The Current State of Play in BDCs

Greg Campion: Business development companies or BDCs are playing an increasingly important role for investors seeking income diversification and access to private credit markets. But there are still plenty of questions to explore, including how are recent innovations in BDC structure shaping the opportunity for investors? How are interest rate cycles, economic headwinds and regulatory changes impacting the sectors? And what should investors know about credit quality, deal flow and and what may be ahead for BDCs in the months and years to come?

Joe Mazzoli: We're seeing a lot of really interesting opportunities in the BDC space today and we've seen a lot of growth of the asset class and there are a lot of really great brands in the BDC space today. But what we're finding is brand name does not always translate into outcome.

Greg Campion: That was Joe Mazzoli, head of Investor relations and Client development at Barings bdc and this is Streaming Income, a podcast from Barings. I'm your host, Greg Campion. Coming up on the show, understanding the current state of play and opportunity in BDCs. Before we get into the conversation, remember you can follow Streaming Income on Apple Podcasts, Spotify, and if you'd like to watch the video episodes on YouTube as well. And don't forget to follow Barings on LinkedIn where you can subscribe to our monthly newsletter where credit is Due, where we spotlight people and portfolios across asset classes, from high yield and private credit to everything in between. With that, please enjoy this conversation with Joe Mazzoli. Joe Mazzoli, welcome to Streaming Income.

Joe Mazzoli: Thank you. Thanks for having me.

Greg Campion: Excited to have you here. I feel like you are a well known man around the firm. Everybody knows Joe and I feel like all of our clients certainly who interact with us on the BDC side of things, recognize your face and know all your expertise. So it's super exciting to finally have you here and have this conversation.

Joe Mazzoli: Thank you.

Greg Campion: All right, so where I want to start is kind of defining our terms a little bit and I don't want this to be a 101 conversation. We've done 101 BDC content before. Actually, I will give you a pop quiz to start this podcast off. Do you know what our number one most viewed YouTube video on the Barings channel is?

Joe Mazzoli: It's gotta be something that you're moderating, I'm sure. But no, I don't know the answer to that one.

Greg Campion: It's not. It's your two or three minute overview of what is a BDC.

Joe Mazzoli: Wow.

Greg Campion: With some honor, something like 33,000 views. Now I will say that Our new firm brand video, which features CEO Mike Freno and all the other leadership has 32,000 views. So you're upstaging the CEO. I don't know if that's a great book. That one is rising quickly though. So I think you may not be in the lead for that long. But anyways, that's a long winded way of saying let's hit some terms up front. Let's kind of set the stage a little bit. But then I want to spend the bulk of this conversation talking about how I think what we're tentatively titling this episode the current state of play in bdc. So really getting into what's actually going on in this market. But start us at a high level. What is a bdc? And then maybe we'll talk a little bit about the different types of BDCs that exist.

Joe Mazzoli: Yeah, absolutely. So a BDC, it's an acronym for business Development Company and it's really just a fund structure. Right. We talk about the BDC industry. Right. But BDCs are really just access points to, to private credit. And in our case our, the BDCs that we manage at Barings are access points to a roughly $50 billion private finance business. So there's a lot of transparency in terms of the way these structures operate. They're 40 ACT funds, they file quarterly, just like any public company does. 10Qs, 10Ks. So it's really just a fund structure. And there's several types of BDCs which I think we'll get into in a moment, but it's an access point to the platform.

Greg Campion: Got it, got it. Okay, cool. Well let's dive right in. Tell me about the different types of BDCs that exist out there and maybe how that's kind of evolved a little bit over time.

Joe Mazzoli: So we have public BDCs which are publicly traded closed end funds essentially There are private BDCs which are fully private funds. They raise capital via drawdown structures, capital call structures with the target of some sort of liquidity event into the future or a wind down period at the end of the reinvestment period. And then there's perpetual BDCs, semi liquid evergreen offerings. And the perpetual BDCs have seen the most growth in the market recently. These funds accept in most cases monthly subscriptions and then offer quarterly liquidity, Generally up to 5% of the total size of the fund. And I think that's where we've seen the most growth in recent periods.

Greg Campion: And I'm curious two things actually. What's been driving that growth on the perpetual side of things. And are you seeing any type of investor type in particular driving that growth? And then I'm also curious around kind of geographically if you're seeing any different trends kind of geographically in terms of those structures.

Joe Mazzoli: Yeah, I think the growth of this semi liquid evergreen structures Perpetual BDCs is driven by a few things, but I think the most important driver of that growth is really the ability for an investor to step into a fully ramped, fully diversified portfolio, earning that return profile in the first month of the investment. That's really powerful because a lot of times closed end funds can have a really great IRR or really great track record. But the reality is investor may have had to wait 18 or 24 months for their capital to be fully called right. So that investor didn't really earn that return. Whereas for a semi liquid evergreen structure perpetual bdc, that investor is actually earning the return that the fund is generating almost day one. And then from an investor type perspective, I think the semi liquid evergreen strategies are really attractive to the wealth channel because historically it's been really tough for a wealth channel investor to lock up capital for seven years or whatever it might be for a closed end strategy. But also we've seen institutional investors sort of realize that the J curve is real and it's really hard to sort of make up that lost opportunity cost of being underinvested in the early years of the investment. So I think we're seeing all types of investors access perpetual BDCs. And from a geographic perspective, it's also really, really diverse. Of course the US market is very strong, very large, South America, Latam, Middle East, Asia, Pacific, Australia. So it's really all over the world that we're seeing interest in the asset class.

Greg Campion: Yeah, well that is a great way to kind of like level set us and kind of help us define our. I was very curious specifically on that geographic element. I think to start. So let's dive into a little bit of more kind of current dynamics. What's going on with the asset class? I want to kind of start with the macro because there's a lot of focus right now, especially on what's going on with interest rates. So let's maybe talk a little bit about that. I guess. You know, in the US we've just had our first rate cut. Looks like we may be on the path to the second one, maybe another one before year end. In Europe they're a little further along in that rate cutting cycle. But it seems like we've at least in the Us here, we've hit an inflection point. Maybe this is a new interest rate regime. So there may be lower rates on the horizon. What does that mean for BDCs and how should investors kind of be thinking about that dynamic?

Joe Mazzoli: Yeah, I mean look, these are primarily portfolios of floating rate private corporate loans and these loans are priced at a spread to SOFR and as base rates come down. So for of course is the base rate. So that is a return headwind for the asset class broadly. But I think that's sort of okay because we do live in a world of relatives. Right. Meaning what is our goal as private credit lenders within our BDC strategies? Our goal is to deliver an attractive return relative to public markets. We're capturing an illiquidity premium and I think we've done that quite well over a long period of time. But our goal is also to deliver an attractive return relative to our peers. And so I think relative to public markets, you look at high yield bond yield to worse today is sort of in the mid 6% investment grade. Bonds are near 4%. So I think against that backdrop of bond spreads near all time tights, public equity markets near all time highs, I think a little bit of return headwind given slightly lower base rates is sort of okay. And I think investors will still view the asset class as attractive, certainly from a diversification perspective, but also from a relative value absolute return perspective.

Greg Campion: Yeah, got it. Okay, that makes sense. Yes, spreads are very. We were just having this conversation with the high yield team the other day and you know, spreads are obviously very tight everywhere as we, as we record this right now. And I think their view was that, you know, actually spreads can, can potentially stay tight for a long time. So that. But your point is well taken in terms of it's all relative and all of these fixed income asset classes are going to, that's a headwind I guess for all of them. Let's talk a little just about the economy in general. So we're probably hearing like a little bit less worry these days about tariffs. That seems to have calmed down a little bit. Who knows that could, could kind of pick up again as kind of the rubber hits the road. But hearing a little bit less worries and concern about that right now. We're hearing a little bit more about this kind of idea of like a two speed economic expansion. Right. So if you look at like the latest GDP numbers, I was looking at the Atlanta GDP now estimate the other day and it was, it was hovering around 4% which is, you know, considering the headlines we see like incredibly strong, like, but you know, it's not sort of an equally distributed economic expansion. Our colleague Trevor Slavin talked about this recently on one of his markets calls where he was basically saying, you know, if you're Mag7 and you're, you're spending, you know, hundreds of millions or billions on AI build out and all these companies are customers of each other, essentially the B2B economy in a certain part of the world, most specifically tech, is super strong. Whereas if you look at for instance the lower kind of tier consumer, you're starting to see things like delinquencies pick up and things like that. So it doesn't feel like a very evenly spread, robust economic expansion right now. But with that as kind of the backdrop, I don't know if you would agree with how I just characterized all of that. But with that as kind of the backdrop, how does that then feed through to the underlying asset class that makes up BDCs?

Joe Mazzoli: Yeah, I think you made some great points and I agree with that. Right. That it appears that there are some cracks, particularly on the lower end of the consumer. I think different BDCs, different managers are operating in different segments of the market and also focusing on different industries within their portfolios. If we look, if we rewind back to 2015, 2016, when the price of oil dropped from $100 a barrel to $30 per barrel, there were some private credit managers that are very large private credit managers to this day and very active in the BDC space that suffered tremendously because they had 10 to 20% of their portfolio invested in oil. Oil and gas and energy. But for us at Barings, we have always taken a more conservative approach to industry selection. Since the inception of our senior loan strategy in 2012, we have always avoided industries that have experienced higher default rates historically. It's always the same industries that sort.

Greg Campion: Of get into trouble, cyclical, highly cyclical.

Joe Mazzoli: Industries whenever there's a bump in the road. And for us, we avoid at the very top of our deal, filter, consumer facing businesses. We don't lend to restaurants, retail consumer end markets. We don't lend to oil and gas or commodity linked sectors. So we've always preferred that more conservative approach. And so as we look at our portfolio kind of holistically, we don't really believe that we have any sort of meaningful exposure or concern to those, to that two speed that you mentioned, the lower end of the consumer, or quite frankly even the higher end of the consumer, just because we're not really active in the Consumer market.

Greg Campion: Yeah, that makes sense. I think thinking about it kind of going in. And yes, I've had this conversation with other folks on this podcast before. This concept of avoiding like the fad industries, avoiding the super highly cyclical industries, not just being kind of standard operating business and maybe you give away some upside during the good times, but as we know, credit asset classes are kind of about outperforming on the loss. Right. And so there's something to be said for investing in these quote unquote boring businesses. Right.

Joe Mazzoli: There's an asymmetrical kind of upside downside when it comes to credit investing. Right. I mean, best case scenario, we receive our interest, then we receive our principal back at the end of the term and that's our goal, that's what we want. But in theory, worst case scenario, a lender could suffer significant losses if they were exposed to one of these highly cyclical industries if the recovery prospects for a particular company diminish due to a cyclical period of down cycle.

Greg Campion: All right, well, let's get into this kind of concept of credit quality and valuations, maybe in a little bit more detail. So various, you see various headlines out there, you know, popping up with different concerns and things like that. So a couple of concerns I've been seeing lately. There's some concerns around declining net investment income, tighter spreads, which we referenced already, and rising non accruals. First of all, can you help translate that into English for us and then tell us if you're concerned about that?

Joe Mazzoli: Yeah, well, look, declining net investment income just for, for BDCs, broadly that would mean lower return profile, net investment income. One way to think of this is it's essentially income before credit losses, which, assuming the manager does a good job of limiting or minimizing any sort of credit loss or net asset value declines within the portfolio, then the net investment income that yield that return profile is reflective of the return that the investor is, is realizing. So net investment income headwinds. Yes. When, when base rates decline and they have, have declined modestly in recent periods, we'll see the path of base rates is always uncertain. We'll see, we'll see where base rates go from here. I think if we had this conversation in the middle of 2023, everybody thought we were going to be in a recession in 4Q23. Right. So base rates were certainly going lower. That didn't happen. Now base rates are on the decline and they probably will continue to decline, but we likely will be in a somewhat higher base rate environment for longer relative to what we saw after the great financial crisis all the way through 2021. So I think with that, let's call it 3 to 4% base rates, I still think the private credit asset class will deliver an attractive return. And again, it's a return, it's an attractive risk adjusted return relative to public market returns and then of course, peers. And so I think NII will be okay just because of the world of relatives. Now, non accruals, that relates to the credit loss spectrum. Right. So NII is income before credit losses. Non accruals is maybe a metric of risk of credit losses within the portfolio. And I think non accruals for the industry broadly are still quite low. Certainly in the barings portfolios. However, I think there have been some cracks. Manager selection does matter. And at times, unfortunately, especially for certain BDCs that have more retail oriented fee structures, it's those fee structures have forced some of those managers into riskier investments because in order for that manager to generate to pay themselves that fee and then also generate a return to the underlying investor, the managers really had to stretch for yield on the risk spectrum at the asset level. And so I think in those situations we have seen some losses within some, some private credit portfolios. So BDC is a broad term and the manager behind that BDC makes a lot of difference.

Greg Campion: Okay, know your manager. So let me just ask you a quick follow up on that. If you're assessing managers and you want to understand how their fee structure works and whether or not it's sort of incentivizing them to take excessive risk, is there a particular question you should ask or a particular thing you should be looking for?

Joe Mazzoli: Well, I think hurdle rates are very important hurdle rates for the incentive fee. A lot of managers, I would even say most managers in the perpetual BDC space have 5% hurdle rates, meaning the manager has to exceed that hurdle to earn an incentive fee. 5% is very, very low, especially in today's environment. But also that 5% hurdle rate for our peers, it's an income based hurdle rate. Income based, meaning even if the manager experiences credit losses or if net asset value declines, it doesn't change the incentive fee that manager is paying themselves. So I would describe that as really another form of a base fee, and that's more of a retail fee structure. I think the level of the incentive fee hurdle rate is very important. The absolute level of fees is also important. The share of the pie. And I think all these things are captured in the total return over time, but it may not be so obvious. Quarter to quarter.

Greg Campion: Got it. Okay. So definitely worth really digging into and really understanding how every manager is operating. Because it sounds like there's some differences out there. We hear a little bit about some managers out there relying on debt to maintain distributions. Is that something you're seeing a lot of? Is that troubling? Not to get too hyper negative here, but that's. I'm just. This is one of the concerns that pops up.

Joe Mazzoli: Look another way to describe that. Using debt to fund distributions. It's a situation where a manager is under earning the distribution because if the distribution is above the earnings profile of the underlying fund, you need to pay it from somewhere then. That's right. I think we have seen a little bit of this. If you look at the one year returns of some of the BDCs in the market today, those one year returns are below the current annualized distribution rate. And so very high level analysis that of course means that the manager is under earning the distribution. We have seen some distributions come down. I think we'll see more. Again, that's not necessarily the end of the world, but I think the investor needs to consider the actual return that is being earned. Right. Because the distribution yield can sort of be an attractive marketing tool for certain managers. But it's really the total return that the investor is realizing. And so matching the distribution with the total return, the annualized return of the fund over time is really important, especially when a manager is seeking net asset value per share stability over time.

Greg Campion: Got it. Okay. Another thing that's coming up these days is pick. Payment in kind. So tell me just broadly how you're thinking about pick. And you know, I'll mention actually we're, we're just put out a newsletter. We have a LinkedIn newsletter called Where Credit is Due. So if listeners and viewers are watching this, go check that out. We just did a newsletter that focus quite a bit on pick and how the team is thinking about pick. But give us kind of high level broad strokes what your view is on pick.

Joe Mazzoli: I do believe that there is good pick, there is bad pick.

Greg Campion: Right.

Joe Mazzoli: Or maybe, I don't know, good pick is maybe not necessarily the right word. But not all pick is bad, right? And the bad pick would be a situation where a company was underperforming within a portfolio and and the company wasn't able to generate enough cash flow to service the cash interest on the loan. A manager may restructure that transaction to add pic payment in kind to that particular transaction. That might be considered bad pick because it's Indicative of stress within a portfolio. Now, typically, that loan would already be marked down in the portfolio to reflect whatever stress the borrower may be experiencing. But that's what could be considered bad. Sure, good PIC or pic that's structured originally as PIC when the loan was originated. It's not necessarily bad. It's a tool that can be used to provide a little bit of flexibility for the issuer. And I think we are seeing different segments of the market utilize pick in different ways, meaning this large corporate segment of private credit. Some private credit managers are lending to really, really big companies, companies with 2, 3, $400 million of EBITDA. And it's not that big companies are bad, but it's just a lot more competitive in that segment of the market. Those private credit managers are competitive, competing directly with a $1.5 trillion public loan market. And so as a result, for those large corporate private credit managers to win deal flow from the large corporate or from the public, broadly syndicated loan market, they are offering a lot more pick. So that's why you see more pick within the large corporate segment of private credit versus the core middle of the middle market. The. The traditional segment of private credit where Barings continues to focus.

Greg Campion: Got it, got it. Okay. So like most things we've talked about here so far, you sort of have to, like, look below the headline, because it's not just like, okay, there's an increase in pick. I think the first gut reaction most people have is, okay, that's a sign of stress, which may be true, but to your point, there may be other situations where it is appropriate, but then you're getting into the whole dynamic of, well, you're competing against the BSL market and what kind of concessions are you giving and all that kind of stuff. So it's a complicated area, but it's notable that we've seen a rise there.

Joe Mazzoli: I would say, in the large corporate segment of private credit, PIK interest as a percentage of investment income is roughly 6 to 6 and a half percent. So pick interest as a percentage of investment income within the core middle market. We're seeing core middle market portfolios closer to 4%. Pick interest as a percentage of investment income.

Greg Campion: Interesting.

Joe Mazzoli: So that's.

Greg Campion: So it's more at the larger end you're seeing.

Joe Mazzoli: It's more at the larger end. And again, that percentage is maybe something for investors to. To. To watch the trend over time to identify situations where pick may be increasing.

Greg Campion: Okay, cool. All right, let's move along to talk a little bit about deal flow and origination because I know that's a really big deal in private credit, broadly speaking. So let's talk a little bit about. You see a lot of headlines around, around M and A and what's going on with the M and A environment. We've been kind of living in this muted M and A environment, you know, for the last several years, potentially seeing signs of life. I think if you look at the last quarter or two, you started to see things happen. But there's a lot of question marks around what's the sustainability of that? Is there still too much uncertainty around tariffs and regulations and everything else to really see a true kind of resurgence in M and A? But I guess how is the current M and A environment kind of impacting your outlook?

Joe Mazzoli: Well, look, I agree with your assessment. I mean, I think year after year it seems that M and A advisors and investment banks are kind of saying this is the year, right? We're going to have this big focus flood of deal activity. And I don't think we've seen a big flood or anybody in the market has seen a big flood, but I think we have seen a thawing. And my view is we may not have a big flood, right, but this thawing will continue. And I think part of the challenge was that private equity sellers of businesses were holding on, of course, to 20, 21 valuations. Buyers of course wanted discounts in the higher interest rate environment. I think we are closer to a middle ground today and we're seeing more deal flow as a result. For 1H25, for example, within our private credit business, we're up quite significantly year over year. I think it was about 30% higher for the first half. And I think that's really a result of some of that thawing in terms of transaction activity, in terms of volume. Transactions transaction volume. So I think that will continue, but I don't really expect a big surge and maybe as base rates decline moderately, that will increase appetite for M and A. But if base rates were to decline dramatically, which I don't expect, but some sort of dramatic decline in base rates, if that were to happen, probably would be associated with some sort of fear or negative economic event which probably also wouldn't drive a lot of transaction activity. So I think some of the tariff noise is behind us. I mean, we'll see if the full what happens is the full impact flows through the economy for us. We believe we don't have a lot of exposure in our business. We're primarily domestically focused. Also services portfolios. So these companies are not really sourcing goods or materials abroad in any meaningful way. But I think that thawing will continue and that'll be net positive to private credit deal flow broadly.

Greg Campion: Yeah, that makes sense. I think the other thing is you don't really need a massive M and a boom to effectively and efficiently deploy capital. If, and it's kind of a big if. If you are a large established manager with, you know, established portfolio. I think I'll probably get the numbers exactly wrong. But I think something like 60%, 60 to 70% of of our investment activity on the Barings private finance platform over the last several years has been add on transactions and other opportunities that come out of the existing portfolio. So that's kind of a big factor as well.

Joe Mazzoli: That's a. It's a huge factor. And so I'd say in 2023, just to emphasize the numbers that you just mentioned. In 2023, I think, I think roughly 70% of all private credit deal flow for the market broadly was coming from add on transactions in 2024. And these numbers are also consistent with what we've experienced at Barings. In 2024, roughly 60% of deal flow is coming from add ons. 25, I'd call it 50 to 60% is coming from add on activity. So that number has trended down. But add ons continue to be really important in allocating capital in this sort of market environment. And those lenders that are large incumbent have large existing portfolios like Barings benefit in that sort of environment. And also add on transactions are pretty attractive because we're lending to businesses that we already know well, we like. We're helping those businesses become more diversified by geography, more diversified by customer base. And typically they come with additional equity from private equity sponsors.

Greg Campion: Yeah, 100%. You've already in many cases been lending to these companies for years and years and you know them, you know the management teams really well and, and you can make that a really informed decision if I want to make this loan or maybe if I don't want to make this loan. Based on the experience that you've had so far. So that's a huge factor. Probably doesn't get talked about enough. Let's talk a little bit about sponsor driven versus non sponsored lending. Traditionally I think about at least the Barings direct lending platform. Very sponsor focused. But tell me from a BDC industry perspective and kind of how you're thinking.

Joe Mazzoli: About the differentiation there within our BDC franchise at Barings. You're right. The majority of the Portfolios are sponsor backed. Right. But at a high level we sort of think of the portfolio strategies as 75 to 85% sponsor backed and then 15 to 25% coming from non sponsored origination channels. And having the flexibility to evaluate relative value across sponsored and non sponsored is a, is an important kind of differentiator in our mind because there are a lot of private credit firms operating in the sponsor channel. I mean of course it is really attractive to partner with private equity firms that we know really well who we've been partnering with for over a decade in many cases. And also we know how those private equity firms will act in the event something doesn't go as planned. Support the underlying portfolio companies with equity and act as true partners in some sort of downside scenario. But in the non sponsored channel where we're sourcing transactions through intermediaries, M and A advisors, boutique investment banks at times there can be really attractive opportunities from a risk adjusted return perspective. Now you don't have the same level of partnership in the ownership structure on the other side of the table there, but I think as a platform having the ability to be flexible and nimble in that segment of the market is a differentiator.

Greg Campion: Yeah, that makes sense. I think the caveat there probably is if you're going to go into that non sponsored space, you need to make sure you have really robust underwriting credit chops in house. Right. Because everything we talked about earlier in this conversation just in terms of risk mitigation is kind of what trumps all in credit asset classes like this. All right, last question around kind of big trends out there, asset based finance. I don't know if there's much overlap here with BDCs here, but I'm actually just curious because we're seeing just this surge of interest in asset based finance. Barings is involved in many different, I guess what you call sub asset classes that could be considered asset based finance. Whether it's infrastructure debt, whether it's some of the asset classes, even like portfolio finance and many others. How are you thinking about that? Is there a kind of overlap between the two or not so much?

Joe Mazzoli: Well, I would put it like this. Asset based finance is a very broad term. I mean you mentioned several different kind of groups and strategies within Barings that could, that could fit within asset based finance. I think some asset based finance strategies that we see in the market.

Greg Campion: Can.

Joe Mazzoli: Have more cyclical retail consumer elements to them. So there's kind of a different underlying risk exposure.

Greg Campion: Of course you have credit card receivables and all that kind of stuff.

Joe Mazzoli: Stuff that's right. Within our BDC franchise we do have some exposure, fairly modest. But we believe we're generating very attractive risk adjusted returns in certain spots where we're lending against accounts receivable inventory equipment well within the liquidation value of the underlying collateral and having those sort of. We would consider that more acyclical rather than just traditional cash flow lending. We view that as sort of further diversification within the portfolio.

Greg Campion: Yeah. Awesome. All right, cool. We covered a ton of ground here. Got a little bit technical, but I think hopefully all this was very valuable for listeners. I know I've definitely learned a lot. Let's talk about kind of where we go from here. So take this in any way you want to go. Whether it's talking about kind of continued growth and non traded BDCs, whether it's talking about anything on the regulatory front, whether it's talking about AI. What's next? What's next for BDCs?

Joe Mazzoli: Well, I think on the regulatory front, I mean look, there's been an evolution in the B2C space over the past 10 or 20 years. I think that evolution will continue and regulation is part of the evolution, not all of the evolution, but the asset class has institutionalized significantly over the past decade or two for the benefit of investors, fee structures, quality of the managers involved in the BDC space, all of the above. There are some rules, particularly as it relates to public BDCs that hopefully could evolve that would benefit the asset class. And I think we'll see how some of that develops. As it relates to AI, I think there's a lot going on with AI, of course. And the way that we view this is in general, we think there'll be a lot of efficiencies within the underlying portfolio companies that we're lending to. So we view it as sort of a tailwind. And then within our private credit business, I think, and I know that senior leaders here of course are viewing AI as something to be leveraged to increase efficiency. So I think just like every business everywhere, we are evolving, we are getting better and. And I will be. Will be a part of that.

Greg Campion: Yeah. Cool. And are you expecting more? We've Talked about perpetual BDCs at the top of this conversation. Do you expect kind of things to keep shifting more in that direction? And do you think Perpetual will kind of gain share relative to private BDCs and publicly traded BDCs?

Joe Mazzoli: Yes, and they already have.

Greg Campion: Right.

Joe Mazzoli: The capital that's been raised in perpetual BDC semi liquid structures over the last four years has been significantly greater than public or private BDCs. And I think the reason for that is some of the things we mentioned earlier, right the liquidity optionality, quarterly liquidity in most cases up to 5% of the total size of these funds, monthly subscriptions, the ability to invest in a fully ramped, fully diversified portfolio, earning that return profile day one. I think the growth will continue in that segment of the market. I think we've seen a lot of traditional asset managers looking for a way to step into this segment of the market. I think the asset class broadly is robust, it's resilient, it's acted as the diversification tool that it is through periods of volatility. But then within the asset class, again there is a divergence of returns and outcomes. So I think there will always be relative winners and losers and those managers that are the winners from a risk adjusted return perspective will attract capital and will continue to grow.

Greg Campion: Awesome. Awesome. Well, it's going to be a super interesting space to watch and it's fun to watch you and your team kind of right in the middle of it. And like I said up front, I think anyone who's interacting with Barings in the BDC space is seeing Joe's face probably and knows him well. So I appreciate the opportunity to get you here today and to kind of get a sense of what's going on in this market. It's been a fun one to watch, it's going to continue to be a fun one to watch and I think you're a great representative for the firm to be out there talking to our clients about this. So thank you Joe for joining today.

Joe Mazzoli: It's really an honor. Thank you so much, Greg.

Greg Campion: Thanks again for listening to or watching this episode of Streaming Income. If you'd like to stay up up to date on our latest insights across asset classes ranging from high yield to private credit, make sure to follow us and leave a review on your favorite podcast platform. We're on Apple Podcasts, Spotify, YouTube and more. And remember to follow Barings on LinkedIn and subscribe to our newsletter where credit is due to see our latest updates. Thanks again for tuning in and see you next time.