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Business Development Companies

  • James Spence
  • Jun 4
  • 3 min read

Updated: Jun 5

We are now fast approaching two months since our last commentary.


The S & P 500 has rallied more than 13% since April 10, 2025.


Two questions can be posed:


1) Is the bottom in?


2) Did we successfully re-test the spring-time lows twice?


We’ll leave those debates to the chart readers. Chart readers are commonly referred to as “technical analysts.” A wise man once said technical analysts look out the rear window and make predictions on where we are going and what is directly ahead of us. These “chartists” will argue about the answers to the above two questions until something better to argue about in the charts comes along.


The poker game between Xi and Trump continues. And the endless gutlessness in Washington continues. The challenges to being fiscally responsible seems elusive to BOTH parties. Creating NOT cutting waste is the defining characteristic of the political process.


The emotional turmoil is subsiding within the financial markets for the time being. WE have gotten over yet another of countless nervous breakdowns. No doubt the seasonal summer doldrums have the potential to dull the most recent advance in the next few months…..unless they don’t. Predicting the short term swings of Mr. Market is tricky business.


Two things seem fundamental.


First, shares of great companies with great: products, services, balance sheets, processes that are repeatable, durable competitive advantages, and high-integrity management teams, are good assets to be invested in


Second, as long as you have the guts to ignore nervous breakdowns by the mob, you can simply zero in on what is great, not merely ok, or worse yet, "cheap."


Over the last couple of years we have made repeated assertions that generative artificial intelligence is the greatest disrupter to industry since the smart phone. Thus far our emphasis on this new industrial revolution brought on by generative artificial intelligence has born fruit.


While the trend for astonishing levels of investments in data centers combined with exponential increases in demand for electricity and computing power are only part of the A.I. story, let's digress to another area of interest. Shifting gears will give us some time and energy to tackle what we see as a secular change in another important part of the U.S. economy.


The emergence and market share grabs currently being taken away from traditional lenders by Business Development Companies (BDC’s) attracts very little press coverage these days.


Having a detailed understanding of the competitive dynamics of lending and borrowing, we think that there are permanent changes taking place.


The over-regulated and under-capitalized banking system is losing some of the most delicious low-hanging fruit in terms of winning the corporate lending game.


The reasons why this appears to be real are numerous. And these reasons are all tied to much greater decision-making flexibility, along with some very smart and opportunistic people running BDC’s.


Of course, not all BDC’s are created equally nor are they all structured the same. But those who are run by savvy people are quietly building sustainable business models while banks waste extraordinary amounts of time and manpower answering to inexperienced regulators who are compelled to justify their existence. The result is they have diminished some of the important advantages banks have had for a long time.


We have found several fixed income opportunities associated with BDC’s and at least one promising equity investment. If we are correct about the competitive landscape changing, all we will have to do is sit back and collect dividends, interest payments, and capital appreciation for many years.


The maturation of BDC’s is definitely an area of the game that will continue to attract our close attention while the media obsesses with the latest press conference associated with taxing, spending, and trade by the posers in the media and many posturing politicians.


Stay tuned.

 
 
 

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