Sales of Business Development Companies Hit Unprecedented Lows in 2020

Posted on February 8th, 2021 at 3:27 PM
Sales of Business Development Companies Hit Unprecedented Lows in 2020

From the Desk of Jim Eccleston at Eccleston Law LLC:

Business Development Companies (BDCs) are high commission products sold by many independent broker-dealers. BDCs work like banks, raising capital from investors to lend to small and mid-size private companies and sectors for those loans. The sectors include energy and restaurants, which were hit the hardest by pandemic-induced shutdowns.

The effects of the pandemic translated into poor performance for both nontraded and traded BDCs. When stay-at-home orders and the economic shutdown began last March, broker-dealers were warned that BDCs would feel increased stress. Broker-dealers sold just $362.3 million in nontraded BDCs in 2020, the least they have sold since 2010.

BDCs were more volatile over the year compared to the benchmarks. While BDC’s high dividend yields are attractive, they also are risky investment vehicles that can significantly underperform.

Tags: eccleston, eccleston law, BDC

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