Q4 2020 Main Street Capital Corp Earnings Call
Greetings and welcome to the main Street Capital Corp, fourth quarter earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
And anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Zach Vaughan with Dennard Lascar Investor Relations. Thank you you may begin.
Thank you operator, and good morning, everyone.
Thank you for joining us for main Street capital Corporation's fourth quarter 2020 earnings Conference call.
Street issued a press release yesterday afternoon, and the details of the company's fourth quarter financial and operating results.
This document is available on the Investor Relations section of the company's website.
Main street capital Dot Com and <unk>.
Today's call will be available, we're getting an hour after the completion of the call and will remain available until March.
Information on how to access the replay was included in yesterday's release.
And so advisors in this conference call is being broadcast live through the Internet and can be accessed on the company's home page.
Please note that information reported on this call speaks only as of today February 26 2021.
And therefore, you're advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading.
Today's call will contain forward looking statements. Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may.
Or similar expressions.
These statements are based on management's estimates assumptions and projections as of the date of this call and there are no guarantees of future performance.
Actual results may differ materially from the results expressed or implied and these statements as a result of risks uncertainties and other factors, including but not limited to the factors set forth and the company's filings with the security and Exchange Commission, which can be found on the company's website or at SEC Dot Gov.
Main Street assumes no obligation to update any of these statements unless required by law.
During today's call management will discuss non-GAAP financial measures, including distributable net investment income.
Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures.
Certain information discussed on this call, including information related to portfolio companies was derived from third party sources and has not been independently verified.
And now I will turn the call over to main Street CEO Duane Hughes shock.
Thanks, Zack good morning, everyone and thank you for joining us today.
We appreciate you taking the time to join US and we hope that everyone is doing well and staying safe and healthy.
Joining me for our call today with prepared comments are David <unk>, our president and Chief investment Officer, and Brent Smith, our CFO.
Also joining us for the Q&A portion of our call are Vince Foster, our executive Chairman and Nick Meserve, our managing director and head of our middle market investment group.
Since this is our fourth quarter and year end conference call I will cover some of my normal updates regarding our performance and the quarter. While also providing some commentary on our results and activities for the full year and our expectations for 2021.
I will also address some developments within our asset management business and our investment activities and current investment pipeline.
Our recent dividend announcement and.
And several other updates.
Following my comments, David and Brent will provide additional comments and our investment strategy and investment portfolio financial results and future expectations after which we'll be happy to take your questions.
We are pleased with our fourth quarter results, which we believe represented a strong finish to a difficult and unusual year and which continue to illustrate the strength of our portfolio companies and evidence of their ongoing recovery from the impacts of the COVID-19 pandemic.
We continued our investment origination success and the fourth quarter and both our preliminary market and private loan investment strategies with the two strategies combining for almost $200 million and investment originations and the fourth quarter, resulting in over $560 million and and Thats been originations for the year.
Additionally, we are pleased that we generated distributable net investment income or D. NII per share and access of our monthly dividends for the fourth quarter, which is earlier than the guidance. We provided on last quarter's call and represents significant progress and our efforts to return to consistently generate and D. NII and access of our monthly dividends on a quarterly.
Basis, consistent with our long term historical practice prior to the onset of the pandemic.
We believe that our conservative capital structure and significant liquidity position, which we further enhanced by our new investment grade notes issuance in January will allow us to continue to manage the recovery from the pandemic from a position of strength and to successfully execute on our pipeline of attractive lower middle market and private loan investment opportunities.
We're pleased that during the quarter, we continued to see improved performance across the vast majority of our portfolio companies, allowing us to continue the recovery of the unrealized depreciation we experienced earlier this year with net appreciation and each of our primary investment strategies, and three 9% increase and net asset value per share and a quarter.
We continue to feel good about the overall quality of our investment portfolio and the leadership provided by the management teams and these companies and we currently expect to see additional recovery of some of the unrealized depreciation we experienced in 2020, and new incremental fair value improvement and 2021.
We also made significant progress and our asset management business during the fourth quarter and early 2021.
As we've previously discussed we closed an agreement at the end of October through which we became the sole investment advisor to MSC income fund.
One of our first priorities and our new role was to improve the funds liquidity position and capital structure and we're pleased to report that we have completed those actions and the Sun has resumed normal investment activities.
We remain excited about our future plans for the fund as we continue to execute our investment strategies and other strategic initiatives for the fund.
We also launched main street first privately held investment fund since prior to our IPO in 2007.
This new fund EMS private loans and one is focused on co investment opportunities with main street, and MSC income fund and our private loan strategy.
While this new fund does not represent a material amount of capital to the overall main street platform. We're excited about this new opportunity and believe that it is an integral part of overall strategy to grow our asset management business within our internally managed structure and continue to provide this unique benefit to our main street should stakeholders.
We made significant progress and our efforts regarding the non accrual and underperforming and investments that as it existed at the end of the third quarter, resulting in substantial improvement and our non accrual status at year end and we achieved this result, without a negative impact to our net asset value as Brent will cover in more detail in his comments.
Our team continues to focus on working through these investments to realize the best possible outcome for our stakeholders.
Based upon our results for the fourth quarter and a positive developments, we have seen and our existing portfolio of companies coupled with the future benefits of our growing asset management business the attractive new investment opportunities, we are seeing and our lower middle market and private loan strategies, our efficient operating structure and strong liquidity position.
We remain confident with our expectations for continued improvement and our day NII and net asset value per share and 2021, and our expectations to resume consistently generating D NII and access of our monthly dividends later this year.
Followed by the eventual growth of our monthly dividends consistent with our historical results.
To that and earlier this week, our board declared our second quarter 2021 regular monthly dividends of 20, and a half cents per share payable and each of April may and June and amount that is unchanged from our monthly dividends for the first quarter.
Now turning to some additional details and our investment activities and our fourth quarter and our current investment pipeline, our lower middle market investments of $98 million and the quarter included investments and two new companies and financing for acquisitions by two of our existing portfolio companies.
As of today, I would characterize our lower middle market investment pipeline as above average.
We continue to be very active and our lower middle market strategy and we are excited about the new investment opportunities and the current pipeline.
Consistent with our activities since the beginning of the pandemic. The current pipeline includes several follow on investments and existing portfolio companies as we and our companies continue to actively look to execute on various growth opportunities with.
We find these follow on investment opportunity is very attractive as they allow us the dual benefit of reinvesting and some of our top performing companies and management teams and the opportunity for meaningful equity value creation through these accretive acquisitions.
As we look forward, we continue to believe that the difficult environment experienced broadly across the economy over the last year has caused many entrepreneur owners to refocus their financial and estate planning priorities.
Consistent with our historical experiences over the last two decades as the industry, leading partner for lower middle market companies and their management teams, we believe that our unique combined debt and equity investment offerings and our ability to be a long term to permanent partner for the companies, we invest in positions us as the favorite investment partner for these business owners.
During the fourth quarter. We also continued the successful focus of our non lower middle market investment activities on our private loan portfolio, resulting in new investments of approximately $98 million.
Due to an increase and repayments and the fourth quarter, the private loan portfolio decreased by $58 million on a net basis and the quarter, while our middle market portfolio decreased by $29 million.
As of today, I'd characterize our private loan and investment pipeline as average.
And as we turn the page to <unk> 'twenty 'twenty, one and our plans are simple.
And maintain our primary focus on growing our unique investment strategy and aluminum market and continue the growth of both our private loan investment strategy and our asset management business.
We are confident that this plan will result, and strong performance and significant value creation for our fellow shareholders.
Before I turn the call over to David I wanted to again provide our thanks to our main street employees and the management teams and employees of our portfolio companies for their hard work and efforts as we collectively work to navigate the challenges caused by the pandemic.
As a result of the pandemic 2020 was full of unexpected challenges and we greatly appreciate the efforts of these individuals.
Our experiences over the last year also reinforced the significant value we have always placed on our relationships with the management teams and equity owners that are our partners and these portfolio companies.
<unk> Street employees and these relationships with our portfolio companies provide us with significant confidence that we will achieve our expectations for 2021 and beyond.
With that I will turn the call over to David.
Thanks, Dwayne and good morning, everyone.
At the end of each year, we like to take a few minutes to look back and our history and recap how the benefits of our unique investment strategy and efficient operating structure have enabled us to deliver what we believe are attractive returns for our shareholders.
With our February dividend payment earlier this month, we achieved a significant milestone.
Since our IPO over 13 years ago, we have increased our monthly dividends per share by 86% and we've paid cumulative total dividends to our shareholders of over $30 per share, which is over two times, our IPO price of $15 per share.
Over this time, our shareholders have also benefited from significant stock price appreciation and addition to the dividends paid.
During the time from our IPO through the stock market closed yesterday, we have achieved an annual rate of return of approximately 16%, which again, we believe compares very favorable favorably to other investment options over this period of time.
To illustrate the point and Investor who bought one share of our stock and our IPO at $15 per share and chose to participate and our dividend reinvestment plan would now see the value of that share over $112, whereas seven five times multiple of the original investment.
Primary driver of our long term success has been and continues to be our focus on the underserved lower middle market and specifically our strategy of investing and both the debt and equity and lower middle market companies alongside the strong existing management teams, whereby we act as their partner.
We believe that we can achieve attractive risk adjusted returns for our investors by benefiting from the structural protections provided through our first lien debt investments, while participating and the potential equity upside our portfolio of companies can achieve.
With that our lower middle market strategy, it would've been very difficult for us to produce such attractive returns for our shareholders over the years.
The lower middle market is a true differentiator among our interest industry peers and has been the cornerstone of our investment philosophy since our founding as a private partnership nearly 24 years ago.
As Duane noted in his comments the lower middle market will continue to be the cornerstone of our investment strategy in 2021 and beyond.
As a result of the impacts of COVID-19 over the course of 2020, we saw significant variable performance and the prospective companies, we seek to invest and.
Because of the uncertain environment, we have seen business owners increasingly seek minority equity investments and we expect this trend to continue and the future.
We believe that the universe for minority equity investors is less competitive and the environment for more frequent majority change of control transaction that dominate the private equity marketplace.
And 2018, and 2019 minority transactions represented approximately 50% of our new lower middle market equity investments, whereas in 2020, we sell minority transactions represent over 80% of our new lower middle market equity investments.
The significant advantages for our of our permanent capital structure, along with our preference to partner with the existing management teams and owners of our portfolio companies as opposed to buying them out and a change of control transaction allows us to deliver unique structures and transactions that address the specific needs of family owned businesses.
We believe this differentiated approach will allow us to maintain and increase our lower middle market investment pace and the future.
Additionally, last year, we grew our private loan portfolio and private loan origination capabilities, which positions us well for the future not only with our own portfolio, but through our third party asset management business, most notably unlike the structures of many of our BDC competitors. The fee income we derived from our growing asked.
Net management business directly benefits our shareholders.
During 2020, our continued success with both our lower middle market and private loan investment activities allowed us to originate over $563 million and new investments.
We completed $294 million and total lower middle market portfolio investments, including $200 million six new lower middle market portfolio companies, which after aggregate repayments of debt principle and return of equity capital resulted in a net increase of $103 million and total lower middle market portfolio.
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Additionally, we completed $269 million and private loan portfolio investments, which after aggregate repayments of debt principle and exits of equity investments resulted in a net increase of $24 million and.
Total private loan portfolio investments.
Finally, consistent with our prior stated goal to deemphasize, our middle market portfolio investment portfolio, we had a net decrease of $89 million and this segment of our business.
As of year, and we continue to maintain a highly diversified portfolio with investments and 175 portfolio companies spanning across more than 50 different industries.
Our largest portfolio company investment represented two 7% of our total investment portfolio fair value at year end and two 8% of our total investment income.
The majority of our portfolio investments represent less than 1% of our income and our assets.
Our lower middle market portfolio included investments in 70 companies, representing approximately $1 3 billion and fair value, which is approximately 16% above our cost basis.
And the contributions from our lower middle market portfolio continue to be well diversified with 46 of our 70 lower middle market companies, having unrealized appreciation at year end and 34 of these companies contributed to our dividend income in 2020.
At the lower middle market portfolio level. The portfolio's median net senior debt to adjusted EBITDA ratio was a conservative three to one and a total adjusted EBITDA to senior interest ratio was two four to one.
As a complement to our lower middle market portfolio, we had investments and 63 companies and our private loan portfolio, representing more than $740 million of fair value and and our middle market portfolio, We had investments and 42 companies representing approximately $446 million of fair value.
As we've discussed on previous conference calls given our favorable view of the lower middle market and private loan opportunities that exist today, we've primarily focused our investment activities on these segments of our business.
The total investment portfolio at fair value at year end was approximately 105% of the related cost basis, and we had seven investments on non accrual status.
Equaled one 3% of the total investment portfolio at fair value and three 6% of cost additional.
Details on our investment portfolio at year and are included in the press release that we issued yesterday.
With that I will turn the call over to Brent to cover our financial results capital structure and liquidity position.
Thanks, David our total investment income and the fourth quarter increased by 3% over the same period and 2019 to a total of $62 5 million, primarily driven by an increase in fee income and dividend income partially offset by a decrease in interest income the change and total investment income and includes an increase of $2 $9 million.
Weighted to higher levels of accelerated income for certain debt investments or other income generally considered nonrecurring when compared to the fourth quarter of last year, our operating expenses, excluding noncash share based compensation expense increased by $1 6 million over the same period of the prior year to a total of 22.
$2 million, primarily related to an increase in compensation expense in the quarter for the full year compensation expense decreased from prior year by 4% the ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets was one 5% for the fourth quarter on an annualized basis.
And one 3% for the full year 2020, a decrease from one 4% and the prior year.
The activities of our external investment manager benefited our net investment income by approximately $3 $2 million during the fourth quarter through the allocation of $2 1 million of operating expenses for services, we provided to it and $1 1 million of dividend income.
This increase is a result of main street, taking over as the sole adviser and October to the HMS income fund since renamed the MSC income fund.
And we recorded a net realized loss of $71 6 million during the fourth quarter, primarily relating to the realized losses from the restructure or exit of several middle market and private loan investments that were previously on non accrual, including one private loan access and media holdings that had been on non accrual for several years.
<unk> and accounted for more than 40% of the total net realized losses for the quarter. However, this loss on access and media resulted in net net positive impact on NAV during the quarter as the realized loss was less and the previously recognized unrealized depreciation.
Overall, the total net realized losses had little to no net impact.
During the quarter due to the accuracy of the previously recognized net unrealized depreciation. These activities resulted in a significant improvement from prior quarter and our non accrual status.
We ended the year with seven investments on nonaccrual status and down from 12, a prior quarter and comprising approximately one 3% of the total investment portfolio at fair value and approximately three 6% at cost.
We recorded net unrealized appreciation on the investment portfolio of $40 $1 million during the fourth quarter, primarily relating to $13 3 million of net.
Appreciation on our lower middle market portfolio, $5 1 million of net appreciation on our private loan portfolio $7 9 million of net a appreciation on our middle market portfolio and $16 2 million of depreciation related to our external investment manager and two 4 million of net depreciation on our other portfolio.
No.
Our operating results for the fourth quarter resulted in a net increase and net assets of $79 3 million or $1 19 per share.
Our overall capitalization and liquidity remained very strong as our total liquidity is currently in excess of $800 million during the fourth quarter, we raised approximately $47 million and net proceeds under our ATM equity issuance program and then recently in January we issued $300 million of investment grade notes with a cash coupon of three <unk>.
Percent and a maturity in July 2026.
This represents a significant increase from our liquidity position and prior to the pandemic and we continue to believe that our conservative leverage and strong liquidity and continued access to capital our significant strengths that have us well positioned for the future.
As we look forward to the first quarter, we expect that we will generate distributable net investment income and 58 to 61 per share as we continue to work on covering our monthly dividend with our distributable net investment income on a quarterly basis consistent with our long term historical results with that I will now turn the call back.
Over to the operator, so we can take any questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment and <unk>.
And the necessary to pick up your handset before pressing the star key.
First question comes from the line of Robert Dodd with Raymond James. Please proceed with your question.
Hi, guys and congratulations on a really good quarter.
First one on the dividend.
Net income and then on the asset management business with Ken on the dividend and can we kind of hinted at this time.
And that really pronounced snapback in the fourth quarter, I mean up year over year.
And so many way to tell how much of that is kind of catch up from the earlier in the year.
And may not get it.
Sustained obviously dividend and it comes a little hot.
But yes it.
Is there.
And the lack of a bed and so many one time income within the dividend income this quarter.
Yes, Thanks, Robert what I would say on the dividend income is that clearly there were instances, where we had elevated dividend income from certain companies.
And just think that the companies that pay dividends and the fourth quarter were largely companies that had consistently paid dividends in the past, though you did have some catch up a lot of it may have been driven by yearend tax calculations and evaluation of what their taxable income was in Q4 and they had under.
You kind of estimated or distributed in prior quarters. So you had some catch up and then you also as you recall had an increase and the dividend income from.
From the advisory activities and the asset management business, but I wouldn't say there was anything in there that was purely a one time item, but you would have seen some elevated or catch up activities.
Got it got and I appreciate that and then.
The dividend income.
So on the asset manager.
It's a really high return to shareholders, obviously, and I'll put capital and risk and you're getting.
Please.
Work and large part you're already doing so what could we.
And what should we expect from that business over time, obviously.
And the HMS MSC now it's back in the position where it can potentially grow.
By deploying capital and levering up a little bit book.
Is reopening and that to new equity.
And the cause as a private fund and then on the private fund itself I mean, obviously, it's very small right now.
Is the intent to grow with that and.
Would your.
Your.
Expectations maybe.
Long term or might be niche and b.
The contribution from the asset management, given how accretive it can be to all that.
Sure So Robert as you've heard US day in the past, we find that part of our business to be very attractive for all the reasons that you you outlined and highlighted there when we look at.
And the MSC income fund contributions the way we would look at it is we would expect Q4, even though it was elevated above Q3, because we became the sole advisor as opposed to the sub advisor when you look at the assets at MSC income fund there were some significant repayments at the end of the year and they did not at the time had the ability to.
To reinvest so the total assets at MSC income fund decline, which obviously has a negative impact on the fee income.
We would expect that that asset amount to be the low level for MSC income fund and hopefully see that elevating as we move into 2021, you may not see it as much and Q1, but hopefully later in the year now that they have capital and we re.
Started investment activities, you should see that total asset number increase over time and that will drive an increase and the fee income from that activity and in addition to us being the advisor for the full quarter as opposed to two months out of three months and the fourth quarter. When you look at the new private loan fund I think we're very excited to have new.
Activity, there, but we are expecting that to still be a pretty.
Modest contribution to main street at least initially obviously the the benefit there will be dictated by how successful we are first and raising capital and then longer term and deploying and I think we feel really good about both of those but we do continue to expect it to be.
A fairly small contributor and comparison to the other components, we have on our side and really viewed as a long term investment with significant opportunity not just on this first fund, but hopefully on the subsequent funds that we raised and the future as a follow on to this first fund.
Got it and I appreciate it thank you and again congratulations covering the dividend this quarter and thank you I appreciate it.
As a reminder, ladies and gentlemen, and it is star one to ask your question. Our next question comes from the line of Kenneth Lee with RBC Capital markets. Please proceed with your question.
Hi, good morning, and thanks for taking my question.
Just one on the prepared remarks within what you're seeing and the lower middle market portfolio, you mentioned that.
Youre seeing potentially a lot more folks looking for minority equity investments and this could drive some some potential increased and the pace of capital deployment.
Wondering if you could just further flesh out those comments, whether there are any specific sectors that youre seeing this kind of activity or was it rather broad based just any further color on thanks.
Yeah sure. Thanks, Thanks for the question and I'll get some real quick comments and I'll, let David you'll follow on to that I think when we looked at our activities and 2020 and the lower middle market. Despite the impacts of the pandemic. We felt really good about our activities there and we saw benefits from from both our existing portfolio companies.
And being more interested interested and more active on follow on investments to fund acquisitions. They completed I think we expect to continue to see that activity going forward on your point about the minority investments I think we view.
And the opportunity in today's marketplace to be one where business owners are private companies likely want to get some liquidity just like they they have and the past that we expect that there could be elevated activities there, but they may not necessarily want to sell their business and in that scenario, we think our combined debt and equity investment strategy and then more importantly, our strategy, where we can be.
And minority investor for as long as they want us to be their partner their investor, we think that that flexibility should play very very well and this environment and I'll, let David add on additional comments, yes, yes, so as it relates to the <unk>.
Obviously health business community I think back and 19, we are seeing some frothy valuations and also EBITDA increases and visibility as we got into 'twenty with the pandemic there was less visibility and so transactions became more difficult to trend to close so from our perspective is a great opportunity to pivot from.
Larger equity checks to smaller equity checks, where we could still get minority equity exposure put some great money to work on the debt side and.
And <unk>.
Partner with those management teams and Theres also a considerable amount of those folks who looked at getting.
<unk>.
Side of <unk>.
Positively looking for opportunities to grow their companies. So a lot of the proceeds went to being opportunistic and the market with that capital deployment.
Got you that's very helpful very helpful color there.
And just one follow up.
And I may.
I'm wondering if you could just share with us any updated thoughts around what would be the key drivers in terms of improving distributable net investment income.
Thanks.
Sure.
Look at the activities we have.
On the new investment side, I think we touched on structure on originations at the end of the year as we closed out 2020, but also a healthy pipeline as we sit here today.
And the contributions as you would expect from those investments at least in Q1 will largely be dictated by the timing of the closing so a lot of that activity might really be more beneficial for Q2 going forward and the new investment activity will be a big driver and then as I touched on earlier in my comments, we do expect to see continued increases and contribution from the asset management business.
And then that coupled with continued improvement and the overall economy, which we're seeing and our lower middle market portfolio companies and you should drive continued increases and the dividend income and really.
We expect there could be some volatility at least over the next couple of quarters and dividend income, but longer term as we look at it Q2 Q3 and later, we expect that dividend income contribution from aluminum market companies to become more consistent like it was and the periods prior to the pandemic. So those would be the big drivers we have on our side.
Great. That's very helpful. Thanks again, thank you.
Yeah.
Okay.
Our next question comes from the line of David Miyazaki with.
Confluence investment management. Please proceed with your with your question.
Hi, good morning, guys and congratulation on a good quarter and a good year.
Just a.
Kind of a question and a little more.
Granularity and forgive me for that and knowing that you guys and over.
Great day, when you're providing equity capital and typically what is the proportion of ownership that you usually wind up happening and the company.
Yes, David Thanks for the question I would say that.
Net percentage of ownership that we ended up having on our side can can vary significantly it's really on our side when we make and equity investment we're providing a highly customized feel very specific solution to that portfolio company or to that to that owners desires. So our ownership and the company as a result of our transaction.
And it's really driven by what those business owners and what that management team is trying to achieve and so the more liquidity and the business owners want our equity check and percentage ownership will increase if they're really trying to take some chips off the table, but they want to maintain control, we love that scenario and in those scenarios of those transactions.
We ended up being a significant minority investor, but clearly we ended up being a minority with with the existing management team and existing owners of the business retaining majority control of the company.
Significantly the key for US is that the common transaction for us is a mix of debt and equity.
75%, and 80% debt and 2025% equity and our ownership position really indicated by the desires of the existing owners of the business.
Okay great.
Helpful.
And and typically then what is your experience for.
The transaction.
Exit on those kinds of equity investments.
Yes, I mean, one of the things that we really think is unique about our model and it's given to us purely.
By being a public company, which is different and most other investors and private companies is that we have permanent capital on our side. So we are very very happy to be and investor and these companies alongside the other existing owners and more importantly, the management team literally forever. So we we do not underwrite to and exit like you would see a typical.
Private equity group that have to exit everything that they invest in over five seven year time period, we love kind of being the permanent industrial providing something that we think is materially different than other people and the marketplace and thats.
And why you hear us say that we think our aluminum market strategy is unique or different and we could point to across our portfolio numerous companies that had been and the portfolio and for longer than a decade I think as we sit here today out of the 70 companies. We have about a third of those companies had been and our portfolio for longer than eight years that really is a big part of our strategy and Thats why you hear us.
Made positive comments here over the last three or four quarters about our excitement about seeing those same types of companies that we expect to be long term investors in <unk>.
Deploying activities on their side, whether its acquisition growth organic growth activities Youre really youre sticking those growth opportunities because we we expect to be investors with those management teams and those other owners for the next 510 years or longer and it's.
And really a significant strength from our standpoint, and a core part of our strategy.
That's great very helpful. I appreciate the extra color there.
And if I could shift gears on you do you have any thoughts on.
The regulatory environment and I know that you guys have been involved and varying ways over time with regard to him.
And the regs that are out there and what are you seeing or do you have any any hope for 2021 and forward.
With regard to some of the rule changes out there that may or may not happen.
Yes. This is Vince yes, yes, we have a lot of hope.
Sure.
Is it going to be 2021, or 2022, I don't know.
Yeah, and you still have.
The SEC getting staffed up and you've got the congressional committees and trying to figure out.
What their short term agenda, Zara et cetera, and how theyre going to work together. So we continue to.
We're kind of bipartisan and a bipartisan manner with both a house the relevant house and Senate committees on one leg.
Legislative fixes and also with the FCC and regulatory fixes and so obviously our priority is affc, both on a legislative front and a regulatory front, mostly regulatory today and.
And.
Tax parity.
Where our share who are individual shareholders get to 20%, 199% deduction like REIT shareholders for example, and that would be statutory and youre going to see some bills drop.
On that once we once we kind of reset with our new co sponsors and a bipartisan basis basis at the committee level and just kind of go forward and Unfortunately, you have two years and then Theres a new Congress. So we try to get as much done and as you can but but probably.
Probably not a lot of hope for 'twenty, one and probably more hope for 'twenty two but.
Things can change quickly.
But we don't really see any a lot of opposition, it's more it's more prioritizing and trying to figure out.
And what bill we can attach.
And our bill to that.
It needs to get past as opposed to maybe try to pass something on a one off basis as it can be done and reconciliation isn't going to be done and another manner and got it.
Effective group of Spi a working on this.
And we also have a lot of resources among some of the larger members.
And Rob and we're really working together pretty wells and industry at this point.
Right and.
It does.
A lot of these these issues, particularly the FSP and its kind of like.
Watching the glacier come down the mountain.
It is moving forward.
Some point and it's going to drop into the ocean, but my goodness everything you look at it and it doesn't look any different and the day before and.
And I think one of the things that at least from my distant perch.
<unk> it appears that.
And the efforts are now much more bipartisan than they had been in the past is that a fair characterization.
And I think so and with respect to <unk>, specifically, the FCC has really done quite a bit because after all it was their rule and 2014, they put it out for public comment having received non they finalized the rule and now we are trying to get them to change their rollback. So.
They propose to do that they havent proposed to do it in a way that's a slammed up with Russell and S&P in terms of their index inclusion rules.
So really.
And we need to see how far the SEC's willing to go get the rule finalized and then go back to the indices and see see what we can do to get them to two.
<unk> there.
And inclusion criteria.
And thats going to be real important but.
I'd say, we've really we really did a pretty good job with the SEC, considering considering the history and the fact that.
We're trying to get them to change their own rule.
Right and I mean.
I think I have to agree with that wholeheartedly that at least and my observation that the FCC has been.
And increasingly engaged and trying to gather.
Turns around the impact of the rule.
And do you and I know this is kind of getting outside of that.
Maybe what you are.
Able to know but.
Greatly value your opinions on it.
Do you get a sense that the primary equity.
Sponsors I think Russell and his team.
We'd like to get the Bdcs back in or is it something that is.
Not really all that important to them.
I think they are a conduit for the views of their of their subscribers.
I really don't think they have a view.
I do think like like anyone else they day.
They're not too eager to sign up for a bunch of work and so with respect to the SEC proposal.
And with a 10% threshold below which you have footnote disclosure and above which you don't.
They don't they are not really excited about being the ones to monitor that intra quarter inch per year, that's not really workable for them, but aside from some administrative difficulties. My my view is they don't have a view.
They want with their members want their members.
And our subscribers, we're having great difficulty and 2014 and so they day supported them and.
Help get the rule change and to the degree that.
Those same people are willing to have us back in.
So we have parity with mortgage REIT. For example, then I think they'll do it.
Right right.
That's a really great point that.
It's not I mean, well while the fee issue is important just to work and calculating what our free users.
And I put a burden on the on the.
The user of the index and so if you make it cumbersome and kind of get pushed back just from the complexity. So.
And I'm glad that that.
And as getting boys and certainly appreciate the leadership that you guys had provided on various fronts over the years.
And I always happy to talk off line.
Great. Thanks, guys. Thank you.
This concludes our question and answer session I would like to turn it back to management for closing remarks.
We just want to thank everyone again for joining us This morning, and we'll look forward to talking to you again at the first week and first we can make thank you.
Ladies and gentlemen, and this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.