In 1980 Business Development Companies (BDCs) were written into existence via a Congressional amendment to the Investment Company Act of 1940. The intent of the amendment was to increase investment in private small and mid-sized companies with oversight from the Securities and Exchange Commission (SEC).

BDCs are attractive to investors looking for higher rates of return than those available in public markets. These higher rates that accrue to patient providers of capital are often referred to as an illiquidity premium.

While some BDCs are offered as illiquid private placements for institutional and ultra-high net worth (Qualified Purchasers*) investors, others are publicly traded on exchanges and widely available. The evergreen private credit funds that have been in the news of late are a third BDC structure available to Accredited Investors* and retail investors, through their Registered Investment Advisors.

Private BDCs have captive investors who commit to invest through the entire term of the fund, which can be upwards of 5 years. Private BDCs may use a capital call to fund investments as they are being made. There is typically no liquidity before the fund terminates. Public BDCs offer intra-day liquidity with investors buying and selling in real time. Whereas the price of private and evergreen BDCs is based on a static valuation of the underlying assets (net asset value or NAV), public BDCs are priced in real time based on demand.

Sitting somewhere between public and private BDCs, evergreen structures offer specified opportunities for redemptions but may limit (or gate) the total amount of redemptions given that the liquidity (or illiquidity) of underlying investments may not support the demand for liquidity in any given period.

Evergreen real estate structures gated redemptions in 2022 and 2023 as sponsors were unable to easily liquidate their holdings to meet redemptions. More recently private credit structures have gated redemptions following a wave of redemptions triggered by investor concern over loans to software companies and exacerbated by the resulting gates and lack of liquidity.

Against the backdrop of these developments, our government has been working to further “democratize” these investments. Both the SEC and Congress have been working on modifications to the definition of Accredited Investors to broaden its scope and qualify more individuals. In addition, Donald Trump signed the Democratizing Access to Alternative Assets for 401(k) Investors Executive Order directing the Department of Labor, who enforces the Employee Retirement Income Security Act or ERISA, the Treasury and the SEC to eliminate regulations and restrictions preventing these investments in employer-sponsored retirement accounts.

This happens at a time when demand for these structures has accelerated and Wall Street has responded, exponentially increasing the number of funds on offer and assets invested. As we think about the potential erosion of returns as more dollars flow to these opportunities and sponsors earn higher fees, there is real potential for investors to be disappointed. If such an investor realizes they are gated at 5% per quarter and redemption may take years, the juice may not be worth the squeeze.

*Qualified Purchasers and Accredited Investors designations are defined and regulated by the Securities and Exchange Commission (SEC). These determinations signal a threshold for investors capacity for investing in complex, higher-risk, typically private investments. Qualified Purchases have investible assets of $5 million. Currently Accredited Investors have a net worth in excess of $1 million and/or income over $200,000 (for an individual).

ARCHIVE
Democratizing Private Equity – Part I, March 16, 2026
Watching the Lights Turn Red, March 9, 2026
Watching the Lights Turn Green, March 2, 2026
Las Cucarachas, February 9, 2026
Gold Math, February 2, 2026
Uncorrelated, January 26, 2026
A Contrarian Trade? January 20, 2026
Woe is Me, January 12, 2026
Investing for Impact, January 5, 2026
2025

Tide Cycle Resources (Tide Cycle) is an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. A copy of Tide Cycle’s Forms ADV Part 2 and Form CRS are available without charge upon request. The opinions expressed are those of Tide Cycle. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. This should not be taken as specific investment advice. We recommend consulting an investment/tax professional before making financial decisions based on any information provided.

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