CNL Strategic Capital, LLC Annual Report - How They Did This Year

I’m writing this guide to help you understand how CNL Strategic Capital performed this year. My goal is to turn complex financial filings into plain English so you can decide if this investment fits your personal goals.

1. What does this company do?

Think of CNL Strategic Capital as a business collector. Instead of making products, they act like a private equity firm. They buy controlling stakes in—and lend money to—stable, mid-sized U.S. companies. These businesses typically earn $15 million to $250 million in annual revenue and $5 million to $30 million in profit. They focus on industries like business services, education, and engineering, while avoiding volatile sectors like oil or high-tech. As of the last fiscal year, they held 12 companies worth about $600 million.

2. How the Strategy Works

They use a "private capital" strategy: they own the company and act as the bank. By doing both, they aim to collect steady interest payments—usually 8% to 12%—while profiting if the company grows in value over four to six years.

The Reality Check: Because these companies aren't on the stock market, there is no public price. The value of your investment relies on quarterly appraisals by independent firms. You are trusting the management team’s math, as the value per share is based on these appraisals rather than daily stock market trading.

3. Major Updates: Liquidity and the Future

The company will remain a "perpetual life vehicle," meaning there is no set date to sell everything and return your cash. They believe this long-term approach helps businesses grow through different economic cycles.

To address the challenge of accessing your money, they are exploring an "enhanced liquidity plan." Currently, they allow you to sell back a limited number of shares—capped at 5% of total shares per year. Keep an eye on the results of their March 2026 shareholder meeting, which may introduce new ways to sell your shares.

4. Key Risks

• Limited Liquidity: You cannot sell these shares on a standard trading app. There is no public market, so treat this as a multi-year commitment. Selling shares is subject to board approval and is often limited if too many people want to sell at once.
• Fees: You pay significant management fees, including a 1.5% annual fee based on asset value and a 20% performance fee once they hit a 7% return target. These costs reduce your potential profit.
• Conflicts of Interest: Managers may face conflicts when choosing which investments to offer this fund versus other affiliated CNL entities.
• Uncertain Distributions: Payouts aren't guaranteed. If the companies they own don't generate enough cash, the fund may pay you back your own money instead of actual profit.

5. Future Outlook

CNL is sticking to its plan: buying solid, cash-generating businesses for the long haul. They remain cautious about the economy. High interest rates have increased debt costs for their companies by 1.5% to 2%. Management is now prioritizing debt reduction to ensure these companies can keep making their interest payments to the fund.

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Is this right for you? This investment is designed for those who are comfortable locking away capital for several years in exchange for potential steady income from private businesses. If you prioritize daily access to your cash or need to avoid management fees, this may not be the best fit for your portfolio. Before moving forward, consider whether your personal timeline aligns with their "perpetual" strategy and if you are comfortable with the risks associated with private, non-traded assets.