Can a Business Development Company Keep Long Term Equities?Best Complete 2026 Guide

Can a Business Development Company Keep Long Term Equities?Best Complete 2026 Guide

Quick Answer

Can a business development company keep long term equities? Yes. A business development company, or BDC, can hold equity securities in portfolio companies, including positions that remain in the portfolio for several years. However, BDCs are generally structured around financing private and smaller middle market companies, so debt investments usually play a much larger role than direct equity ownership.

The answer becomes clearer when you understand how a BDC is regulated and taxed. BDCs must satisfy requirements under the Investment Company Act of 1940, while many also elect to receive regulated investment company, or RIC, tax treatment.

These rules do not prohibit long term equity investments. Instead, they influence what a BDC can invest in, how diversified it must be, how much qualifying income it needs, and how much taxable income it generally needs to distribute.

In this guide, you will learn:

• What does BDC mean?
• Can a business development company keep long term equities?
• How BDC qualifying asset rules work
• Why BDCs often focus on private credit
• How equity warrants and co investments can provide additional upside
• How Blue Owl BDCs approach equity investments
• How BDC ETFs and the BDC index work
• What investors should check before evaluating a BDC

Table of Contents

1. What Does BDC Mean?
2. Can a Business Development Company Keep Long Term Equities?
3. Why BDCs Often Focus on Private Credit
4. How BDCs Can Hold Equity Positions
5. How Blue Owl BDCs Handle Equity Investments
6. BDC ETFs and the BDC Index
7. Common Mistakes Investors Make
8. BDC Comparison
9. Frequently Asked Questions
10. Conclusion

What Does BDC Mean?

What does BDC mean? BDC stands for business development company.

A BDC is a type of closed end investment company created under the Investment Company Act of 1940. Its purpose is generally to provide financing and investment capital to smaller and middle market private companies.

Unlike a traditional private credit fund, a publicly traded BDC can give individual investors access to a portfolio of private company investments through shares traded on a public stock exchange.

BDCs may invest in different types of securities, including:

• Senior secured loans
• Subordinated debt
• Preferred equity
• Common equity
• Warrants
• Other qualifying investments

The exact mix varies from one BDC to another.

Many BDCs also elect to be treated as regulated investment companies, or RICs, for federal tax purposes. RIC treatment can allow a BDC to generally avoid corporate level federal income tax on income and gains that are properly distributed to shareholders, subject to applicable requirements.

The IRS states that a RIC generally needs to satisfy specific distribution requirements, including distributing at least 90% of certain investment company taxable income and tax exempt interest.

For more information about BDC regulation and the Investment Company Act, investors can review the U.S. Securities and Exchange Commission resources.

Can a Business Development Company Keep Long Term Equities?

Can a business development company keep long term equities? Yes.

There is no general rule under the BDC structure that requires every investment to be debt or that prevents a BDC from holding equity for several years.

However, a BDC must operate within important regulatory and tax requirements.

The 70% Qualifying Assets Requirement

One of the most important BDC rules involves qualifying assets.

Under the Investment Company Act of 1940, a BDC generally must have at least 70% of its total assets invested in qualifying assets before it can acquire additional assets outside that qualifying category.

Qualifying assets can include certain securities purchased from eligible portfolio companies. Therefore, qualifying assets are not limited to loans.

This distinction is important because an equity investment can potentially qualify depending on the circumstances and the security involved.

RIC Tax Requirements

Many BDCs elect RIC tax treatment.

A RIC must satisfy several requirements involving income, asset diversification, and distributions. The IRS states that the distribution requirement generally involves distributing at least 90% of specified investment company taxable income and certain tax exempt interest.

This helps explain why income producing investments are important to many BDC strategies.

Debt investments can generate interest income, while equity investments may produce returns primarily through appreciation, dividends, or eventual realization.

Asset Diversification Requirements

RICs must also satisfy asset diversification requirements.

The general RIC diversification framework includes limits involving the percentage of assets represented by certain securities and limits concerning an individual issuer. BDCs have specific provisions that modify aspects of these rules.

This does not mean that a BDC can never have a large equity position. It means the BDC must manage its portfolio within the applicable diversification framework.

Leverage and Financing Considerations

BDCs can use leverage subject to statutory requirements and other restrictions.

Because BDCs frequently finance their portfolios with borrowed money, portfolio construction also has to consider liquidity, asset coverage, financing costs, credit quality, and the risks associated with holding less liquid investments.

These factors can make a debt focused strategy more practical than building a portfolio dominated by long term equity positions.

Why BDCs Often Focus on Private Credit

The ability to own equity does not mean equity will become the main investment strategy.

Many BDCs focus heavily on private credit because loans can provide recurring interest income and contractual repayment terms.

Debt Can Generate Recurring Income

A loan generally produces interest payments according to its terms.

Equity is different. A private company may increase substantially in value without producing regular cash distributions to its investors.

For a BDC that emphasizes shareholder distributions, recurring investment income can therefore be an important part of portfolio construction.

Equity Can Add Upside

Although debt is often central to BDC strategies, equity can provide additional upside.

A BDC may receive warrants or another equity interest when it provides financing to a portfolio company. If the company grows successfully or is eventually sold, that equity interest may become more valuable.

This creates a structure in which the loan provides the primary financing exposure while the equity component provides additional potential upside.

BDCs Are Not All the Same

It is important not to assume that every BDC has the same investment strategy.

Some BDCs focus on larger middle market companies. Others specialize in technology companies, venture lending, healthcare, or other segments.

The actual portfolio should therefore be examined through the company’s latest SEC filings, financial statements, and investment schedule rather than through the BDC’s name alone.

How BDCs Can Hold Equity Positions

A BDC can gain equity exposure in several ways.

Warrants

A warrant can give the BDC the right to purchase equity in a portfolio company under specified terms.

Warrants can remain outstanding for years and may become valuable if the underlying company performs well.

Preferred Equity

Some BDCs hold preferred equity investments.

Preferred securities can have characteristics that differ from both traditional debt and common stock, depending on their structure.

Common Equity

BDCs can also hold common equity interests in certain portfolio companies.

These investments may provide greater upside potential, but they can also carry greater risk because common equity generally sits behind debt and preferred securities in the capital structure.

Co Investments

A BDC may also participate in transactions involving both debt and equity investments.

This allows a manager to combine a lending relationship with an additional equity position when the investment structure and applicable rules permit it.

For investors researching what does BDC mean, this is an important point: a BDC can be a lender while also having equity exposure.

How Blue Owl BDCs Handle Equity Investments

Blue Owl provides a useful example of how a large BDC platform can combine lending with equity exposure.

Blue Owl Capital Corporation’s regulatory filings show a portfolio that includes significant first lien senior secured debt alongside preferred equity, common equity, specialty finance equity, and other investments.

This illustrates an important point.

A BDC does not have to choose between being a lender and owning equity. It can use debt as the core of its investment strategy while maintaining selected equity positions.

However, the exact allocation can change over time, so investors should rely on current filings rather than assuming that a BDC’s portfolio will always have the same mix.

BDC ETFs and the BDC Index

Investors who do not want to select individual BDCs can also gain exposure through a BDC ETF.

One well known example is the VanEck BDC Income ETF, ticker BIZD.

BIZD seeks to track the MVIS US Business Development Companies Index, which is designed to represent publicly traded BDCs. If you are also learning about business investment opportunities, read our guide on how to invest in a small business to understand different ways investors can participate in privately owned companies.

This means an investor purchasing BIZD is investing in shares of BDC companies rather than directly purchasing the loans or equity securities held by those BDCs.

The BDC ETF therefore provides indirect exposure to the underlying private credit and investment strategies of its holdings.

Important: ETF holdings, yields, fees, and performance can change. Investors should review the current fund documents before making an investment decision.

Common Mistakes Investors Make

Mistake 1: Assuming BDCs Are Pure Equity Funds

BDCs can own equity, but they are not simply publicly traded private equity funds.

Many BDCs have substantial exposure to loans and other credit investments.

Mistake 2: Assuming Every BDC Has the Same Strategy

Different BDCs target different companies, industries, and investment opportunities.

Always examine the current portfolio.

Mistake 3: Looking Only at Dividend Yield

A high distribution yield does not automatically mean an investment is attractive.

Investors should also consider net asset value, portfolio quality, leverage, credit performance, distribution coverage, fees, and valuation.

Mistake 4: Ignoring Regulatory Requirements

BDC portfolios operate within specific regulatory and tax frameworks.

The 70% qualifying asset requirement and RIC requirements are particularly important when analyzing the structure of a BDC.

Mistake 5: Treating Equity Exposure as Guaranteed Upside

Equity investments can create significant upside, but they can also lose value.

A warrant or common equity position may ultimately become worth very little if the underlying company performs poorly.

BDC Balance Framework

A simple way to understand a BDC’s investment strategy is to look at three areas.

Income Core

Look at the portion of the portfolio dedicated to loans and other investments designed to generate recurring income.

Equity Upside

Look for warrants, preferred equity, common equity, and other equity linked investments that could provide additional upside.

Regulatory Structure

Finally, consider the BDC’s qualifying asset requirements, RIC tax requirements, diversification rules, leverage, and financing structure.

Together, these three areas provide a better picture of how a BDC operates than simply looking at its dividend yield.

BDC Comparison

BDC Comparison: Top Options at a Glance

This table is intended as a starting point rather than a ranking.

For example, Hercules Capital’s regulatory filings show numerous warrant investments across portfolio companies, illustrating how equity linked investments can be an important part of a venture lending strategy.

Frequently Asked Questions

Can a business development company keep long term equities?

Yes. A business development company can hold equity securities, including investments that remain in the portfolio for several years. However, BDCs generally operate within regulatory and tax requirements that influence how much of their portfolios can be devoted to different types of investments.

What does BDC mean in investing?

BDC stands for business development company. A BDC is a type of closed end investment company designed to provide financing and investment capital to smaller and middle market companies.

Why do BDCs focus so much on private credit?

Private credit can generate recurring interest income, which fits naturally with the income focused structure of many BDCs. Equity investments can provide additional upside but may not generate regular cash income.

Can a BDC own common stock?

Yes. Depending on the investment and applicable requirements, a BDC can hold common equity as well as preferred equity, warrants, and debt investments.

What is a BDC ETF?

A BDC ETF is an exchange traded fund that provides exposure to multiple business development companies. BIZD, for example, seeks to track the MVIS US Business Development Companies Index.

What is the BDC index?

The MVIS US Business Development Companies Index is an index designed to track publicly traded BDCs. VanEck uses this index as the underlying index for BIZD.

Are BDC investments risky?

Yes. BDCs can face credit risk, interest rate risk, leverage risk, valuation risk, liquidity risk, and risks associated with the private companies in their portfolios.

Does Blue Owl invest in equity?

Yes. Blue Owl Capital Corporation’s reported investment portfolio includes debt investments as well as preferred equity, common equity, specialty finance equity, and other investments.

Does Hercules Capital hold long term equity investments?

Hercules Capital’s regulatory filings show numerous warrant investments acquired over multiple years. This demonstrates how equity linked investments can remain in a BDC portfolio for an extended period.

Conclusion

Can a business development company keep long term equities? Yes.

A BDC can hold equity securities and may keep certain equity investments for several years. However, the BDC structure is generally built around financing companies through loans and other investments that can generate recurring income.

Equity can complement this strategy through warrants, preferred securities, common stock, and co investments.

The most important lesson for investors is that not all BDCs have the same portfolio strategy. Before investing, review the BDC’s latest regulatory filings, portfolio composition, leverage, valuation, distribution history, and investment strategy.

A BDC ETF such as BIZD can provide diversified exposure to publicly traded BDCs, but it also carries investment risk and should be evaluated using current fund information.

Sources and Methodology

This article is based on publicly available information from the U.S. Securities and Exchange Commission, the Internal Revenue Service, company regulatory filings, and current fund information.

Regulatory requirements, portfolio holdings, distributions, yields, and investment strategies can change. Readers should verify current information through company filings, fund documents, and regulatory sources before making investment decisions.

Disclosure: This article contains no affiliate links and is intended for educational purposes only. It is not financial or investment advice. Investors should consider consulting a qualified financial professional before making investment decisions.