David Golub: That’s interesting, David. I definitely think that if you look at institutional investor sentiment right now, there’s a wide view that relative to traditional fixed income, which has performed terribly relative to public equities, relative to a variety of different alternative categories that that middle market lending has performed well and has good prospects from here. So, we’re seeing continued shifts of capital in institutional landscape toward the segment with an asterisk. And the asterisk is, what’s called the denominator effect, meaning that institutions who have target percentages of their portfolio allocated to equities are actually seeking to increase their dollars to equities right now because the decline in equity markets has put them under their target percentages.
So, there’s an interesting dynamic in discussions with institutional investors right now. They would like to be moving away from equities, but their portfolio management criteria are telling them they should be moving toward public equities. I think just to go back to your question, I think now is a very intriguing time for most investors to be increasing their allocations to our asset class, principally because it’s so hard to find other asset classes that are performing well and that are likely to perform well prospectively. So, I’d add to your judgment, I think now is good time to invest in the space from a long cycle risk reward standpoint. I also think part of risk reward is relative and I think in a period where rates are going up, it’s hard to get excited about traditional fixed income.
And I think public equity markets, which have come down from their highs, are still not looked at as being cheap by most investors. I’m curious your view on this.
David Miyazaki: Well, I mean, my crystal ball is less accurate than your own. I think that if I look at in the public market valuations for the BDCs, there’s a pretty big separation between operating fundamentals and valuations right now where a lot of really solid operating fundamentals are paired up with historically low valuations. And so, there is a disconnect there and I’m not sure if that’s just because the public markets get things wrong so often or if they’re accurately predicting a suboptimal return risk environment for middle market lending. To me, I think you’re right that the outperformance of private credit is notable, but part of that comes from just having a shorter duration profile and then rising interest rate environment. But I think that if the defaults can remain low, that’s really the whole key here. And will be the determinant of whether or not this is a really good return risk environment. So, I wish I had a better crystal ball too.
David Golub: I think you’re asking the right questions. I agree with, I agree with the approach that you’re taking to it. I agree with your assessment that we’re going to know in retrospect based on where defaults and credit losses go. And I think that’s the assessment we as investors need to make right now.
David Miyazaki : Great. Well, thank you very much. Appreciate your time.
David Golub: Thanks, David.
Operator: Our next question will come from the line of Ronald Phillis with Ivernia Capital.
