Main Street Capital Corporation

Greetings and welcome to the Main Street Capital Corporation's third quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If 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 Vaughn, with Denard Laskar Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's third quarter 2020 earnings conference call. Main Street issued a press release yesterday afternoon that details the company's third quarter financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 13th. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, November 6, 2020, and therefore you are advised that any 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. Any 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. Results expressed or implied in these statements As a result of risks, uncertainties, and other factors, including but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.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'll turn the call over to Main Street's CEO, Dwayne Hijak.

Thanks, Zach. Good morning, everyone, and thank you for joining us today. Joining me for a call today with prepared comments are David Magdahl, 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 Masserve, our managing director and head of our middle market investment group. I wanted to start by saying that we hope everyone is staying safe and healthy during these very unusual times. Given the ongoing impact of the COVID-19 pandemic, Similar to our calls for the last two quarters, I will start today's call with some comments regarding the impact of the pandemic. I will then comment on our overall performance in the third quarter, some developments within our asset management business, our investment activities and current investment pipeline, our outlook for the next few quarters, our recent dividend announcement, and several other updates. Following my comments, David and Brent will provide additional comments on our investment strategy, investment portfolio, financial results, and future expectations, after which we'll be happy to take your questions. Since our last conference call, we've continued to prioritize the health and well-being of the employees and management teams and employees of our portfolio companies, while proactively working through the ongoing impacts of the pandemic on our investment portfolio. We greatly appreciate the ongoing efforts of these individuals, and we continue to be very pleased with their efforts and actions throughout the pandemic. While the economic environment since our last call has continued to be very challenging, we are pleased that the performance across the vast majority of our portfolio companies has stabilized and started to improve, allowing us to recover a meaningful portion of the unrealized depreciation we experienced earlier this year, with net appreciation of $48 million across our investments and a 3% increase in net asset value per share in the third quarter. We continue to feel good about the overall quality of our investment portfolio, and the leadership provided by the management teams of these companies, and we currently expect to see continued fair value improvement and recovery in future quarters. In addition, we are pleased that despite the impacts of the pandemic, we have continued to have success executing on new investments in both our lower middle market and private loan strategies, and we remain confident that our conservative capital structure and strong liquidity position will allow us to continue to manage through the current challenges and to successfully execute on the opportunities that exist with our portfolio companies and in our pipeline of attractive lower middle market and private loan investment opportunities. We're also very pleased with our recent closing of an agreement through which we became the sole investment advisor to HMS Income Fund, which has been renamed as MSC Income Fund. We are excited about our plans for positioning this fund for the future while also executing our overall strategy to grow our asset management business within our internally managed structure and continue to provide this unique benefit to our Main Street stakeholders. We are also pleased to report that we continue to make good progress on our internal initiatives to organically grow our asset management business, and we look forward to sharing additional details in the near future. Based upon the positive developments we have seen in our existing portfolio companies, coupled with the future benefits of the growth in our asset management business and the attractive new investment opportunities we are seeing in our lower middle market and private loan strategies, we are confident that the third quarter represented the low point for our Distributable Net Investment Income, or DNII, and we expect to see increases in our DNII in the fourth quarter and future quarters, which Brent will cover in more detail. Now, turning back to our results for the third quarter, these results reflect the continued negative impact of the pandemic on the overall economy, most specifically in the significant decrease in the amount of dividend income we realized from our equity investments and an increase in the number of investments on non-accrual status at quarter end. We remain confident that the decrease in dividend income is a temporary issue, partly due to the conservative approaches many of our portfolio companies are taking in managing their capital and liquidity in response to the pandemic. And we believe this dividend income will recover as the impacts of the pandemic subside. Our team also continues to maintain significant focus on working through those underperforming investments to realize the best possible outcome for our stakeholders. Despite the negative impact of these items and the resulting level of DNII in the quarter, as a result of our diversified investment portfolio, together with the advantages of our differentiated investment strategy, the increasing benefits from our asset management business, our strong investment pipeline, our efficient operating structure, and alignment of interest with our shareholders, combined with our conservative capital structure and strong liquidity position, we remain comfortable with our commitment to maintaining a stable monthly dividend payment level going forward. To that end, earlier this week our Board declared our first quarter 2021 regular monthly dividends of 20.5 cents per share, payable in each of January, February, and March, an amount that is unchanged from our monthly dividends for the fourth quarter. Now turning to our investment activities in the third quarter and our current investment pipeline, we completed lower middle market investments of $46 million in the quarter, including an investment in one new company, and financing for acquisitions by two of our existing portfolio companies. And as of today, I would characterize our lower middle market investment pipeline as above average. We continue to be very active in our lower middle market strategy, and we have several new investment opportunities in the pipeline that we expect to close in the fourth quarter. Also included in this investment pipeline are several additional follow-on investments in existing portfolio companies, as our companies are increasingly more comfortable with their current business conditions and are actively looking to execute on various attractive growth opportunities. We also believe that the last few months have caused many entrepreneur owners to refocus their financial and estate planning priorities and 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 offering 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 in the current environment. During the third quarter, we continued the successful focus of our non-lower middle market investment growth on our private loan portfolio, resulting in this portfolio growing by $69 million on a net basis in the quarter, while our middle market portfolio decreased by $2.5 million, consistent with our previously stated objectives. As of today, I would characterize our private loan investment pipeline as average. And in closing, our officer and director group has continued to be regular purchasers of our shares, investing approximately $400,000 during the quarter. On a collective basis, our director and officer group owns Main Street Shares value at approximately $98 million at quarter end. With that, I will turn the call over to David.

Thanks, Dwayne, and good morning, everyone. As Duane highlighted in his remarks, during the third quarter, the negative impact of COVID-19 began to lessen and visibility improved for our portfolio companies. As a result, we saw the general environment for our existing portfolio companies stabilize as compared to earlier this year. During the quarter, we also saw a meaningful uptick of new actionable investment opportunities in our lower middle market and private loan portfolios, a significant portion of which we expect to close in the fourth quarter. We attribute this increase in part due to the uncertainty around the presidential election and perceived concerns related to potential negative tax consequences for business owners seeking a sale of their privately held businesses. During the quarter, we also saw several of our existing lower middle market portfolio companies make opportunistic acquisitions, a trend we believe will continue in the fourth quarter and in the beginning of 2021. Opportunistic tuck-in acquisitions should further contribute to the long-term value creation we expect our lower middle market portfolio companies can accomplish through the equity appreciation achieved from these external growth initiatives. Our intentional and differentiated investment strategy continues to serve us well during this prolonged time of market dislocation with our portfolio well diversified by end market, industry, vintage, and security types. This diversification has been the cornerstone of our philosophy over 13 years as a public company. Because of the seasoned nature of our lower middle market portfolio, our portfolio company leverage in this segment of our business remains modest with a median net senior debt to adjusted EBITDA ratio of 2.7 to 1 and a median total adjusted EBITDA to senior interest ratio of 2.7 to 1. As of September 30th, we had investments in 193 portfolio companies spanning across more than 50 industries. Our largest portfolio company represented approximately 2.8% of our total investment portfolio fair value at quarter end and 2.9% of our total investment income for the last 12 months. The vast majority of our portfolio company investments represented less than 1% of our assets and our investment income. During the third quarter, the contributions from our lower middle market portfolio continue to be well diversified, with 44 of our 69 lower middle market companies with equity investments having unrealized appreciation at quarter end. In the most recent quarter, the dividend income we received from our portfolio companies was significantly lower when compared to the same period of last year. This was expected and consistent with what we've experienced in prior periods of market disruption as our portfolio companies, with our support, choose to maintain cash for liquidity purposes instead of making distributions. Several of our portfolio companies that decided not to make distributions earlier this year now intend to resume distributions in the fourth quarter. We view this as a positive indication of the health of those companies, and as Main Street management, we continue to encourage our portfolio companies to only make distributions when they are certain it is prudent to do so. It continues to be our portfolio manager's goal to achieve distributions from our portfolio companies as appropriate in an effort to assist Main Street to get back to comfortably covering our monthly dividends as we've consistently done in the past. Our lower middle market investment activity in the third quarter included investments of approximately $46 million, including an investment of $26 million in one new lower middle market investment, which after aggregate repayments of debt principal and return of invested equity capital from several lower middle market investments resulted in a net increase of approximately $32 million in our lower middle market portfolio. We also exited our lower middle market debt and equity investments in river aggregates, realizing a gain of $4 million. At quarter end, our lower middle market portfolio included investments in 70 companies representing approximately $1.2 billion of fair value, which is a 115% of our cost basis. Our private loan investment activity in the third quarter included investments in five new portfolio companies representing approximately $85 million in commitments and $71 million in cost basis. As of September 30th, Main Street's private loan portfolio included total investments of approximately $744 million of fair value across 68 unique companies and during the quarter we had a net increase in the cost basis of this portfolio of approximately $69 million. In our middle market portfolio we had investments in 42 companies representing approximately $441 million of fair value and during the quarter we had a net decrease in this portfolio of $2.4 million. The total investment portfolio at fair value at quarter end was approximately 102% of the related cost basis and we had 12 investments on non-accrual status, which comprised approximately 2.6% of the total investment portfolio at fair value and 7.1% at cost. Our current expectation is that we will reduce the number of investments on non-accrual status by three to four investments during the fourth quarter as we continue to proactively work through these non-accrual investments with management teams and financial sponsors of these companies. During the outlook for the remainder of 2020, We intend to focus our efforts on continuing to thoughtfully make investments primarily in new lower middle market and private loan opportunities. Our ability to provide flexible debt and long-term equity solutions has always been a key differentiator for us in our lower middle market business. In the current environment, our ability to move quickly and provide 100% of the outside debt and equity capital to close a transaction is particularly important for smaller privately held businesses and their advisors. We are confident that in the current environment, we will be able to prudently deploy capital with very attractive risk-adjusted return profiles, and we intend to create significant shareholder value with this proven investment strategy. With that, I'll turn the call over to Brent to cover our financial results, capital structure, and liquidity position.

Thanks, David. Our total investment income in the third quarter decreased over the same period in 2019 to a total of $52 million. primarily driven by a decrease in the dividend income due to the negative impacts from the COVID pandemic and a decrease in interest income primarily due to lower LIBOR rates. The change in total investment income also includes a decrease of $1.3 million related to lower levels of accelerated income for certain debt investments when compared to the third quarter of last year. Our operating expenses, excluding non-cash share-based compensation expense, increased by $0.4 million over the same period of the prior year to a total of $18.9 million, primarily related to an increase in deferred compensation expense due to the increase in the fair value of our deferred compensation plan assets. The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, was 1.4% for the third quarter on an annualized basis and 1.3% on a trailing 12-month basis. The activities of our external investment manager benefited our net investment income by approximately $2.2 million during the third quarter through the allocation of $1.9 million of operating expenses for services we provided to it and $0.3 million of dividend income. We recorded a net realized loss of $13.9 million during the third quarter, primarily relating to the realized losses from the exit of three middle market investments and the restructure of a middle market investment partially offset by a realized gain related to a lower middle market investment. We recorded net unrealized appreciation on the investment portfolio of $48.4 million during the third quarter, primarily related to $13.9 million of net appreciation on our lower middle market portfolio, $16.9 million of net appreciation on our private loan portfolio, $13 million of net appreciation on our middle market portfolio, $2.5 million of net appreciation on our other portfolio and $2 million of appreciation relating to our external investment manager. Our operating results for the third quarter resulted in a net increase in net assets of $78.2 million or $1.18 per share. Our overall capitalization liquidity remains strong as our total liquidity is currently approximately $600 million. During the third quarter, we continue to enhance our overall liquidity position by issuing a $125 million follow-on to our outstanding investment grade notes that mature in April 2024, and raising approximately $8 million in net proceeds under our ATM Equity Issuance Program. We were also pleased to have recently increased the capacity under our revolving credit facility by $40 million, and we continue to feel that our conservative leverage, strong liquidity, and continued access to capital have us well positioned for the future. As we look forward to the fourth quarter, we expect that we will generate distributable net investment income of 53 to 56 cents per share as our results begin to recover from the impacts of the pandemic and set us on a pace and expectation to cover our monthly dividend rate with distributable net investment income over the next few quarters. With that, I will now turn the call back over to the operator so he can take any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Robert Dodd with Raymond James. Please go ahead.

Hi, guys. On the dividend income, obviously, you know, last recession, it was depressed for two years because that was a two-year recession, which is not the same situation we have now. And you're talking about dividend income starting to rebound in Q4. What's your confidence level that's not just a catch-up of, you know, depressed levels for the first three quarters and some of it has to balance out versus the beginning of a trend in terms of overall dividend distributions from your portfolio companies. And that's sustainable into 2021.

Thanks, Robert. What I would say there is that part of the reason we expect the dividend income to start recovering is is that, as we touched on in our prior comments, that the view that our management teams across the portfolio have about their current business conditions is significantly better today than it was a couple of quarters ago. So as they continue to get more comfortable, they will be more comfortable in paying out dividends as opposed to retaining that as liquidity for their business. We don't expect them to take all that liquidity that they've built over the last couple of months and pay it out in the fourth quarter. We think that they'll continue to be gradual in their approach to utilizing their liquidity, so we don't expect that it'll be a one-time event. We think it'll be something that will play out over the next three to four quarters as the results continue to improve and the economy overall heals and they continue to be more and more comfortable releasing some of that liquidity that they've retained over the last six months.

Got it. I appreciate that. On the pipeline, you and David both talked about an uptick in pipeline in the low and middle market, but David's comment was part of that was potentially motivated by retirement planning and maybe changes to tax. It now seems, granted a week ago things seemed different, but it seems more likely that there probably won't be material changes to tax capital gains or anything else next year. Is there any expectation that that might change, you know, the shape of the pipeline as, you know, as we go through Q4 or into next year, given things seem to hit on the tax front and that tax expectations seem to be changing pretty dramatically, pretty quickly?

Yeah. So the, the, Folks that we tend to deal with in the private community as far as business owners are keenly focused on taxes, and a lot of their decision-making take place earlier this year looking at liquidity. So for those owners that were looking for a liquidity event anyway, when you get the disruption and the noise in and around an election, we find that people will perhaps, if their business is really impacted, shift from a majority sale to a minority sale. But taxes are top of mind. So I think with some of the uncertainty, irrespective of who's in office, there's a heightened awareness of it and a push to move forward and to get offers and transactions closed before year-end. And that's certainly what we see. But, again, a lot of that activity is not exclusive to tax changes, you know, what actually happens. It's more of a fear than anything else.

Got it. Got it. I appreciate that. One more, if I can. Okay. Twelve monocles, as you said. You expect three or four of those to drop off in Q4. I mean, there's obviously some of your portfolio companies have filed bankruptcy, those in that 12. And then the ones you expect to drop off, is that because you expect to exit or you expect to restructure and put them back on accrual?

I think it'll be a combination of both of those. It'll be all company-specific based upon the where the company assists today and what we've been doing with the management teams and the equity owners and financial sponsors of those companies to work through the issues that they've had to deal with over the last couple of quarters. So I don't think there's one or the other that's the real driver. It's a combination of company-specific issues that will drive the outcomes. We do expect to have, as David said in his comments, a number of those non-accruals that we work through and would expect to see that number decrease as we move into the fourth quarter.

I appreciate it. Thank you.

Thank you.

Next question comes from Bryce Rowe with National Securities. Please go ahead.

Thanks. Good morning, Duane and David and Brent.

Morning, Bryce.

I wanted to maybe follow up on some of the – good morning, Duane. Yeah, I wanted to follow up on some of Robert's questions there, but maybe first wanted to talk about the HMS – and the change to you all now being the sole advisor. So I obviously saw the decrease in the base management fee that you'll charge for your services there. Can you talk about kind of the, I guess, the structure now from an incentive fee perspective? I'm assuming that you're not earning the incentive fee at this point. Maybe I'm wrong. And have you made any changes to that?

Yeah, Bryce, there's no changes to the incentive fee portion of the management fees. So the only change we made was to reduce the base fee, as you said, from 2% to 1.75. In terms of visibility to earning the incentive fee, we have not been earning it. Over the last couple of quarters, I believe the last time we earned it was either Q4 of 19 or Q1 of 20. But it's been several quarters since we earned any incentive fees there. And just given the impacts of COVID, we don't expect to earn incentive fees in Q4. And then obviously 2021 will be dependent upon the recovery, both in the broader economy as well as with the dividend income that we've touched on. on the Main Street side. So there's no change to the calculation, but it's just going to be a few quarters before we expect to have visibility to any incentive fee income from that relationship.

Okay. That's helpful, Dwayne. In terms of maybe the activity, the pipeline, I mean, obviously the private loan activity picked up here in the third quarter And it's been more of a focus for you all over the last several years. So maybe you could touch on what you're seeing from a pricing perspective now. Have you tried to expand your network in terms of other firms that you'll club up with to do those deals? And then kind of curious what the participation looks like within these recent deals in terms of other firms.

Sure, so I'll let Nick touch on the pricing here in just a minute. I think when you look at the activity, I'd say it's a combination of a couple of factors. One is, as you said, the parties that we've been participating with, either with us leading and bringing third parties in to participate with us, or where it's other parties leading and we participate in their activities or opportunities. We've been doing this for a few years. We're just seeing those relationships provide more consistent opportunities for new investments. We're also seeing direct relationships with sponsors where we've been in a transaction with them because we've been a good partner on the senior lender side. If they have future opportunities, we're seeing more opportunities to go direct, and I'd say that's where you're seeing us. You have more opportunities to lead and bring other people in to participate with us than what we would have seen a couple years ago. On the pricing, I'll let Nick give some commentary on that.

Yeah, I'd say for a non-COVID-impacted company, what we're seeing is maybe 25 to 50 basis points wider than a year ago, but that's also combined with probably maybe a quarter to half turn less leverage and a much better document overall. So you kind of put that all together. On a pure pricing basis, it's not a huge movement, but you are seeing better terms and better structures and a little less leverage. If you're just doing a straight same leverage, same weaker document potentially, It's probably more in the 100 basis point range, but the reality is we're seeing 25 to 50 basis points, which is a better overall loan structure.

Okay. Thanks, Nick. Maybe a couple more if y'all don't mind. Obviously, a lot of discussion around dividend income from your lower middle market portfolio companies. It's nice to see That dividend income pickup, when you kind of think about it, X HMS, you saw a pickup in the third quarter from the level we saw in the first and second quarter. Not a huge increase, but a bit of a pickup. Duane, I'm curious if there was a chunky dividend that might have come in as it happens sometimes, or did you see more participants or more more portfolio companies contribute distributions this quarter than you did in the first half of the year.

Yeah, I'd say that There wasn't a material change one way or another when you look at the composition of the individual companies that contribute to the dividend income. We do see movement per quarter where different companies will have higher dividends than they may have had in prior quarters. But overall, if you look at the composition across a number of portfolio companies, I don't think you would see a significant difference in Q3 versus prior quarters.

Okay. Okay. And then last one for me, just on balance sheet leverage. You've talked in the past about trying to take advantage when investment opportunities are more attractive in recessionary-like times. We've seen leverage go up a little bit, but you're still well below what others are operating at within the BDC space. So is there a little more appetite to take on you know, a bit more leverage? And, you know, can you help us think about kind of what a targeted leverage level might be over the next, you know, next year or so?

Yeah, Bryce, I would say that we've always wanted to maintain a conservative position with significant liquidity. And I think after what we've dealt with over the last couple of quarters, I think our views of the benefits of doing that have been reinforced. I think we would not expect to see a significant change in our profile. You may see it move around a little bit quarter to quarter as we have new investment activity that increases for a quarter or two. But overall... If you look at it on a long-term basis, I would not expect to see a significant change in our expectations from a leverage or a liquidity standpoint.

Okay. Thanks a lot. Appreciate it. Thank you, Bryce.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Kenneth Lee with RBC. Please go ahead.

Hi, thanks for taking my question. I'm wondering if you could just further expand upon your comments in terms of the key drivers for seeing potential improving distributable net investment income over the near term. Just curious as to potentially what kind of assumptions are being built in. Thanks.

Thanks, Ken. So there's a couple of drivers there. One, obviously, is the transaction that we completed through which we became the sole advisor to HMS. So we have not had that prior to 9-30. Really, that relationship, as we announced in our press release last week, starts on October 30th. So that will be a driver both in Q4 with incremental income versus Q3, but also in additional benefit in Q1 as we have that benefit for the full quarter as opposed to two months. So that's one of the drivers. I think David touched on his comments that we've given in some of our responses here to the questions. Dividend income from our lower middle market companies will be another big driver. We do expect that, you know, that benefit or that improvement to be gradual over multiple quarters, but we are seeing, you know, improvement there, so we expect to see that number continue to increase, you know, both in Q1, I mean, sorry, Q4 and Q1 and going forward as we continue to move forward from where we've been over the last couple of quarters. The last big driver is just the new investment activity. As we touched on, we're seeing robust activity and very attractive opportunities both in our lower middle market business and private loans. So as we see those new investments come on in Q4 and then Q1 as well, that incremental investment income that comes from those investments will also be a key driver of that improvement.

Great. Very helpful. That's all I have. Thank you very much. Thank you.

We have a follow-up from Bryce Rowe. Please go ahead.

Thanks. Sorry to belabor the call. Just thought I might try to get Vince involved if he's there. And, Duane, I'm sure you could play back up if he's not available. We've come to the point now where we've moved past the comment period for the proposed AFSE changes. I know you all have been involved with that process from the very start, and so just wanted to get any perspective or update that you all might have related to that. Thanks.

Yeah, Bryce, good question. We're actually not past the comment period because the comment period, I think, began when the proposals were released before they appeared officially in the Federal Register, and the 60-day comment period didn't begin to run until it appeared in the Federal Register, which is fairly recent. We're working with SBIA and others in the industry on draft comments. We've actually turned a draft of of SBIA's comments and I expect others to comment as well. I think we all feel pretty good about it. We don't see any real objection anywhere. Again, I think that the proposed rule gets us part of the way there and so we want to applaud that effort and try to encourage more effort to get us further there in terms of in terms of get us complete eligibility back in the indices. So you'll see more on that probably in the next 30, 45 days.

Okay. And Vince, does that, getting you all the way there, so to speak, does that, with the index eligibility, Will that kind of fall on individual BDCs to lobby with S&P and Russell, or is it being spearheaded by a particular group?

Well, we're trying to use our best contacts with Russell and its parent company to try to enter into direct substantive negotiations or discussions with them On the other hand, they don't really have an independent view per se. They want to know what their constituents prefer. And so they're in the process of polling their subscribers and other mutual funds, et cetera, to try to see if they have a view. If so, what is it? How strongly is it held? Is there some consistency there? So I think they're pretty neutral on the topic. The reason we say part of the way there now is that if you get footnote disclosure, if you're a fund that has less than 10% acquired funds or BDCs in terms of your portfolio, over 10%, you don't get relief. Since most funds, we're going to have less than 10%, that's part of the way there. It's out of the expense table and into a footnote. We don't know how Russell's going to react to that, but it is positive movement, and it should be positive in general for those funds that we're concerned about having it in the expense table. Got it.

Okay. Thanks a lot. Sure.

This concludes today's Q&A session. I would like to turn the floor over to management for closing remarks.

We thank everyone for joining us this morning. We look forward to talking to everyone again after our year-end earnings release.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.