10 Best Asset Management Stocks to Buy According to Short Sellers

7. Bain Capital Specialty Finance, Inc. (NYSE:BCSF)

Number of Hedge Fund Investors  in Q2 2024: 9

Short Interest % of Shares Outstanding: 0.39

Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is another middle market loan provider. Its business model is primarily built on loan originations and merger and acquisition activities – two markets that do well in a low interest rate environment. As a result, Bain Capital Specialty Finance, Inc. (NYSE:BCSF)’s stock is exposed to market perceptions of the Fed’s interest rate cuts, and the shares can see tailwinds if rate cut expectations are brought forward. The firm’s business model, which sees Bain Capital Specialty Finance, Inc. (NYSE:BCSF) invest in firms with operating incomes ranging between $10 million to $150 million means that it can charge higher fees and rates due to the riskier business nature of these firms. It also means that the asset management company has to carefully select its targets, especially due to its exposure to high interest rates. This business model allows Bain Capital Specialty Finance, Inc. (NYSE:BCSF) to benefit from high growth businesses too in case its targets end up successfully scaling operations.

Bain Capital Specialty Finance, Inc. (NYSE:BCSF)’s management shared details for its portfolio companies during the Q2 2024 earnings call:

“We also remain focused on investing in debt structures that provide us with strong lender controls. 95% of our Q2 originations to new companies were structured with documentation containing financial covenants tied to management’s forecasts, and we have majority control in nearly 80% of these debt tranches, allowing us to drive eventual outcomes at our discretion. These statistics are consistent with our broader portfolio, showing our continued focus on these core tenets.

Moving on to credit quality, our portfolio companies continue to perform well in the current market environment. Investments on nonaccrual status declined quarter-over-quarter and are below industry averages. Our non-accruals represented 1.2% and 1.0% at amortized cost and fair value, respectively, as of June 30. Credit risk rating trends were also stable during the quarter, with only a small percentage of our portfolio underperforming and on our watch list. We’ve been very pleased with the performance of our borrowers operating in a higher interest rate environment in recent years, and we believe this is a testament to Bain Capital’s disciplined and highly selective underwriting process. Lastly, we also enhanced our capital position during the quarter by attracting new lenders to our platform.”