Prospect Floating Rate Fund In Troubled Waters
Theetotal return numbers are in, and the figures are as icy as a winter storm. The Prospect Floating Rate and Alternative Income Fund is facing a rocky road ahead with its tottering market performance. As per reports, the annualized total return for the first three years seems to be on a slippery slope: -13.24% for year one, -4.16% for year two, and -5.50% for year three.
A Rough Ride Ahead
Remember how we’d reported in February this year about the shaky ground the company seemed to be standing on? The harsh reality is that the looming dread hasn’t dissipated just yet. The company issued a potential iceberg warning to unsuspecting shareholders about the substantial doubt surrounding the company’s ability to chug along for at least a year from February 13, 2023.
It appears the company has been scraping by, managing to fund distributions to shareholders and cover a part of its expenses through the expense limitation agreement from its adviser, reminding one of an emergency life jacket in torrid waters.
Melting Iceberg of Net Asset Value
Earlier this year, on September 28th, the company kickstarted a tender offer as a part of its share repurchase program with the aim of buying back shares of the issued and outstanding Class A common stock. These shares were supposed to be purchased using the accumulated cash of roughly $113,374 from the second quarter.
A ray of hope sparkling in icy waters? Perhaps not. The tender offer, which was made for cash, was pegged to the net asset value per share as of October 31, 2023. Although 21,113 shares were efficiently purchased at $5.37 per share, totaling approximately $113,374, it is worthwhile to underline that the initial offering price was a neat $10 per share.
Risky Business In BDCs
Business Development Companies (BDCs) were originally conceptualized by the U.S. Congress as a maneuver to stimulate investments in private American companies usually starved of access to debt and equity capital. Regrettably, they seem to be posing more of a quandary to investors than serving as catalysts for business growth.
Not all that gold glitters as they say. Similarly, not all BDCs offer secure returns, especially the non-traded ones. While it may sound like an attractive proposition for retail investors to get access to private debt, a class of assets typically known only to high-net-worth and institutional investors, the reality is far removed. Non-traded BDCs are increasingly appearing as a Pandora’s box of alarming risk factors: high-risk, exorbitant commissions, and a dreadful lack of liquidity.
Legal Recourse for Investment Losses
So what recourse do you, as an investor, have at your disposal if your investment in the Prospect Floating Rate and Alternative Income Fund is leaving you with more anxiety than returns? The answer could lie in exploring litigation options. It is critical to remember that brokerage firms are mandated by FINRA to perform adequate due diligence in the recommendations they make, ensuring they match the investor’s risk appetite and investment strategy. When firms fail in their duty, they can be held accountable for investment losses in a FINRA arbitration claim.