Concerned about your investment in Apollo Debt Solutions?
The White Law Group is investigating potential claims involving Apollo Debt Solutions. Apollo Debt Solutions is a registered, non-listed BDC that “provides access to exclusive investments targeted by the largest institutions to individual investors,” according to its website.
BDCs – Shift in Perfomance
According to the BlueVault update on perpetual non-traded BDCs, there’s a shift in how BDC’s are performing. Fitch’s 2024 sector forecast for BDCs indicates a worsening outlook, anticipating diminished asset quality metrics due to heightened debt obligations for portfolio companies caused by rising interest rates and a difficult funding environment amidst an economic slowdown.
Overall, while BDCs can offer diversification and income potential to investors, they also come with unique risks and considerations that should be carefully evaluated based on individual investment objectives and risk tolerance.
The Risks of Investing in BDCs
Generally, non-traded Business Development Companies (BDCs) function similarly to non-traded Real Estate Investment Trusts (REITs). BDCs aggregate investor funds to invest in diverse businesses, particularly small and medium-sized enterprises, aiming to foster their growth. Successful ventures yield strong returns for BDC investors, often offering advantageous tax arrangements.
However, “middle-market loans” represent high-leverage financing for private equity-backed firms, carrying substantial credit risk. During economic downturns triggered by increasing interest rates and inflation, BDCs like Apollo Debt Solutions may face significant challenges.
Investing in a business development company or BDC, is considered to be in the high risk category as far as security investments are concerned. There are certain principal risks that should be carefully considered before investing in Apollo Debt Solutions or any BDC.
Investment Risks with Apollo Debt Solutions
According to its prospectus:
- Apollo Debt Solutions is a new company and has no operating history.
- The Board of Trustees may change operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to results of operations and financial condition.
- The Apollo Board of Trustees may amend their Declaration of Trust without prior shareholder approval.
- Price declines in the medium- and large-sized U.S. corporate debt market may adversely affect the fair value of their portfolio.
Is Apollo Debt Solutions a Suitable Investment for you?
When considering investments in BDCs, it’s important for your broker to undertake comprehensive due diligence to minimize the risks and verify that the investment suits your financial objectives. Due diligence entails that your broker is researching and analyzing a company to make well-informed investment choices. This process includes evaluating the BDC’s financial stability, portfolio composition, management team, and investment approach. While conducting due diligence on BDCs can present challenges, it’s essential for avoiding potential financial setbacks.
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Recommendations should be appropriate in light of the investor’s age, risk tolerance, net worth, and investment experience. Broker dealers that fail to adequately disclose risks or make unsuitable investment recommendations can be held liable for investment losses in a FINRA arbitration claim.
Potential Lawsuits to Recover Investment Losses
The White Law Group continues to investigate potential claims against the broker dealers that sold high risk investments such as Apollo Debt Solutions to investors. The high commission structure of these products leads to the possibility that unscrupulous financial advisors will push these products unsuitably to maximize their own commissions.
