The long, seemingly unending period of low interest rates and low returns on fixed-income investments has pushed investors to look for ways to boost their portfolios’ performance. One of the nontraditional investments getting a lot of attention because of its high yields relative to more traditional fixed-income investments are business development companies (BDC), a form of publicly registered investment company in the United States that provides financing to small and mid-sized businesses.
According to data from Closed-end Fund Advisors (CEFA), the average income yield on the BDC universe (both debt- and equity-focused firms), as of June 30, 2015, is about 9.5 percent. The long-term average is more than 6 percent. Any way you look at it, this is a very attractive return for yield-starved investors.
These types of returns have spurred rapid growth in the past 10 years. There has only been one BDC IPO year-to-date, but there were four to six per year from 2009–2014