FSIC II is a special type of investment called a non-traded Business Development Company, or BDC. In fact, its predecessor fund, FS Investment Corporation, was the first non-traded BDC offered on the market. FSIC II follows the same investment strategy as its predecessor and has the same sponsor, Franklin Square Capital Partners, and sub-advisor, GSO / Blackstone.
A BDC is a category of investment fund that offers investors at nearly all levels direct access to investments in the private company sector. FSIC II takes advantage of the BDC structure to offer investors a way to invest in assets that previously were unavailable to them.
BDCs are regulated by the same law that governs mutual funds. Congress created BDCs in 1980 under the Investment Company Act of 1940, giving them the same regulatory framework that allowed investors to access mutual funds. BDCs are bound by strict regulations and reporting requirements that protect investors. For example, they must hold their assets with an independent custodian and maintain an independent board.
BDCs are highly transparent. By law, BDCs have more disclosure requirements than many well-known alternative investment vehicles. The securities in BDCs are frequently valued and the portfolio’s fair value must be disclosed quarterly to investors.
BDCs promote the American private sector and the economy. By law, at least 70% of a BDC’s assets must be invested in securities of private U.S. companies or publicly-traded U.S. companies with market capitalizations less than $250 million. BDCs were created to facilitate the flow of capital to private companies by allowing the public to invest in them. In other words, investors help support the huge number of companies that need capital to grow and create jobs.
Non-traded BDCs have become an accessible alternative investment option for many investors who don’t have millions to invest like deep-pocketed institutions. As the name implies, Non-traded BDCs are not bought and sold on a public market, and therefore investors may not be able to cash out their investment when they want to. However, when compared to publicly-traded BDCs, they are not as susceptible to share price volatility and have a history of relative stability. Non-traded BDCs also take a long-term view since they continually offer shares over a period of time, generally for at least two years, which allows them to spread out their investments and search for high quality opportunities.
Risks to Consider