A lower-middle-market buyout book: 49% of the $1,309M portfolio is equity, carried at a 2.08x multiple of cost (1.24x overall). That equity tilt concentrates risk. The 30 companies across 16 industries carry the cyclical exposure of roughly 2.9 independent macro bets (one factor explains 73% of co-movement), the single largest holding is 39% of NAV, and the loan book is entirely floating-rate into a falling-rate environment. Reported marks are smooth; estimated economic volatility is ~17%.
Each metric is tagged by how it is derived: MEASURED from the holdings and financial statements · MODELED from public-market comparables · QUALITATIVE judgment.
The 30 companies span 16 industries but cluster into roughly 2.9 independent macro bets, with one factor explaining 73% of common variance. The largest holding is 19.8% of the portfolio (39% of NAV); the top five are 44% of the portfolio. Diversification by name and industry overstates the true picture: the exposures cluster into a few correlated cyclical sectors, and one equity winner dominates the book.
| Portfolio company | Industry | Fair value ($K) | % portfolio | % NAV |
|---|---|---|---|---|
| SFEG Holdings, Inc. | Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) | 258,692 | 19.8% | 38.7% |
| The E3 Company, LLC | Oil and Gas | 92,320 | 7.0% | 13.8% |
| Schylling, Inc. | Leisure, Amusement, Motion Pictures, and Entertainment | 83,384 | 6.4% | 12.5% |
| Brunswick Bowling Products, Inc. | Home and Office Furnishings, Housewares, and Durable Consumer Products | 74,365 | 5.7% | 11.1% |
| Detroit Defense, Inc. | Aerospace and Defense | 73,877 | 5.6% | 11.1% |
| Global GRAB Technologies, Inc. | Aerospace and Defense | 71,522 | 5.5% | 10.7% |
| Dema/Mai Holdings, Inc. | Buildings and Real Estate | 68,987 | 5.3% | 10.3% |
| Old World Christmas, Inc. | Home and Office Furnishings, Housewares, and Durable Consumer Products | 67,730 | 5.2% | 10.1% |
| Nielsen-Kellerman Acquisition Corp. | Electronics | 62,723 | 4.8% | 9.4% |
| ImageWorks Display and Marketing Group, Inc. | Diversified/Conglomerate Services | 52,453 | 4.0% | 7.8% |
If the 30 holdings moved independently you would have 30 real bets. Because they move together, you effectively have about 2.9. One shared force — the economic cycle — drives 73% of their combined ups and downs. A broad downturn hits most of the book at once; the number of names alone does not protect you.
The portfolio's factor exposures show the signature of a levered small-cap value book: market beta 0.88, small-cap (SMB) +0.28, value (HML) +0.12 (Fama-French 5 plus momentum, Newey-West standard errors). These identify the levers that move the book — equity drawdowns, small-cap stress, and credit spreads.
| Factor | Beta | t-stat |
|---|---|---|
| Mkt-RF | +0.88 | +42.4 |
| SMB | +0.28 | +8.3 |
| HML | +0.12 | +3.1 |
| RMW | +0.05 | +1.1 |
| CMA | +0.02 | +0.3 |
| Mom | -0.03 | -1.4 |
Value creation is measured as cost basis versus current fair value. The equity book holds the gains; the loan book sits near par. Public-market returns over the same windows are shown for context.
| Value creation | Multiple |
|---|---|
| Portfolio MOIC (fair value / cost) | 1.24x |
| Equity book MOIC | 2.08x |
| Loan book MOIC | 0.90x |
| NAV per share growth, latest year | 23.8% |
| Annualized return | 3-yr | 5-yr | 10-yr |
|---|---|---|---|
| Comparable public basket | 18.3% | 9.2% | 11.9% |
| SPY | 20.9% | 13.0% | 15.8% |
| IWM | 19.7% | 6.5% | 12.1% |
| XLI | 22.7% | 14.2% | 15.2% |
The left table sizes a bad month four ways; the right chart walks through what a severe recession does to net asset value.
| Monthly downside (method) | % of NAV | $ loss |
|---|---|---|
| 95% Parametric VaR | 6.3% | $42M |
| 95% Cornish Fisher VaR | 6.7% | $44M |
| 95% Historical VaR | 6.0% | $40M |
| 95% Expected shortfall (CVaR) | 9.4% | $63M |
| 99% Parametric VaR | 9.2% | $62M |
| 99% Cornish Fisher VaR | 13.0% | $87M |
| 99% Historical VaR | 9.1% | $61M |
| 99% Expected shortfall (CVaR) | 14.2% | $95M |
Skew -0.51 (losses bigger than gains) · excess kurtosis 2.5 (fat tails) · modeled maximum drawdown -38.7% (worst peak-to-trough).
How the book's exposures would have behaved in past sell-offs, alongside the S&P 500 for scale.
| Stress episode | Portfolio (modeled) | S&P 500 |
|---|---|---|
| COVID 2020 | -38.5% | -33.7% |
| Rate Shock 2022 | -20.9% | -24.5% |
| Q4 2018 | -19.8% | -19.4% |
| SVB 2023 | -3.3% | 0.0% |
Regulatory leverage headroom. Asset coverage = total assets per dollar of debt; 150% is the legal floor for this fund type. At 218% the portfolio can absorb roughly a 29% fair-value markdown before the limit binds. The severe scenario above (≈46% NAV, ~24% portfolio markdown) stays inside that line — painful, but not a forced-deleveraging event.
Fund-level borrowings $564M on NAV $668M — debt/NAV 0.84x, asset coverage 218% (up from 209% a year earlier; 150% floor). Permanent-capital structure: no capital calls and no redemption runs.
100% of the loan book floats on SOFR (the benchmark short-term rate) while the fund's term debt is largely fixed. SOFR has fallen from 5.34% to 3.63%; a further 100 bp decline reduces net investment income by roughly $6.5M.
6 equity and warrant positions have been written to zero (cost $19M), the realized impairments in the tail of the book.
| Written-down position | Security | Cost ($K) |
|---|---|---|
| Home Concepts Acquisition, Inc. | Preferred Equity | 3,275 |
| Diligent Delivery Systems | Warrant | 500 |
| Phoenix Door Systems, Inc. | Common Equity | 1,830 |
| Ginsey Home Solutions, Inc. | Common Equity | 8 |
| B+T Group Acquisition, Inc. | Preferred Equity | 4,722 |
| Edge Adhesives Holdings, Inc. | Preferred Equity | 8,199 |
Reported marks are appraisal-based and move smoothly, rising +23.8% over the fiscal year. Estimated against public-market comparables, the same exposures carry roughly 17% annualized volatility and a modeled 39% drawdown — the economic risk that smoothed quarterly marks understate. About 99.6% of the book is Level 3 fair value (no market quote; value set by the board's judgment, the least observable tier), concentrated in the equity positions where that judgment matters most.
| Risk dimension | Rating | Assessment |
|---|---|---|
| Manager / fee structure | HIGH | Externally managed by Gladstone Management (related party). Fees due to related party of ~$81M accrued on the balance sheet; incentive fees on both income and realized capital gains create an equity-risk-taking incentive. |
| Valuation (Level 3) | HIGH | ~99.6% of investments are Level 3 (unobservable inputs), board-determined fair value. Marks are smoothed/appraisal-based; the equity book (~49% of investments) is where valuation subjectivity is greatest. |
| Equity concentration | HIGH | Buyout model concentrates value in a few equity winners (e.g., SFEG). Top name is ~15% of NAV; idiosyncratic single-company risk is material. |
| Credit / impairments | MEDIUM | 6 equity/warrant positions already written to $0; weaker portfolio companies (B+T, Edge Adhesives, Home Concepts) signal credit stress in the tail. |
| Rate / NII | MEDIUM | Loan book is overwhelmingly SOFR-floating; the Fed's easing cycle is a direct headwind to net investment income and distribution coverage. |
| Liquidity / structure | LOW | Permanent-capital BDC wrapper: no LP capital calls or redemption runs, and asset coverage (218%) sits well above the 150% regulatory floor. |
Holdings: Gladstone Investment Corporation Form 10-K (fiscal year ended March 31, 2026), parsed position-by-position and reconciled to the filing totals.
Market exposures: each private position is mapped to public-market comparables (debt to high-yield credit; equity to a leverage-adjusted small-cap sector basket) to estimate factor loadings, correlation, tail risk, and stress. These are modeled estimates and carry comparable-selection error.
Factors: Fama-French 5 plus momentum, monthly, with Newey-West standard errors.
Fundamentals & macro: 10-K financial statements; SOFR and high-yield spreads from the Federal Reserve.