Morris Manning & Martin, LLP

MMM Partner Owen Pinkerton Interviewed By FundFire On New SEC Filing Aiming to Improve Sales of BDCs

09.19.2018

A new filing from KKR and FS Investments seeking exemptions from Securities and Exchange Commission rules could pave the way for improved sales of non-traded business development companies (BDCs), just as that market seems to have new life.

The filing last month seeks the ability to offer multiple share classes, which would let FS and KKR market their non-listed BDC simultaneously – but on different sales terms – to independent registered investment advisors (RIAs), independent brokerages, family offices, and wirehouses. The exemption request isn’t uncommon, with SEC granting it to closed-end vehicles such as interval funds, but it has apparently never done so for BDCs. The SEC did not respond to a request for comment.

Without the exemptions from the Investment Adviser’s Act of 1940, non-listed BDCs managers can offer only one share class, limiting sales to smaller slices of the advisor market, says Owen Pinkerton, partner at Morris, Manning & Martin.

“It’s a big impediment and a big reason BDC sales have gone down,” he says, noting that the share class restriction amplified other problems, including sales loads of 8% or more, a Financial Industry Regulatory Authority rule change requiring greater fee disclosure, and lackluster performance for many products. “The non-traded BDC market has been dead, with a few exceptions.”

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Article by: Tom Stabile
Featured in FundFire, September 19, 2018