Trends with Benefits #74: Accessing the BDC Market with Kipp deVeer
March 31, 2022
Listen Time 36:10 MIN
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%1, 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.
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IMPORTANT DISCLOSURES
1 Source: Dividend Yield of MVIS US Business Development Company Index as of March 29, 2022.
Please note that Van Eck may offer investment products that invest in the asset class(es) discussed in this blog.
All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Business Development Companies (BDC) invest in private companies and thinly traded securities of public companies, including debt instruments of such companies. Generally, little public information exists for private and thinly traded companies and there is a risk that investors may not be able to make fully informed investment decisions. Less mature and smaller private companies involve greater risk than well-established and larger publicly traded companies. Investing in debt involves risk that the issuer may default on its payments or declare bankruptcy and debt may not be rated by a credit rating agency. Many debt investments in which a BDC may invest will not be rated by a credit rating agency and will be below investment grade quality. These investments have predominantly speculative characteristics with respect to an issuer's capacity to make payments of interest and principal. BDCs may not generate income at all times. Additionally, limitations on asset mix and leverage may prohibit the way that BDCs raise capital.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
Van Eck Associates Corporation
IMPORTANT DISCLOSURES
1 Source: Dividend Yield of MVIS US Business Development Company Index as of March 29, 2022.
Please note that Van Eck may offer investment products that invest in the asset class(es) discussed in this blog.
All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Business Development Companies (BDC) invest in private companies and thinly traded securities of public companies, including debt instruments of such companies. Generally, little public information exists for private and thinly traded companies and there is a risk that investors may not be able to make fully informed investment decisions. Less mature and smaller private companies involve greater risk than well-established and larger publicly traded companies. Investing in debt involves risk that the issuer may default on its payments or declare bankruptcy and debt may not be rated by a credit rating agency. Many debt investments in which a BDC may invest will not be rated by a credit rating agency and will be below investment grade quality. These investments have predominantly speculative characteristics with respect to an issuer's capacity to make payments of interest and principal. BDCs may not generate income at all times. Additionally, limitations on asset mix and leverage may prohibit the way that BDCs raise capital.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
Van Eck Associates Corporation