, 4:35 P.M. ET BDC Returns Beat Fixed-Income ETFs By Michael Aneiro Investors who have been piling into bond ETFs this year might be better off looking elsewhere – namely at business development companies. BDCs are generally private equity investment vehicles that are publicly traded. The largest BDCs include Apollo Investment Corp. ( AINV), Ares Capital Corp. ( ARCC), BlackRock Kelso Capital Corp. ( BKCC), Fifth Street Finance Corp. ( FSC) and Kohlberg Capital Corp. ( KCAP). Barclays Capital points out that equity valuations for BDCs are a function of dividend yields, which typically trade at a spread over the high-yield bond index or other similar benchmarks, and says that since underlying portfolios of BDCs are pools of fixed income investments, they should be compared to other fixed income benchmarks. Barclays used the two main high-yield ETFs – the SPDR Barclays Capital High Yield Bond ETF ( JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund ( HYG) – to assess the returns on BDCs. Barclays found that as a sector, BDCs currently offer an incremental 170 basis points in return on capital over comparable fixed income exchange-traded funds, attributing the higher dividend yield to active management of BDC portfolios and their asset mix. Barclays said the return profile of BDCs can be replicated through a levered holding of fixed income ETFs, but the degree of leverage required to do so will be more than the on-balance sheet leverage carried by BDCs.