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Exploring Business Development Companies (BDCs) as an Investment Opportunity

Looking for ways to diversify your investment portfolio? Have you considered Business Development Companies (BDCs)? BDCs are a unique type of investment opportunity that can offer high yields and potential for growth. In this article, we'll take a closer look at BDCs and discuss the ins and outs of investing in them. So, stick with us and discover how BDCs can potentially enhance your investment strategy.

What are BDCs?

Business Development Companies (BDCs) have been gaining popularity in recent years as a unique and potentially lucrative investment opportunity. These investment companies provide capital and support to small and mid-sized businesses, which are often overlooked by traditional lenders due to their size or lack of credit history. BDCs offer a way for investors to participate in the growth of these companies and potentially earn high returns on their investment. By investing in privately held companies across a range of industries, BDCs provide a diverse portfolio of investments that can help mitigate risk and maximise returns. In addition to debt and equity financing, BDCs may also provide management assistance and operational support to their portfolio companies, further increasing the potential for success.

The Potential for High Returns

Business Development Companies (BDCs) have become an attractive investment opportunity for many investors due to their high returns. According to data from the National Association of Investment Companies (NAIC), BDCs generated an average annual return of 9.2% from 2010 to 2019. This return outpaced the S&P 500, which generated an average annual return of 7.9% during the same period.
BDCs also offer investors the potential for diversification in their portfolio. By investing in a diversified portfolio of small and mid-sized businesses, BDCs provide investors with exposure to a range of industries and sectors that may not be represented in larger, more established companies. This diversification can help mitigate risk and potentially increase returns.

Attractive Dividend Yields

Business Development Companies (BDCs) are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This makes them an attractive investment opportunity for income-seeking investors. In fact, according to the National Association of Investment Companies (NAIC), the average dividend yield for BDCs in 2020 was around 8%, which is significantly higher than the average dividend yield of the S&P 500 index. Additionally, BDCs may offer the potential for growing dividend payments over time, as they invest in and support the growth of small and mid-sized businesses. This could potentially lead to increased profitability for BDCs and ultimately result in higher dividend payments to shareholders. It's important to note, however, that dividend payments are not guaranteed and may fluctuate depending on the performance of the BDC and the businesses in its portfolio.

Understanding the Risks

Investing in BDCs can be a high-risk, high-reward strategy. The illiquid nature of BDCs' assets and their focus on small businesses can lead to higher risks of default or bankruptcy, which could result in losses for investors. However, it's important to note that not all BDCs are created equal, and some may have better risk management practices than others. In fact, some BDCs have historically had lower default rates than traditional lenders, as they typically have more conservative lending practices and often require collateral for their loans. Additionally, BDCs may offer unique benefits such as diversification and potential for higher returns compared to other investments. Ultimately, the key to successful BDC investing is to do your research and carefully evaluate the risks and potential rewards before making any investment decisions.

Is BDC Investing Right for You?

If you are an investor seeking to diversify your portfolio by including private market investments, a BDC may be a suitable option. With their investment in small and medium-sized businesses, BDCs can offer an opportunity for higher returns compared to traditional investments like stocks or bonds. Additionally, the attractive dividend yields offered by BDCs can provide a steady stream of income to investors. However, it's important to keep in mind that investing in BDCs comes with higher risks due to their investment in illiquid assets and small businesses that may result in default or bankruptcy. Therefore, conducting thorough research is essential before investing in a BDC.
To find the best BDC for your portfolio, consider the investment strategy of the company and their track record of performance. Analysing the BDC's investment philosophy, sector diversification, and historical returns can help you make an informed investment decision. Furthermore, consulting with a financial advisor can provide you with valuable insights into the risks and benefits of BDC investing and whether it aligns with your investment goals and risk tolerance. Overall, investing in BDCs can offer investors an opportunity to gain exposure to the private markets and potentially generate higher returns, but it's essential to do your due diligence before investing.

Supporting Small and Mid-Sized Businesses

Investing in a BDC is not just a means of generating potentially high returns, it is also an opportunity to make a positive impact on the economy. BDCs provide crucial financing and support to small and mid-sized businesses that may not have access to traditional sources of funding. By investing in a BDC, you are helping to fuel the growth and success of these companies, which can in turn create jobs and contribute to the overall health of the economy. Moreover, BDCs can offer a unique opportunity to invest in a variety of industries and sectors, which can help to diversify your portfolio and reduce overall risk. It's important to carefully consider your investment goals and risk tolerance before investing in a BDC, and to thoroughly research the fund's performance and investment strategy. Consulting with a financial advisor can also help you to make an informed decision about whether a BDC is a suitable investment for you.


In conclusion, BDCs offer investors the potential for high returns and the opportunity to support small and mid-sized businesses. While BDC investing comes with higher risks, it can be a good fit for those looking for exposure to private market investments and willing to accept higher risks. As with any investment, it's important to do your research and consult with a financial advisor before making any investment decisions. By investing in a BDC, you can make a positive impact on the economy while building wealth for yourself.

Synthesis Capital London is an independent investment management firm founded in 2005. Based in the heart of London, the company offers bespoke investment solutions to high net worth individuals and institutional clients. Synthesis Capital London focuses on alternative investments such as private equity, real estate, and specialty finance, and prides itself on its rigorous research process and personalised approach to portfolio management.