[This article was originally published on May 29, 2014, we’re bumping it back to the top because a lot of readers have asked about it this week. The article below has not been updated or revised since first publication on 5/29/14]

Gumshoe readers have been asking about the “President’s Private Stock Market” for quite a while now, but I hadn’t gotten around to covering that teaser pitch — an oversight we’re correcting today.

It’s no surprise that this pitch caught the eye of a lot of investors — something about tapping into the insider secrets of politicians, a theme that resonates over and over again for suspicious investors who believe the rich and connected are doing something far different that’s making them wealthy (hint: yes, they probably are doing some things different than you or I … but that’s not why most of them are wealthy, my impression is that politicians are more often either born or bred to wealth or build wealth from book sales, the revolving door, and the speaking circuit, not because they’re great investors).

We’ve seen similarly themed teaser pitches before, from the “secret presidents 770 account” to the many spiels about the secret “Mainz” income earned by Bush, Clinton or Obama, but this one’s a little different. Here’s how it opens:

“‘It’s set up to maximize profits’ — Barack Obama, May 21, 2013….

“The Presidents’ ‘Private Stock Market’

“For Decades, This Closely Guarded Secret Has Discreetly Handed Politicians, Celebrities adn Billionaires Fortunes of $5 Million… $15 Million… Even $4 Billion…

“Here’s How It Could Explode Your Income 2,114% Times Higher Than The Average Investor.”

I’m not exactly sure what “2,114% Times Higher” means, but we’ll guess that it’s “A Whole Lot.”

They even capitalize on perhaps President Obama’s most regretted soundbite…

“… if you’re a business owner, you’ll remember what our commander in chief famously declared just last July 13… ‘You didn’t build that!’

“But take a quick peek behind the curtain…

“And you’ll find a totally different story.

“It’s the true story of a president ‘of the people’ who’s quietly raking in millions of dollars…

“In perhaps the most un-populist way you could ever imagine!

“We call his cash source, ‘The Presidents’ Private Stock Market,’ because Obama has collected as much as $5 million thanks to this backroom market.”

And Bill Clinton, we’re told, made more than $15 million from the same “private” market. What is this market?

“… a set of extremely profitable companies that offer returns far beyond anything you can get through the NYSE, Amex or Nasdaq.”

Huh? We’re going to need some more clues.

“Investors who are ‘in the know’ understand that there’s only one place you can expect to see these kinds of rare, monumental gains.

“In a moment, you will learn how you can get in on this market.

“You’ll also discover why fewer than 1% of Americans have been able to invest in this special ‘Presidents Market’… Even though it’s about 1/40th the size of the NYSE.

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“One Wall Street Journal dispatch recently went so far as to call ‘The Presidents’ Private Stock Market’ a strategy ‘traditionally played by institutional investors and the super rich willing to commit as much as $25 million.'”

Dammit, I thought I was “in the know!” Perhaps I will be in a few minutes. What else do we learn about this “private stock market?”

“we’ve just uncovered a ‘back door’ for you… All it takes is just $11 to get started”

Really?

And…

“Business Insider recently ran a piece about “How You Can Become a Multimillionaire” thanks to this very same exclusive market.”

Figured out where they’re heading with this one yet? Yes, the fog is starting to clear a bit. Here are some more clues:

“it involves a way to buy into companies that are extremely profitable…

“But don’t trade on any major exchange.

“For example, take the company GoPro…

“You may have heard about it recently.

“It makes those tiny little hi-def video cameras you can attach to almost anything….

“Anderson Cooper reported that GoPro’s sales soared from $350,000 in 2005 to more than $500 million in 2012….

“You can’t nail down GoPro’s share price… Because there isn’t one.

“GoPro is one of those companies that’s reserved only for ‘private investors.’

“These people take a stake at the very early stages of booming businesses… And then reap the biggest rewards.

“So, if you had gotten in, just how much could you have made in GoPro?

“Well, a mere $1,000 put into GoPro in 2002 would now be now worth about $8.6 million.

“We also know of a handful of “late” investors who took an equity stake in mid-2011.

“At that time, company revenues were in the neighborhood of $225 million….

“Yet estimates now call for final 2013 sales just under $1 billion (twice 2012’s results). And Forbes has just valued the company at $2.25 billion.

“So those ‘late’ investors who got in around mid-2011?

“They’ve seen their money quadruple in just about three years. In other words, they didn’t even need good timing to multiply their money fourfold!”

OK, so Marc Lichtenfeld is teasing some kind of private equity investment — someone who finances companies before they are public. And since he’s pitching a newsletter to the hoi polloi like you and I who aren’t “accredited investors” who can easily invest in hedge funds, it has to be something you can buy easily — which means it’s some kind of publicly traded BDC (like Hercules Technology Growth Capital, which we covered yesterday or Harris and Harris, which we covered for a Microcap Millionaire’s piece a few months ago) or some other private equity fund or financier.

That assumption is buttressed by the continuing teaser spiel that taunts us with the fact that we weren’t able to invest early into hot names like airbnb, or Uber, or Happy Family. It does not mention, of course, any of the venture-backed or private equity-backed companies that withered on the vine.

And did we mention, Lichtenfeld says it’s very safe — not the word usually assigned to early stage venture capital investments like the huge wins he gives as examples. Here are his words:

“I haven’t even mentioned that this back door involves an extremely safe investing technique.”

He goes on to describe that the President’s Private Stock Market was born when Henry Phipps created the Bessemer Trust, a pile of cash that came from selling Carnegie Steel to JP Morgan and that was used to buy and sell private businesses. The Phipps and Bessemer names have come up a few times in past teaser pitches, including one of our first looks at a teaser for publicly-traded private equity firms back in 2007… which also happened to be a pitch from the Oxford Club.

And then we get the other nebulouos clues to feed to the Thinkolator:

“This group scours the markets to uncover the very best privately held companies in America.

“(Last year alone, they put some 3,000 opportunities under their microscope.)

“They zero in on businesses with the highest profit potentials… the strongest competitive advantages… and the lowest risk.

“In other words, the next GoPros, Ubers, and Airbnbs…

“They look for companies with those great ideas… The ones people can’t stop talking about.

“And then they help regular investors essentially join together to get in on a cluster of these growing companies, for as little as $11.”

And it pays dividends…

“the group I recommend pays out more than six times the income of the average S&P stock.”

… and has had insider buying:

“The guys who put these deals together have never sold even a single share of their own.

“Not one.

“In fact, they’re adding to their stake in this income play even more, practically as we speak.

“As you might imagine, these are some pretty sharp investors.

“For example, one guy, George Elias, a Harvard MBA, put in $102,000 of his own money just a few months ago…

“And his colleague, a Princeton grad, invested more than $6 million.”

So is that enough for us to find our answer? Well, we fed that pile of hints into the Might, Mighty Thinkolator, let it chaw on ’em for a while, and learned quick enough that this is: Prospect Capital (PSEC), one of the larger and higher-yielding Business Development Companies… and one that we mentioned in passing yesterday.

How are we so sure that the Thinkolator is correct about Lichtenfeld’s pick for this “Presidents’ Private Stock Market?” Let us count the clues:

He’s changed the name to throw off the bloodhounds, but “George Elias” is actually M. Grier Eliasek, who does have a Harvard MBA (we’ll try not to hold that against him) and is President and COO of PSEC… and his most recent personal buy was for $102,800 worth of shares last Summer.

And the Princeton colleague is John Barry, PSEC CEO, who did invest more than $6 million last year… though (apparently after this ad was written) he also bought another 100,000 shares earlier this year for another $1 million or so.

And yes, to get into more details, they did have a “total assets” line of $4.784 billion as of the September quarter last year (it’s now about $6.3 billion). And the share price was right around $11 until it dropped to the current $10 or so earlier this month. The drop was caused by a notice that the SEC wants them to reclassify their financials, which, though it would actually increase reported earnings, implies to at least some investors (I haven’t looked that closely) that management was pushing the envelope to maximize their incentive bonuses — the best explanation of if that I’ve skimmed through so far is here from TheStreet.com, but I won’t pretend that I know what exactly is happening or what will happen with the SEC and the handful of shareholder lawsuit announcements that germinated over the last month as a result of the accounting issues.

What we do know is that PSEC has preannounced their dividend, with steady but tiny increases, for the rest of the year — so it would be quite shocking to the market if they reneged on that dividend, and the expected yield is now almost exactly 13%. They were a rapid dividend increaser in their early years in the mid-2000s, and they didn’t have to cut the dividend as so many financial companies did in 2008 or 2009, but since the financial crisis the dividend has been on a very slow creep upward… slow enough that it doesn’t register as “dividend growth” if you round off to the penny. But still, growth is good.

PSEC is one of the more equity-exposed BDCs, they are also a middle-market lender but they have equity exposure to almost all of their companies and have actual control of a substantial number of them like a traditional private equity firm would, so that’s probably part of the reason that they tend to be priced as “riskier” than many competitors. Shorthand valuations in the BDC space are almost always done on a basis of yield, since we know that most such investments are held by individual investors and they are interested in the income… if the yield is high, like PSEC’s 13%, it’s perceived either as more risky or as less likely to grow the dividend… if the yield is lower, like Main Street Capital (MAIN) or Ares Capital (ARCC) at 6-8%, it’s perceived as safer or as having more growth potential.

Prospect Capital is a pretty polarizing name right now (a “no brainer” safe dividend per this Fool author, another Foolie calls attention to their questionable underwriting and weak performance compared to ARCC), and lawsuit announcements and accounting questions often drive shares down more sharply than the numbers warrant… which might mean that there’s an opportunity to buy into a pretty large (and growing) private equity portfolio and get a solid yield. But as with Hercules yesterday it’s important to note that these kinds of investments are interest rate sensitive and cyclical to some degree… and that they tend not to produce capital gains unless you are fortunate enough to buy them when they are hated and cheap. You can make an argument that PSEC might be edging toward that “hated and cheap camp” this month, and the shares have done worse than the BDC index recently, but it’s still quite close to the average $11 price it has held for most of the past two years.

So is PSEC worth a flier? Think this will continue to generate 13% dividends for the foreseeable future and buttress your portfolio? Let us know with a comment below.