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 rich.
One such deal? Private-equity behemoth Carlyle Group (Nasdaq: CG) paid $4.9 billion last year for DuPont's (NYSE: DD) automotive and industrial paint division. It makes or sells paints in 70 countries.
It was the latest in a seemingly perpetual string of big Carlyle deals. In June, Carlyle agreed to buy a Sunoco (NYSE: SXL) 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 into profit 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 for yield 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 pays dividend yields of 7%, 9% or sometimes even 12%.
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 me.
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 5,210 stocks on U.S. exchanges with a market 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 "middle market" 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 Game-Changing Stocks newsletter. And they are the first ones to profit from it. They offer nice price appreciation -- Main Street Capital Corp. (Nasdaq: MAIN), a BDC I profiled and recommended in late June, inked a respectable gain of 44% in less than a year. 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 nearly 5.8%.
Action to Take --> Consider getting your piece of the private equity action with a stake in BDCs. And if you're a subscriber to Game-Changing Stocks 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.