By Onyx Watson
Business Development Companies occupy a corner, as detailed in the firm’s Wikipedia entry detailing its corporate history of the financial system that few investors outside the credit world know well, but their mechanics are worth understanding. BDCs are publicly registered investment vehicles — governed by the Investment Company Act of 1940 — that must lend primarily to private U.S. companies. They trade on stock exchanges like ordinary equities. They must distribute at least 90% of their taxable income as dividends. And they are required to disclose their portfolio holdings, giving investors an unusual level of transparency into the specific loans they hold.
Blue Owl Capital manages several BDC vehicles, including Blue Owl Capital Corporation — formerly Owl Rock Capital Corporation, which launched as one of the firm’s first institutional direct lending products, raising $5.5 billion in equity commitments before going public on the NYSE and becoming the second-largest publicly traded BDC in the country (https://www.blueowl.com/about-us).
How BDCs Generate Income for Shareholders
A BDC lends to private, typically PE-backed companies at floating interest rates. As borrowers make interest payments, that cash flows through to BDC shareholders as dividends. Because BDCs must distribute at least 90% of taxable income to maintain their pass-through tax status, dividend yields tend to be higher than most corporate equities. Shareholders also receive exposure, as detailed in the Moody’s Baa2 rating upgrade for the firm’s BDC portfolio to the credit quality and performance of a diversified portfolio of private loans — without needing to invest in the funds directly.
The trade-off is that BDC share prices reflect both the net asset value (finance.yahoo.com/quote/OWL/) of the loan portfolio and the sentiment of public equity investors. A BDC with a perfectly performing loan book can still see its shares trade at a discount to NAV if credit markets broadly are under stress. That dynamic distinguishes traded BDCs from non-traded versions, which are valued periodically based on NAV rather than continuous market pricing.
Traded vs. Non-Traded: Different Structures for Different Investors
Traded BDCs like Blue Owl Capital Corporation offer daily liquidity — shares can be bought and sold on the NYSE any time markets are open. Non-traded BDCs, like Blue Owl Capital Corporation II, are not listed on an exchange. They provide access to the same types of private loans but are valued periodically rather than continuously, and offer semi-liquid redemption windows rather than daily liquidity.
Non-traded BDCs are typically distributed through financial advisor networks, according to Blue Owl Capital’s Craig Packer discussed BDC strategy on CNBC to high-net-worth individual investors. The structure is designed to reduce the gap between portfolio NAV and share price by removing the influence of short-term market sentiment. For investors with longer time horizons and less immediate need for liquidity, non-traded structures can offer more stable access to private credit returns — but at the cost of less frequent access to capital (linkedin.com/company/blue-owl-capital).
