And so we’re not going to deviate from that now. I don’t think we’re — that’s — we’ll ever deviate from that. So we don’t try to zig into sectors that don’t fit that credit profile because they’re cheap or we can get above-average returns. We just don’t do it. And every so often, there will be a business within a sector that we don’t love that has unique characteristics that are not reflective of that sector, and we’ll do it. But we are not seeking to change that risk profile in terms of the investments that we do. And that matches up quite well with the private equity firms that we work with. That’s — those are the sectors they’re most active with. So it serves us well. Some of those other sectors, in addition to having just more cyclicality to them, they’re also just — they’re sectors that tend to be financed with much higher loan-to-value because they’re more value-oriented sectors for the private equity firms.
And so the loan-to-value tends to be high, just not where we like to play. So nothing really new to report on that.
Operator: Our next question comes from Erik Zwick with Hovde.
Erik Zwick: Just one question for me today. Curious about your thoughts on the trajectory of the portfolio yield going forward. If we take the Fed, its word at face value, that it’s just about done hiking and going to hold for higher for longer, and I realize that the LIBOR and SOFR curves don’t necessarily agree with that. But if we were to hold in that scenario, I think it would be safe to assume that the majority of the improvement in the portfolio yield is in. But would you still expect maybe kind of a gradual opportunity for improvement as older vintages roll off and you’re able to put on newer fundings and commitments at higher spreads? Is that a safe assumption? Or are there other things we should be thinking about as well?
Craig Packer: No, it’s a good question. Look, I think there’s still a little bit more benefit from the higher rates in the next quarter or so. We experienced about a 4.5% base rate in the first quarter. Base rates are obviously at 5% now. So I think we’ve got a little more to go there in terms of benefiting from the higher rates that have already happened on the lag effect. We look at the forward curve and take that to be as reasonable a guess as to what’s going to happen, if anything. And so we would expect, by the end of this year, rates to be lower and certainly by the end of next year, rates to be further lower. And so that’s going to roll through. Even with those lower rates, we’re going to have terrific earnings at ORCC because they’re still much higher than they were a year ago and our spreads are elevated as well.
So even in an environment, if you take the forward curve and take it as gospel, we should have very strong earnings this year and next year. So I feel really well positioned on that. To your question, is there some — can we grind that spread even higher? I mean look, this is something we’ve been really focused on. And if you’ve watched us quarterly, we have, for the last 6 quarters, really been able to grind spread higher in the portfolio as we rotated out of some lower-spread investments. It’s been a very active and deliberate strategy, patient, thoughtful. And we’ve been able to achieve that. Our average spread today is about 6.70% over. I think that’s probably one of the highest in the space. So there are some lower-spread investments in the book that we did 12, 18 months ago.
