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Franklin Square Raises Billions as Brokers Push Junk-Loan Funds

Brokers across the U.S. are tapping into demand for high-yield debt, and drawing regulatory scrutiny, by pushing investors into pools of risky loans that have extracted more in fees than they’ve paid out in profit.

Sales of junk-rated debt funds known as non-traded business-development companies doubled to a record $2.8 billion last year, according to estimates by MTS Research Advisors, a Gilbert, Arizona-based consulting firm. Franklin Square Capital Partners, the Philadelphia firm that created the securities about four years ago, said it took in $134 million of revenue last year, much of that passed on to Blackstone Group LP, which picks the loans and manages the portfolios.