Private Equity's Foggy Forebears

The forward serves as a credit line for the company and allows it to maintain its regulated limits, Wilkus notes. "We're never going to play the market. We're just trying to fund our next investment," he says. "To the extent we've had a short position it's been entirely because of the equity short program."

These BDCs also have been the target of short-sellers, mostly hedge funds who have sought to profit from borrowing shares and then trying to talk down the company's share price.

About 70% of the American Capital's outstanding shares are owned by retail investors, notes Wilkus. He says short sellers "were basically saying that we weren't capable of producing the kind of returns that we have historically produced." He declined to elaborate further.

The shareholder base appears supportive, however.

"We've been big shareholders since the original IPO. ... These are high-quality long-term [investment managers] who have done a terrific job with their business. They're not high rollers, they're not flashy," says John Lewis, president of Chadds Ford, Pa.-based investment manager Gardner Lewis Asset Management, the largest American Capital shareholder.

Washington-based Allied Capital also has had its own short-selling fracas. David Einhorn's Greenlight Capital has been a big short-seller. Einhorn has said he believes Allied's managers knew about an alleged fraud at its subsidiary Business Loan Express. A former executive there, Patrick J. Harrington, was indicted in January by a federal grand jury for fraud.