Tack

How to Invest in Private Equity Through Public Markets

Excellent article and a remaining undervalued investment area.

A few other names to consider: PSEC, HTGC, TICC, GLAD

Assessing BDCs' Rise from the Grave

"....However, as the economy worsens a lot of the BDCs will be forced to write down their portfolios even further and potentially breach debt covenants that require minimum leverage ratios......"

The problem with the above statement is that it presupposes that things will get worse, and that's about as much of a guess as the exact present value of any of the untraded assets held by these BDC's. If anything, there are indications that some things in the economy are improving.

The risk/reward ratio for BDC's seems favorable, in my estimation, for the following reason: the single greatest risk that BDC's face is refusal of their maturing debt to be re-funded by their lenders. However, this risk appears to be exaggerated because lenders would have a miserable time liquidating BDC private-investment portfolios, and most of the BDC's loans are performing, notwithstanding the economy. There's more upside for lenders in reworking loans to expand their profit participation than in collapsing the BDC's.

Eventually, the IPO and acquisition markets will resume, and BDC's will again recognize substantial gains on their holdings and expand their liquidity. Given continued yields and ultra-depressed share pricing, potential BDC rewards could well exceed the associated risks.