A report from The New York Times The Dealbook said business development companies are now gaining ground. These companies reportedly have been around for a lot of years, but their popularity has surged just recently. According to the report, there are over 40 business development companies that operate today, with assets amounting to USD 40 billion and market capitalization of USD 25 billion.

Business development companies like Ares Capital and KCAP Financia, are publicly-traded private equity vehicles. However, they are not like private equity groups like Carlyle or Blackstone where investors can only get ownership stakes in the management firms but not in the funds themselves, the report said. With business development companies, investors could purchase a portion of the fund and thereby get full investment returns, as opposed to getting the management firm's share as is the case with private equity companies.

The Investment Company Act was enacted in 1940 that prevented private equity funds from being publicly-listed. This statute reportedly resulted in the average investor only being able to invest in mutual funds and not obtain the higher historical returns given by private equity funds.

The situation was said to have been changed when the US Congress enacted the Small Business Incentive Act of 1980, which allowed business development companies, formerly known as venture capital companies, to be publicly-listed. As a result of the new Act, venture capital companies are now able to perform the functions that were not allowed to private equity funds for as long as the securities they purchased came mostly from private and small firms.

However, business development companies have invested largely in the debt of private firms and not in equity, said the New York Times' report. The report said that these types of debts are riskier, although they have enabled business development companies to gain high -dividend yields. Due to the risks they carry, business development companies have been placed on the Financial Industry Regulatory Authority's list of potentially unsuitable investments for this year, the report said.