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Struggling to Stay Afloat: Prospect Fund’s Capital Dilemmas


Prospect Floating Rate Fund In Troubled Waters

I’ve crunched the numbers on the Prospect Floating Rate and Alternative Income Fund’s total return, and the results are chilling—mirroring a winter storm. This fund is teetering on the edge, with its market performance riddled with deep declines: a steep -13.24% in the first year, -4.16% in the second, and -5.50% in the third.

A Rough Ride Ahead

You might recall my February article warning about the precarious future for this company. Now, the fog of uncertainty still hasn’t lifted. Shareholders received a stark notice about “substantial doubt” concerning the company’s ability to continue another year from February 13, 2023, akin to an ominous iceberg on the horizon.

The company has been scraping by, narrowly maintaining its shareholder distributions and managing some expenses, thanks to its adviser’s short-term financial support, much like clutching a life preserver in stormy seas.

Melting Iceberg of Net Asset Value

Back in September, on the 28th, the company launched a tender offer as part of its share repurchase plan, aiming to buy back Class A common stock using $113,374 of accumulated second-quarter cash.

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Was this a glimmer of hope amid the gloom? It doesn’t seem so. The tender offer, set against October’s net asset value, saw 21,113 shares bought at $5.37 each—a far cry from the original $10 offering price, marking a considerable drop.

Risky Business In BDCs

Business Development Companies (BDCs), envisioned by Congress to spark investment in privately-held American firms lacking debt and equity capital, now appear to carry more risk than they promise in growth potential for investors.

There’s much truth to the saying, “All that glitters is not gold.” And this holds especially true for non-traded BDCs, which at first glance offer exclusive access to private debt for retail investors—a domain usually reserved for the wealthy and institutional investors. Instead, they often uncover a litany of risks: hazardous ventures, steep commissions, and gripping illiquidity.

Legal Recourse for Investment Losses

If you’re invested in the Prospect Floating Rate and Alternative Income Fund and find it’s causing more worry than wealth, it may be time to consider legal action. Brokerage firms must, by FINRA rules, recommend investments that align with your risk profile and investment goals. If they pour your money into unsuitable investments, they might be accountable for your financial losses through FINRA arbitration.

As a cautionary financial fact, it’s startling yet true that a significant number of financial advisors—sometimes one in every thirteen—have been cited for misconduct. This doesn’t just stagger; it underscores the crucial importance of doing your homework and checking an advisor’s FINRA CRM number before taking their counsel.

Always remember, investment decisions are serious endeavors, and we must navigate them with great care. As legendary investor Warren Buffett put it, “Risk comes from not knowing what you’re doing.” Thus, I encourage you to arm yourself with knowledge, remain vigilant, and take decisive action to protect your finances. In the complex world of financial analysis, I’m dedicated to shedding light on these intricate topics and guiding you through the potentially treacherous waters of investment.

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