What structure do BDCs operate under?

Business Development Companies (BDCs) operate as publicly traded funds. This structure allows BDCs to raise capital from the public through the issuance of shares on a stock exchange. By being publicly traded, BDCs can access a broader base of investors, which is crucial for their investment strategy focusing on providing financing to small and mid-sized businesses.

The publicly traded nature of BDCs also implies that they are subject to certain regulatory requirements that govern the way they operate, including the need to distribute at least 90% of their taxable income to shareholders in the form of dividends, which is a key characteristic of their structure. This distribution requirement helps ensure that BDCs maintain a level of transparency and accountability to investors.

In contrast, mutual funds and open-end funds operate under different regulatory frameworks and typically involve different liquidity and investment management structures. Hedge funds, while they may pursue various investment strategies like BDCs, do not have the same mandatory distribution requirements and operate more privately, often limiting investor access. Therefore, the publicly traded fund structure aligns best with the characteristics and operational framework of BDCs.