In recent years, the business development company sector has boomed. In just a few short years, the number of BDCs skyrocketed from relatively low numbers in the early 2000s to a sizeable number today, including over 50 that are publicly traded.
So why might you not be seeing more of the sector in the news?
That’s a fair question to ask. Many non-insiders might assume that a growing sector would be rife with news coming out of it. However, in today’s BDC landscape you don’t hear much, positive or negative, from other than a few notable names.
Is this a cause for concern? Should you reconsider your investment in a BDC?
The answer to both of these questions is a resounding ‘no’. And the reason is because most BDCs don’t make the headlines because they are doing everything just as they are supposed to. BDCs don’t create the ‘sexy’ headlines that attract eyes. Essentially, much of the article headlines could sound something like, “[BDC Name] Continues on its Course. Investors, Portfolio Companies Alike Remain Happy.”
Sure, the negatives are out there. You hear of consolidation and how stocks or other factors could make the sector “doubly risky” in no time. There’s certainly credence to some of these articles. Like any industry, there will be ebbs and flows to the business. It’s always going to be there. There are some BDCs that probably won’t last in the long run. Despite it being a small number, there are almost always going to be a few businesses that fail to perform even when virtually every other company is booming.
But for all the alarmist and foreboding articles, you can also find news about potentially high annual returns and thought pieces that indicate the sector’s ability to match up with banks. At Saratoga Investment Corp., we take immense pride in largely staying out of the news due to our boring (by headline news standards) by managing a balanced portfolio that continues to grow in quality and returns without taking on any risky portfolio companies. This past quarter, 97% of our portfolio companies were in the highest credit rating possible. With our recent and long-term success, it would be hard to turn Saratoga Continues Improvement in Key Performance Metrics Year-Over-Year into a juicy topic. From an insider point of view, is this type of news about a BDC interesting? Of course. From a layman’s perspective? Maybe not as much.
And that’s the case with much of the sector. What may not be good for the headlines may be very good for investors and the sector as a whole. Again, negative news is sure to come up at times, and positive news will hopefully trump it when possible. Then again, the vast majority of the sector’s news will be dry “business as usual” sort of stories. That being said, here’s hoping more positive news will come to light so outsiders can learn more.
For now, take a look at a recent appearance I made on Fox Business’ Mornings with Maria back in October.