High yield junk-debt funds are a growing business at the moment, and one of the biggest beneficiaries is The Blackstone Group L.P. (NYSE:BX) according to an article in Businessweek. The funds, non-traded business-development companies, which were invented just four years ago, were sold in abundance last year, the market for them doubled from 2011 to $2.8 billion.

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These, like many other new alternative investment strategies, are designed to attract investors looking for high yield returns. They offer annual payouts of around 8 percent, drawing in investors who have not been meeting their targets. The funds look dangerous but they are lucrative to at least one party, the investment bank running them. In many cases this is The Blackstone Group L.P. (NYSE:BX).

According to one Wells Fargo & Co (NYSE:WFC) analyst, the funds actually generate more in management fees than they do in profit for investors. One staggering estimate from Jonathan Bock, the analyst says that for every $1 generated in profit, $2.40 are collected in fees at different stages of the transaction, including a heft 20 percent take on returns.

Apparently those numbers are drawing the attention of regulators. FINRA, the Financial Industry Regulatory Authority, said in January that it would be monitoring the asset class in 2013. According to Bock’s interpretation, these are not products bought by investors, they are sold by banks.

The non-traded business-development companies are pools of debt from companies that are rated as junk by the market. Because of this, high rates of interest are applicable, and the high yield numbers are easier to meet. However, the problem is that there’s a reason that the market rated the debt as junk. These companies are much more likely to default.

The market for assets like these is likely to grow in the coming years, as investors continue to look for high yield debt to substitute for low corporate debt yields. Estimates suggest that the market will grow to about $10 billion in the next five years. That’s worrying when the basis of these funds, and the direction of the revenue they spawn, is examined.

Regulators are already looking into the risks of non-traded business-development companies and other forms of high yield debt, but until they are stopped or more controlled, companies like The Blackstone Group L.P. (NYSE:BX) will have no intention of putting an end to the risky behavior.