Trends with Benefits #74: Accessing the BDC Market with Kipp deVeer

Summary

In this episode, Ed speaks with Kipp deVeer, CEO Ares Capital Corporation about how investors can better understand the potential income opportunities and risks of investing in BDCs.

In this episode of Trends with Benefits, Kipp deVeer, CEO of Ares Capital Corporation joins me to talk about the income potential of business development companies (BDCs). It’s an area we’ve seen increased interest in particularly given the current average yields of BDCs relative to the low yields and interest rate risk currently plaguing traditional fixed-income.

With average yields over 8%, BDCs, at first glance, may strike some as too good to be true so I wanted to dig in to help understand what goes into a BDC’s ability to produce these kinds of yields. Kipp walks through the basics of BDCs– explaining everything from what BDCs are to breaking down their capital structures, how they operate and how to evaluate them.

We discuss how BDC portfolios are largely structured with floating rate loans and the potential benefits and risks associated with rising interest rates. Understanding the markets BDCs are actively lending into is important and Kipp describes the ‘middle markets’ and some of the trends in banking that have supported the growth of the BDC space and that have allowed companies like Ares to become key source of lending to these companies.