When business development companies were created by Congress in 1980, they were designed in response to concerns about liquidity.

Specifically, a provision in the 1940 Act limited the number of holders of investment company securities to 100 persons. That, of course, effectively eliminated public ownership. Private equity and venture capital firms argued this would put a major damper on financing for small to medium-sized companies.

Three decades later, the availability of public capital to BDCs has established them as viable alternative financing sources for the middle market. But, as importantly, the BDC now provides thousands of individual investors access to an otherwise illiquid asset class; namely, middle market loans.

But their ride has been a bumpy one over the past year.

The first pothole was the Russell index de-listing. In brief, an SEC rule required funds which own BDCs to report those fees as if they were their own. Despite the fact that the BDC fees aren’t paid by the funds. Don’t ask.