Full Circle Advisors has launched The BDC Income Fund, an open-end mutual fund which will primarily invest in equity securities of publicly-traded Business Development Companies (BDCs).
The Fund’s investment strategy will primarily focus on income-oriented BDCs, providing investors access to the BDC sector with the benefit of daily liquidity and active professional management.
BDCs, which were created by Congress in 1980 to increase the flow of capital to small and mid-sized US businesses, are Regulated Investment Companies that are required to distribute at least 90% of their taxable income to investors. While the majority of BDCs primarily originate loans to privately-held, middle market US businesses, some also make equity investments and invest in other asset classes, such as broadly syndicated loans and the equity and debt tranches of Collateralized Loan Obligations (CLOs). Similar to REITs (Real Estate Investment Trusts) and MLPs (Master Limited Partnerships), BDCs that distribute all of their taxable income are not taxed at the corporate level.
“We believe the BDC sector offers the opportunity for attractive long-term risk-adjusted returns. The sector should be particularly appealing to income-oriented investors,” says Gregg Felton, Managing Member and Chief Investment Officer of Full Circle Advisors. “We expect the Fund to capitalise on the positive features of this market, including higher yields and better credit structures that are available in private credit instruments as compared with broadly syndicated credit investments. In addition, since credit-focused BDCs typically structure their investments as floating rate loans, we believe the Fund will be relatively well positioned in the event of a significant rise in interest rates.”
“There are a number of factors which affect a BDC’s performance that are not always appreciated or understood by investors,” says Andrew Kerai, Lead Portfolio Manager of The BDC Income Fund. “While the sector has been growing materially in recent years, we believe it is still significantly under-appreciated. The lack of institutional presence in the market often creates attractive opportunities for astute investors, in our view. We believe our unique understanding of the BDC market should allow us to identify attractive relative value opportunities, capitalise on market inefficiencies, and generate higher risk-adjusted returns for the Fund’s investors compared with a passive investment strategy. Our research and analytics are proprietary and we apply a rigorous, bottom-up analysis when performing due diligence on potential investments.”
The Fund’s portfolio will be managed by Andrew Kerai, who was previously a sell-side research analyst at National Securities Corp. (OTCQB: NHLD) covering the BDC sector and a research associate at Janney Montgomery Scott, where Mr. Kerai covered the specialty finance sector. Prior to his career in sell-side research, Kerai was a portfolio analyst at Prudential Investments (NYSE: PRU) on the high yield bonds and leveraged loans team. The Fund’s management team also includes Gregg Felton, a former Partner at Goldman Sachs (NYSE: GS) who was founder and Chief Investment Officer of Liberty Harbor, an alternative credit business within Goldman Sachs Asset Management, and John Stuart, who founded both Full Circle Advisors in 2010 and the predecessor company to Full Circle Advisors in 2005.