A new alternative investment with astronomical growth and inflows that seemed to come from nowhere?
In the wake of recent scandal, it should have broker-dealers and their reps running for the door. But quite the opposite, Franklin Square Capital Partners has the support of Ameriprise, MetLife and a number of other large firms for the business development companies it manages.
In November of last year, three top executives of KCAP Financial, a New York-based publicly traded fund being regulated as a business development company, were charged by the SEC with overstating the fund’s assets during the financial crisis. The fund’s asset portfolio consisted primarily of corporate debt securities and investments in collateralized loan obligations (CLOs).
In January, FINRA chimed in with a letter to the broker-dealer firms it oversees that it is concerned about “potentially unsuitable and otherwise problematic” business development company investments for retail investors based on risk factors such as liquidity and credit ratings.
None of it fazes Michael Forman, CEO of Franklin Square.
“In an environment of closer scrutiny for all investments, we realize regulators have a job to do,” he says. “We have a very good relationship with regulators, and they view us as kind of a thought leader in the space.”
Thought leader is an important distinction, as Forman and the firm are heavily involved in education on BDCs.
“We stay on message and keep it simple,” he adds. “We tell clients that we will treat their capital with respect, and not try and oversell or overpromise. We fully explain the risks to acknowledge that the investment is not for everyone.”
The firm focuses on corporate credit investments, and gives clients the potential for income and capital preservation with reduced volatility.