Those of us who tuned into the Republican National Convention in
Tampa saw a number of speakers tout Gov. Mitt Romney's success at
Bain Capital, a private equity group. Some of the investments
Romney and his partners made returned billions of dollars, and
Romney'snet worth is estimated today at more than $200
Private equity is an exclusive playground. To invest in one of
these exclusive funds, you have to have a serious bank balance --
more than $2 million, excluding the value of your primary
residence, and a half-million a year in income (only $300K if
unmarried.) Fewer than 6% of the public qualifies.
Unless you know about the back door. Some of these private
equity firms are publicly traded, which allows everyday investors a
crack at the brass ring deals once reserved for the already
One such deal? Private-equity behemoth
Carlyle Group (Nasdaq:
just paid $4.9 billion for
automotive and industrial paint division. It makes or sells paints
in 70 countries. The unit had $1.1 billion in second-quarter sales,
down 1 percent from a year ago.
It was the latest in a seemingly perpetual string of big Carlyle
deals. Earlier this summer, in June, Carlyle agreed to buy a
oil refinery in Philadelphia. It has hundreds of other investments.
Some of them, on the surface, seem about as exciting as, well, auto
paint. But when Carlyle sends in its experts -- the Mitt Romneys of
today -- they can turn these staid businesses intoprofit engines
that can be resold for a massive profit.
Who wouldn't want to get in on that? The problem is that very
few of these companies are publicly traded. And what's more, these
companies have their hands in a lot of (very big) pies. So any one
deal isn't going to move the needle very much. And if you're
looking foryield with these stocks, forget about it.
Instead, I recently wrote about private equity's cousin, which
is publicly traded, invests in growing businesses, and often
paysdividend yields of 7%, 9% or sometimes even 12%. [Be sure to
check out that article
if you missed it.]
And while private equity is the way that wealthy folks like Mitt
Romney made their fortunes and the way others -- from Bill Clinton
to U2's Bono -- added to theirs, it's this private equity "cousin"
that's the real opportunity for regular investors like you and
I'm talking about business development companies (BDC ).
BDCs are exciting companies. Like private equity, BDCs help
private companies grow and are, in fact, the only way that ordinary
investors can get in on the action in the private equity space. As
I said, normally you'd need a checkbook with a number higher than 2
followed by at least six zeroes to invest like this.
Here are the facts, as stated in my last article about BDCs:
"Right now, there are 4,647 stocks on U.S. exchanges with
amarket capitalization of more than $50 million. Of those, only
about two dozen -- less than 1% -- are a special type of entity
known as a business development company, or "BDC."
These companies, which Congress laid out the rules for in 1980,
operate in the same manner as private-equity firms: They invest in
and advise private companies, typically smaller "middlemarket "
ones, which are generally defined as companies with more than $100
million but less than $1 billion in annual revenue.
In addition to a BDC's potential for a huge payout -- when they
sell a company -- BDCs also pay huge dividends."
These are the companies that are in search of "the next big
thing" -- one of the key aims of my
newsletter. And they are the first ones to profit from it.
Theyoffer nice priceappreciation --
Main Street Capital Corp. (Nasdaq:
, a BDC I profiled and recommended in late June, inked a
respectable gain of 16% in just eight weeks. Among the factors
fueling the increase was a new deal, a $10 million investment it
disclosed in mid-July. They pay rich dividends, too. MAIN yields
Action to Take -->
Consider getting your piece of the private equity action with a
stake in BDCs. And if you're a subscriber to
newsletter, be sure to take another look at the late June issue and
pay careful attention to the three picks I made -- in addition to
in-depth analysis of all the other BDCs on the market.
I've put together a special research report "
Everything You Need to Know about BDCs
,"which is probably the single best way to educate yourself about
these special companies. To learn how to get this report,
follow this link
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of MAIN in one or more if its "real money" portfolios.