Securities Overlap

“As these are private investments, there are fewer investors and much less competition, which can result in better terms and returns,” according to the video. “Only large investors like endowments, pension plans and financial institutions could afford to enter this world.”

Franklin Square offered other broker-dealers, along with a brokerage it runs itself, 10 percent of the money raised for FS Investment Corp., its initial $2.5 billion fund, according to a 2008 regulatory filing. About 10,000 brokers have sold the funds, Forman said.

About half of the securities held by the Franklin Square business-development company overlap with the holdings in large bank-loan mutual funds, according to Stifel’s Ward. Those mutual funds are available with small upfront costs and an average annual fee of 0.9 percent, according to Sarah Bush, an analyst at Morningstar Inc. in Chicago.

“They’re not giving you access to something you can’t otherwise have,” Ward said.

GSO Capital

Forman disputed that analysis. The fund’s returns are bolstered by loans that New York-based Blackstone’s credit arm, GSO Capital Partners LP, puts together itself and the fees are reasonable when spread over time, he said.

“We don’t think the fees on these products are all that much different than we see with variable annuities or with mutual funds,” Forman said.

Peter Rose, a Blackstone spokesman, said the firm’s partnership with Franklin Square has led to an “excellent investor experience.”

Still, investors would have done better buying publicly traded business-development companies, said Bock, the Wells Fargo analyst. Franklin Square’s fund returned a total of 71 percent since it started making loans at the beginning of 2009 through the third quarter of last year, he said, compared with a 150 percent gain for an index of such companies.