Nick Heilbut: Yeah, so I think we see rates in the current range for the foreseeable future and really don’t expect any meaningful rate cuts in 2024. Obviously, we sensitize all of our investments for different rate environments and when we put something in the portfolio, we’re trying not to make an explicit bet on a change in interest rates. It’s sort of outside of our purview to make a strong call on that. Across the portfolio, performance has been strong at the individual company level, which is always something we pay attention to. We get a lot of information from looking more top down. I think the outlook that we expect is a benign one with targets of weakness in certain areas. We’re certainly seeing some weakness in the low end consumer.
And then there are also a couple of changes in certain sectors, commercial real estate, clearly as I mentioned, certain things that are subject to changes in buying patterns, which can create idiosyncratic weakness and occasionally that’s an opportunity to earn outsize risk returns for us in certain investments.
Robert Paun: Next question on your dividend strategy. Can you talk about the strategy? You’ve raised your dividend a few times since the listing in November of 2022, and coverage is still fairly high here. Any thoughts around the strategy and if you would evaluate any changes to the dividend in the future?
Andrew Beckman: So the first thing I would say is, we are focused on our total returns for shareholders, first and foremost. And we’re very proud of our performance. As mentioned, the fund returned greater than 20% on a net basis last year. That’s a total return basis dividend plus NAV changes. And the stock returned a total of 37%. With respect to the dividend, our policy is to generally try to pay out projected net income, but to take into account what is going on in the market, interest rate curves, and other market changes on the horizon. Right now, our dividend is more than covered by net income, but we are facing a downward sloping yield curve. So we will continue to reevaluate whether or not the current dividend is appropriate. Generally speaking, I think there’s cushion in the near term for either maintaining or increasing the dividend.
Robert Paun: Okay, and then the next question. Given the discount at which the stock trades compared to its net asset value, would you consider a share repurchase program.
Andrew Beckman: The board is constantly looking at all different things with respect to use of capital and it’s a continuous discussion as to how best to allocate capital.
Robert Paun: Okay, and then next question is on the balance sheet. Can you talk about leverage and targets of the capital structure?
Nick Heilbut: Yeah, so portfolio leverage is a function of the composition of the asset pool and our views of the market opportunity. I think right now the asset side of the balance sheet is extremely high quality. We continue to move up in terms of percentage of secured debt and our generally please put the performance of the investments in the portfolio. Given the high quality of the assets, we’re comfortable using leverage in mind, as you would expect, the current leverage in the portfolio. But we do always want to maintain some capacity to add risk in the event of a market sell-off.
Robert Paun: Great. And next question, can you discuss your fee structure relative to your peers and that closed-end funds base?
Andrew Beckman: FSCO has a dynamic investment strategy with an allocation to private and public investments, which differentiates us from your typical closed-end funds, actually almost all closed-end funds. Also, our fund is more actively managed from a content of the portfolio perspective, as well as exposure perspective than most of the competitive closed end funds that we look at. Our fee structure straddles the closed end fund space and the publicly traded BDC space. As Nick mentioned, roughly half of our investments are in private credit, which are highly tailored investments that frankly require more intensive sourcing and more intense structuring and diligence than traditional BDC credit. So our fee structure really straddles both private credit funds and public credit funds. And while the fund does pay an incentive fee, it is well below the average centipede of the BDC.
Robert Paun: Great. Next question. What was the percentage of non-accrual assets for the portfolio at the end of the year?
Andrew Beckman: On a fair value basis it was around 1.3% and on a cost basis it was approximately 3%. Those are year end figures. Those figures are down 2% on a fair value basis as of June 30 and 4% on a cost basis as of June 30.
Robert Paun: Okay, great. That addresses all the question on today’s call. I’d like to thank all of you for joining the year end call today. And if you have any further questions, please feel free to reach out to myself, Robert Paun on the investor relations team. Thanks again.
