PE sponsors seeking permanent capital may find that unlisted registered vehicles offer an easier route than publicly listed registered funds, along with serving as a more “permanent” option than extended-life private funds (e.g.
, long-duration PE funds). An increasingly popular approach, for example, is for sponsors to launch private business development companies (BDCs) because of their relative ease and familiar investor base (i.e.
, institutional investors). An unlisted registered fund remains subject to all the requirements of the Investment Company Act of 1940, however, and sponsors need to be aware of those and other inherent issues (e.g.
, increased costs) before pursuing that approach. This second article in a three-part series explores the challenges with creating and operating unlisted registered funds, and it identifies and describes the features, merits and downsides of private and non-traded BDCs. The third article
will describe the pertinent features of closed-end funds of PE funds and interval funds, as well as suggest how sponsors can determine which vehicle is right for them. The first article
discussed different definitions of permanent capital and where unlisted registered funds sit on the spectrum of permanence, as well as their fundamental traits and advantages. As BDCs are often used for credit strategies, see our two-part series on launching a private credit strategy: “What Must a PE Sponsor Consider Before Launching a Private Credit Strategy?
” (Feb. 4, 2020); and “Four Common Fund Structures to Mitigate ECI Risks When a PE Sponsor Launches a Private Credit Strategy
” (Feb. 11, 2020).