The advantages of US business development companies for income investors

The demographic trend of the ageing of the population makes it likely that income investing will remain a primary area of focus for decades to come, writes Iman Brivanlou, managing director of high income equities at TCW.

An interesting yet underfollowed niche within the realm of income equities is the US business development company (BDC) space, in which companies routinely distribute dividends above 8% to shareholders. The BDC model was created in 1980 when the US Congress modified the 1940 Investment Company Act to facilitate private finance investment of middle market companies. At the time, bank balance sheets were stressed from the largesse of the 1970s and middle-market businesses found themselves with limited credit options. In response, Congress created the BDC - a tax pass-through entity t...