b'Big Deals for BDCsNon-bank lending to small- and middle-mar- advisers, including an interest in ensuring ket companies has increased significantly inthat the fund remains under the affiliate recent years. Among the alternative or directthreshold for the Investment Company Act lenders, business development companies,and the Advisers Act while at the same time or BDCs, have been one of the most reliablehaving the ability to protect their invest-and significant sources of funding. Sincements. For a time, when bank regulators 2020, assets under management by BDCswere concerned about leveraged lending have increased by nearly 30% underscoringand banks were concerned about the nega-the importance of BDCs in the private credittive consequences from a risk-weighted-as-ecosystem. BDCs are closed-end investmentsets perspective of SME exposures, banks companies regulated under various sectionsalso partnered with BDCs. Banks see their oftheInvestmentCompanyAct.BDCsinvestments in BDCs, which are not con-benefit from pass-through tax treatment.sidered covered funds for Volcker Rule pur-Sponsors of private credit vehicles have alsoposes, as a way to participate in this market. turned to both private and public BDCs inOf course, this introduces bank regulatory order to make investment opportunities inconsiderations in addition to the concerns this asset class increasingly available toidentified above.retail investors. However, retail investorsPartnering through the formation of joint are not the only ones interested in exposureventures (JVs), including, for example, senior to, and access to, private credit assets. loan funds (SLFs), has also become common We represent large diversified insur- for BDCs and both insurance companies and ance and financial services companiesasset managers. A SLF JV might expand in connection with their investments inthe range of investments and leverage BDCs, often as well as their investmentsexpertise, capital and resources. Through intheexternaladviserstotheBDCs.a SLF JV, the BDC and its third-party joint Frequently, insurance companies seek outventure partner commit capital toward uni-exposure to this asset class, which is avail- tranche and first lien secured loans often ablethroughanequityinvestmentinaachieving scale and diversification more BDC, or through an investment in a rated-efficiently than on a standalone basis. The feeder vehicle established for the purposeleverage in the JV is generally not counted of providing exposure on a basis that maytowards the BDCs overall asset coverage be preferable from a regulatory capital per- ratio. BDCs may encounter some future chal-spective. Structuring and navigating thelenges with credit market corrections, but Investment Company Act, the Advisers Act,this is a sector that has withstood volatility, as well as tax, corporate and insurance reg- weatheredcyclesandnowhasmatured ulatory considerations are essential in thesesignificantly.arrangements. Many of the same concerns arise in the context of negotiating invest-ments by pension funds in BDCs and their15'