At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter And Year Ended December 31, 2018. All participants are in a listen-only mode. A question-and-answer session will follow the company's formal remarks. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately two hours after the conclusion of the call on the company's website, at www.baringsbdc.com under the Investor Relations section. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2017, and filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. At this time, I would like to turn the call over to Eric Lloyd, Chief Executive Officer, Barings BDC.

Thank you, Donna and good morning to everybody who joined us for the call. We appreciate everyone joining us for the call and please note that throughout this call, we'll be referring to our fourth quarter 2018 earnings presentation that is posted on the Investor Relations Section of our website. On the call today, I am joined by Barings BDC, Chairman and Barings Head of Global Markets, Mike Freno; the BDC's President and Barings Co-Head of North America Private Finance, Ian Fowler, the BDC's Chief Financial Officer, Jonathan Bock and Tom McDonnell, who is the Liquid Credit PM for the BDC. On our call today, we're going to review our fourth quarter results and market trends. However, I'd like to start with a few comments about the fourth quarter volatility. As you see on Slide 5, in the fourth quarter, the liquid credit markets and the BDC stock prices experienced their worst quarters since the financial crises, following roughly 4.5% and 15% respectively. The reasons for the market sell-off leading from heightened fears of our global economic slowdown through indiscriminate ETS selling of level loans and high yield bonds. Notable this yearend market decline appears less correlated to corporate fundamentals of that the underlying performance of our portfolio companies remain strong and I'll let Ian discuss that that point in a minute. Still there is a broader takeaway I'd like to outline and that implies to the high correlation of liquid credit spreads to that of BDC stock prices. As you see on the slide BDC stock price movements correlated to liquid credit spreads in the fourth quarter. Price declined amongst the BDC were surprisingly consistent at roughly 15% decline and that was regardless of whether one held middle market collateral or liquid collateral. In our view just as the…

Thank you, Eric and good morning, everyone. Slide 9 summarizes our new investments and repayments for both the third and fourth quarters. As Eric mentioned, the fourth quarter was active for our middle market portfolio with $162 million of new opportunistic directly originated [Technical Difficulty] following $75 million in the third quarter. The increase in funding reflected heavier, no market activity in the fourth quarter. Additionally, we had net sales and broadly syndicated loan portfolio investments at $56 million, as we were able to opportunistically exit certain investments during what was a challenging quarter for BSL prices. Turning to our portfolio composition on slide 10, as of December 31, the BDC was invested in roughly $846 million of liquid, broadly syndicated loans, and $249 million in private middle market loans, including delayed term loans. As we have previously discussed, we are currently going through a transition period during which the company is primarily invested in liquid, broadly syndicated loans, as we build our private middle market loan portfolio. These BSLs are a diverse portfolio $120 investments across multiple industries and are all first lien loans with a weighted average spread of 327 basis points and a yield at fair value of 6.1%. Senior leverage for this portfolio remains consistent with last quarter with a weighted average of 4.9 times debt-to-EBITDA. Focusing on the middle market column on slide 10, as of December 31, BDC had approximately $249 million of middle market assets spread across 19 portfolio companies as compared to $86 million across six portfolio companies at the end of the third quarter. Over 20% of our total portfolio is now comprised of middle market loans. Company fundamentals remain relatively consistent with last quarter, with weighted average senior leverage at 4.6 times and a median EBITDA size of $38 million.…

Thanks Ian. Guys, turning to slide 17, you're going to see a bridge of the company's net asset value per share from September 30 to December 31. Now I'll start saying that the primary component of the NAV decline was unrealized depreciation on our investment portfolio of about $1 to share. Now, this decrease in that was partially offset by our net investment income for the fourth quarter exceeding our quarterly dividend by $0.06 cents a share. And as Eric mentioned roughly 60% of this decline is already recovered in 2019. On slide 18, you'll see our income statement for the fourth quarter as well as the third quarter pro forma income statement. Now slide 19 shows our balance sheet as of both December 31 and September 30. And we ended the year with an investment portfolio of over $1.1 billion and with borrowing the $570 million under the company's BSL facility year-end leverage was 1.1 times or 0.92 times as equity after adjusting for cash, short term investments and net unsettled transactions. This $750 million BSL funding facility was reduced to a total commitment size of $600 million, following the closing of the company's new $800 million senior secured middle market credit facility just last week. Now details regarding both credit facilities are shown on slide 20. Our new five year credit facility will be the primary borrowing mechanism for the company on a go-forward basis. But we will continue to leverage the BSL facility near term, as we transition from a portfolio of primarily BSL investments to middle market investments. Now locking up this $800 million of long term source of liquidity was a critical step for our middle market portfolio expansion. And we are excited to work with such a diverse group of quality lenders, including two…

Thanks, Jon. Good morning, everyone. Please turn to slide 26 of the presentation. Hopefully, as most of you are now familiar with the Barings organizations, you're taking away the appreciation [ph] for our distinct competitive advantages that exists in the credit Asset Management space. First, we're global, with the unique ability to drive risk adjusted returns in both liquid and illiquid credit across geographies. Second, we're highly diverse, and our approach in ability to provide capital solutions across the stack to co-sponsors. Our sizable capital base, with both captive and third party capital, as well as various investment mandates allow us to serve our sponsors' needs from revolvers to mezzanine debt and everything in-between. This generates greater worth and deal flow from sponsor community. And finally, we're aligned, as many of you know, Barings is wholly owned by a Fortune 100 mutual life insurance company. And this unique ownership structure allows Barings to truly manage to the long term benefit of our clients. Taking those differentiators into account, jump to slide 27. On this slide, you'll see Barings' BDC price to NAV and notice that the fact that as the portfolio remains in the ramp phase, the stock trades at a discount to NAV. In our view, the stock price below trading below NAV creates an opportunity to drive shareholder returns at BBDC via share repurchase. As a result, we are proud to announce that we have received Board approval for share repurchase plan in 2019 where Barings BDC, aims to repurchase 2.5% of the outstanding shares when it stock trades at price is below that. Additionally, Barings BDC aims to purchase 5% of the outstanding shares in the event its stocks trade at price is below 0.9 NAV subject to liquidity and regulatory constraints. Moreover, we will be sure…

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Finian O’Shea of Wells Fargo. Please go ahead Finian O’Shea: Hi, guys, good morning. Thanks for taking my question. I'll start with the new buybacks just outlined, which I'll first say is refreshing and it's high level approach and with the detail you offered on the 12B51 parameters. So that said what we see in the market today is that even with these 12B51s, the algorithms will tend to shut off when the wind blows. So the question I'll pose Mr. Bock and Freno is, appreciating the detail that you buy back more below 90, how can we view the program in terms of the actual piece it will in and say another market dislocation?

Well, -- this is Bock. I'll start with a commentary on some of the mechanics and then just it might can finish with a philosophical point on how we're kind of approaching this? Mainly, A, so we're going to utilize both 10B51 which is the programmatic means, as well as 10B18 which is the one subject to blackouts. Our point is this is we always want to create a moment where we're going to be in the market for our shares to the extent the market gives us an opportunity to purchase them at attractive discounts. And so you can see that, we have weighted where to the extend it trades at a deeper discount that more shares would be brought. That being said the major concern of folks announcing share buybacks, and not using them, our point just get to putting out the target and allowing you to judge us. And that kind of comes from the philosophy that Mike and others have been part of on us at Barings to always make sure that we're considering this as part of a holistic capital allocation policy. And we have no problem putting out kind of our intentions.

Yeah, and I think I would agree with Jonathan on mechanics of it. And again what we want to highlight here is this is a philosophy that we believe we should be long term buyers of our stock price to the extent it trades below NAV and in full transparency, what we will be reporting each quarter, how effective we are in executing on those share repurchases. Finian O’Shea: Thank you. And I'll follow with a question to Mr. Fowler on the market, noticing in your slides with the definitive data, by industry, what we notice here is that tech deals are being leveraged to a much higher attachment points. And this is a seemingly growing part of the private credit index. So can you give us any color on aside from these leverage levels, any potential degradation and terms structure for the industry. And then perhaps ways that, you therefore can protect downside given your higher attachment points for these issuers?

Yeah, So a couple things, I think, what we're saying just in general terms is that when it comes to technology, and we do like the credit fundamentals of technology companies, the recurring revenue, embedded sticky software businesses, steady cash flow, high retention, low churn all those things that fundamentally it's an attractive business. I think what we're saying at the end of the day, is as you look at these deals and you look at where purchase price multiples have gone, and we are seeing purchase price multiples as high as 20 times. So just as a point in time when a unit tranche deal is so deep in the capital structure it's really not senior debt anymore. We're really taking fundamental junior capital risk. And so all we're saying is when it gets to that inflection point, you need to bifurcate the structure into a first lien, second lien deal and then you can look at the risk adjusted return on the first lien and the second lien and decide where you want to play. Finian O’Shea: Okay, thank you.

Thank you. Our next question is coming from Mickey Schleien of Ladenburg Thalmann. Please go ahead with your question.

Yes. Good morning, everyone. I apologize if you’ve' covered the following issue in you're prepared remarks. But I'm juggling two earnings calls. Just curious, given the breadth of your platform, I'd like to ask about your thesis on the economy in your underwriting. Most of the market seems to be lending based on the assumption that we're late in the credit cycle. But frankly, that assumption has been in place for many years, and it's been wrong. So folks have been leaving money on the table. Obviously, your BDC is new to the market. We understand that. And it seems that your underwriting also based on this assumption. So my question is, how wide would second lien spreads have to get for you to see good risk adjusted returns in that market and perhaps improve portfolio yield?

Okay. So Mick, it's Eric. I'll take that, I'll try and address like there's kind of maybe two questions in there as far as, the ramp of the middle market versus where we were on the cycle on that and then also second lien spreads. Focusing on the middle market and the illiquid deals that we directly originate, they're typically there are 5 to 7 years stage of maturity. And whether it be in 2019 or 2015 we underwrite every deal assuming that there's an economic and credit cycle during the life of that asset. We do not try and time the market as far as we're going to be more involved or less involved depending on our views of the economic cycle or the credit cycle. So we don't know when that next cycle will happen. Obviously, we're closer to it and people have been predicting it for a while, but we don't try and market time that way. So that's the first thing on our directly originated deals. As far as second lien spreads. I think it's really two elements within second lien. It's both the attachment point this year in a second lien, i.e. how deep is the first lien in front of you, as well as your leverage in addition to the return profile of that. Then the third element is really the documentation of that second lien. And is that second week documentation look a lot more like mezzanine or does it look a lot more like traditional second lien. And so for us it's really all of those components. It's the absolute return. It is the leverage of where you are in the asset, but also how deep the first lien is in front of you, as well as the documentation component. So I can't give you a clear straight answer of what they need to do to get there, because we really look at all three of those components when we're evaluating any type of second lien opportunity.

Okay, I appreciate that. And my follow up question, for some time we've been concerned about how portfolios will behave and how borrowers will behave as LIBOR increases. But taking into account what you just said, the eventuality of a decline in the economy. I'm curious how you're managing the downside risk to LIBOR and portfolio yield apart from LIBOR floors?

So great question. This is Eric, again, I would say as we think of kind of LIBOR, and I think there is an element of that's occurring in the market where the all-in return is attractive -- is staying maybe consistent because you've seen an increase in LIBOR and therefore potentially decreasing spreads. I think there's kind of two questions in there. Again, I think as that the first one is portfolio construction. And I should have addressed that when you asked your first question. As we get deeper into a credit cycle or an economic cycle, portfolio diversification becomes ever more important. And so if you look at our traditional vehicles, as we referenced here, I think the largest position we have is right around 2% of our outstanding. And you would -- you should expect to see that stay consistent with us. And I would tell you that, that's a minimum of a 50 name type of portfolio. And I think you expect it over time to be larger than that. And so that diversification is important. Specifically as it relates to LIBOR, we do maintain LIBOR scores [ph] in our deals, but it is true that if LIBOR were to decrease from current levels back down to levels we saw two or three years ago, the yield on the portfolio will also decrease. The offset of that is our leverage that we've locked in also LIBOR based. It's not a fixed rate liability that we have. Therefore, you should see some effect to that decrease of asset level return by the liability cost also decreasing.

Thank you for that. Those are all my questions. I appreciate your time this morning.

Thank you. Our next question is coming from Christopher Testa of National Securities Corporation. Please go ahead with your question.

Hi, good morning. Thank you for taking my questions today. I just want to discuss -- obviously you guys got the approval for reduced asset coverage. Just wondering, as you're now over one to one, although not on a net basis, should we look at you to go over one to one, just opportunistically in times of severe dislocation? And also are you potentially may be looking at reducing fees over one to one.

Yes. So Chris, this is Bock. Thanks for the question. What it starts with this is how we kind of look at leverage. And I start first pointing in by when you look at the portfolio that we're developing, our job and our alignment kind of allows us to focus on super senior portions of the capital stack. And our view is to bring up leverage slightly on those lower risk investments to generate a superlative return, you target about an 8% return over time, if you can go back to our go back to our investor deck. So that's step one. And then as you look kind of the bifurcate it, what you do going above one to one, et cetera. I actually kind of take a step back. And you have to look at really what incentives force managers to do. Starting with point A, the hurdle rate, and that's kind of what matters the most, right. Before you start diving into individuals of what's the base above a certain amount, you'll find that our hurdle rate at six is entirely different than a hurdle rate set at 8. And so our view on this fee is pretty simple, right? We set a hurdle rate at eight, we'll have leverage kind of moving up slightly over time and that leverage can go up two ways, through additional investment through rotation and through stock repurchase, but you'll kind of find that that all-in fee structure itself still allows for us to even at the current set fee rate, to originate the type of risk adjusted return that we want in the most senior portion of the stack in true first lien, senior secured debt. So it's really a function of starting with what primarily drives return as opposed to looking about what it does on the edges. And so as in terms of leveraging in prior calls we've talked about, but over 1.25 times, this is in par with what a lot of other folks have done. The difference is just how we choose to get there, and what our current fee structure and hurdle rate is in order to generate those set returns. Does that help, Chris?

Yeah, absolutely. And I know you guys have mentioned the JV, although it might initially be a small portion of the assets. But to the extent that you get a good partner and you're looking to make that a bigger portion of the 30% bucket, would that make you actually kind of, go well under the 1.25 as the JV if it grows meaningfully can take our economic leverage significantly above one to one?

Yeah. Another good question. I mean, our view is on JV is they're good returns diversified. So that the job isn't to own something with a partner and move in a direction of significant risk on a low spread asset. Kind of the view is there are a number of great verticals that exists within this very large very sophisticated asset manager. And our job is to make sure that we design mechanisms that bring those all to bear for the BDC. JV is a way to do that and a way to do that smart and in a diversified return manner. So if you think about what Barings is really, really great and capable at, whether its global private loans, global liquid loans, securitized product, right real estate debt, you name it. That kind of comes to the point of our JV intention is something with a wide mandate. But let's be clear, we're not here to design something to allow the tail to wag the dog. Its core return, it's first lien senior secured. And I hate saying it this way but it's the right. It's extremely boring.

Right, okay, and just one more if I may. Looking at your funding sources, I know you guys added the additional credit facility. Given Barings is a brand name in the market and certainly in the syndicated and CLO market, are there any thoughts on doing a securitization where you guys would probably be able to drive a very low cost of liabilities and obviously have more flexibility than you otherwise would with a bank revolver?

Yes.

Okay, great. Those are all my questions. Appreciate your time today.

Thanks, Chris. Appreciate it.

Thank you. Our next question is coming from Casey Alexander of Compass Point. Please go ahead with your question.

Yeah, you just answered my question on the JV. So I'll step back out. Thank you.

Thanks Casey.

Thank you. Our next question is coming from Robert Todd of Raymond James. Please go ahead.

Hi, guys. Going to portfolio structure, obviously I mean, like you said, a couple of second liens in the portfolio now, global trends and what is it smart, here smart -- L plus 8. So presumably my guess is maybe the first lien underneath is kind of an L plus 4. So the middle market bar probably a higher credit quality borrower than the average middle market, obviously maybe more or less with a second lien. So can you talk us through the view on and you mentioned the risk reward obviously, but the view on, could we see second lien grow as a portion of the portfolio as we get later in the credit cycle precisely, because perhaps the underlying borrower the first lien table is a higher credit quality business. And I guess the ultimate question is what's better to be in in later in a credit cycle? Is it a higher credit quality business? Even if you are taking a little bit more structural risk or a little weaker credit quality, but with more structural protection?

Hey Robert, this is Eric. I'll start with that, and then turn it over to Ian for any specifics, We're always going to evaluate where the best risk adjusted return is, in our opinion in the market. But we also want to stay very true to this strategy that we've communicated to all of our shareholders, which is a predominantly first lien, senior secure focus strategy. When we see pockets of opportunity, like we saw in these two specific credits, where we think between the size of the company, the relative value, how deep you are, as a total leverage, but also where the first lien is at the point is, we will opportunistically for some of those assets into the BDC. But our strategy as we sit here today is not to have some rotation going forward where you would see a significant portion of the assets be second lien. Yes. They could generate a little higher pure dividend returns, but our real focus is a consistent dividend performance over time that will grow. Ian, you got anything specific?

Yeah, and I'll just point out a couple things on these two specific deals that are in the portfolio. One, as we've mentioned, we come [ph] to the liquid market to focus on the illiquidity premium. And we saw in the fourth quarter, the widening of second lien spreads over the spillover from the BSL. And so we saw an opportunity to take advantage of this the widening spreads. Second, both of these deals are strong and attractive credit profiles and in the case of the 3PL Logistics business we have a lot of expertise in our team in that space. And we're very comfortable with that credit. Both those opportunities we had -- we were co-lead. And we were able to finance and add on acquisition. So we could actually see the performance of that company historically under that sponsor. And then finally, from a portfolio construction perspective, these were pretty small positions.

Got it. I appreciate that color. And the second one also on portfolio construction, but from a different angle, you've talked about tech and the higher attachment points and credit card characteristics. I mean, obviously, we go back a decade, tech was a relatively smaller part of it. And now it's maybe 20% of new originations across the board. If you come to that and obviously we don't have a portfolio mix, industry mix for you guys in the last recession, because you weren't running a BDC. But if you were to -- you were running credit, obviously. If you were to take a view on how you think the industry mix this time or at this point in the market, right, as the market mix is shifted versus where it's say was 10 years ago, how do you think you're going to adjust that? And do you think that industry mix has embedded materially higher risk kind of across the board?

So, great question. Robert. I'll start and I'll pass it over to Eric. You point out something that, if we look at the last 10 plus years, there really wasn't a lot of financing of tech businesses prior to the last cycle. And again, I think you can look at these companies, especially the SaaS model and get very comfortable with fundamental characteristics of those businesses. But I think when you're a senior debt lender, you really need to think about especially in the context of portfolio construction, as you're focused on not overweighting that industry. Because we just don't have the historical perspective that you're referring to. So that -- and Eric, I don't know if you want to.

I think the only thing I would add to that, Robert, is that as we think of industry diversification within a portfolio, it's not just the industries that are highlighted as far as on the page. But it's also the correlation across multiple industries, right? As we saw in the last downturn, building, products, homebuilding, you name it, we're highly correlated. And what you might have thought was 10% of your portfolio really was correlated at a much higher percentage. And so we do believe asset level diversification as well as industry level diversification is a critical element of proactive portfolio construction.

And I guess I would just point out. As we look at our tech and I'm talking about the broader platform here, is a mix of first lien and second lien. It's not all seven times unit tranche.

Right? So yeah, and I appreciate that, no question, but thumbs up on the buyback. Obviously, I think that can generate incremental value to shareholders. So thanks for your, your approach on that. Thank you.

Thanks, Robert.

Thank you. Our next question is coming from Ryan Lynch of KBW. Please go ahead with your question.

Hey, good morning, I was looking at slide number 11, which has your top 10 investments you guys outlined. Obviously, the three largest investments in your portfolio today are all brand new investments you originated in the fourth quarter that are middle market investments kind of part of your core strategy going forward. Obviously, all these -- those three investments are all in different industries. But I was wondering, are there any common characteristics of those underlying investments that can maybe just give us some insight into, why you chose provide to capital to these borrowers in this environment. And that will just help us get some insight into your investment philosophies.

Yeah. So first of all, as we look at any opportunity, and we're really focused on fundamental bottom of credit. So we're not we're not benchmark investors. So in each three of these deals as we look at any credit, we focus on three things. We focus on the equity, so we underwrite the private equity firms that we target. We focus obviously on the company and the credit fundamentals of the company. And then we focus on the third leg of the stool, which is structure. And it's a combination of those three things that determines through a probability default and loss given default lens, whether we're comfortable. And if we're comfortable, where's the relative value in those deals. So just at a high level, and the first one it was a space that I think I just mentioned, we have a lot of expertise in that space. We know the industry really well; we were able to move quickly in that deal. And we were able to provide a leadership role in the financing there because of our industry knowledge and our ability to basically provide all the capital in that in that transaction, even though at the end of the day, we're never going to be able to invest all the capital because they're going to want to bring in, other lenders into the mix. The second deal expert the sponsors and expert in the industry, this company has a differentiated product fundamental reason to exist. It's a niche market leader. So very attractive, attractive company, very attractive structure. And the sponsor focuses on that industry. And then the third is it was an opportunity where it says automotive, but this is a business that is more of a hobbiest [ph] type of business, tied to racing and hobby goers in the auto space in terms of carburetors and fuel injections and things like that. So we don't really see that as a cyclical business, but it's was a great sponsor and a very attractive deal.

Okay that's really helpful color. Thanks for that. My follow up question would be on portfolio growth and leverage utilization. I mean when you guys took over this BDC, the plan was to deploy capital in broadly syndicated loans, increase leverage and then start rotating out into more core middle market credit. Obviously there's been a lot of volatility in the credit markets, leverage loan prices and broadly syndicated loans are traded down. I'm wondering does that affect or change your thoughts on portfolio rotation? Does it make it harder? Should we expect further portfolio growth to just come from further leverage utilization versus maybe selling off for all these syndicated loans? So any color on kind of the portfolio rotation plan from here given the market volatility and potentially further leverage utilization will be helpful.

Sure, Ryan, this is Bock. So let’s say in terms of out of the broadly syndicated loans, believe it or not given the rally back that's a great source of liquidity for us. You're going to see us sell that down. But really when we approach the middle market portfolio, our view is to always provide a leveraged return on those highly secure first lien very boring type assets. So the answer really is, Ryan, you're going to start to see a mix of both. So not all middle market fundings are going to come from BSL sales, because we want to deliver a leveraged return. And so you'll see a mix shift of both go over time and our focus will just be on properly ensuring that the broadly syndicated loans are levered to an extent that deliver a good return. And then we've kind of bought ourselves additional optionality to move out of them over time, if things even get really, really frothy, which they haven't yet. So it's all a function of time. The answer is, there'll be both. But no, nothing is put our growth agenda in any way, shape or form different. Remember, this is a big platform. And while folks like to focus singularly on a BDC over $15 billion across a variety of investment mandates. And so we're always in the market with sponsors and the BDC will always be a part of those activities.

And Ryan, this is Eric. I’ll add to John's comments too. If you look at what Tom McDonald and the team have done on the liquid side, from the time we close the transaction in August to today, our actual realized impact and add-on our liquid portfolio by sales is actually a positive number. And I think that, that's just a testament that when the market did have that volatility, we managed our leverage in a way that we were not having to be a fore seller to for newly originated middle market loans. And the integration between the two teams I think really kind of speaks to that and so I think the realized NAV destruction is really the core of we want to prevent and then Thomas and his team have done a fantastic job of avoiding that. Q – Ryan Lynch: Okay, I appreciate the time today.

Thanks Ryan.

Thank you. Our next question is coming from David Miyazaki of Confluence Investment. Please go ahead with your question.

Good morning. Thanks for taking my questions. First is to begin with a comment that I really applaud the buyback approach you're putting in place here. I think that considering buybacks versus new loans really reflect thoughtfulness around the incremental use of capital. And that to me is the essence of real capital allocation discipline. I think the transparency and the commitment that you're outlining here, it basically allows the public market to sort of frontline your program. And that's -- I think that's going to accrue a lot of potency to the buyback program over time. With that Eric, one of the comments that you made early on, was that -- and I appreciate you, you’re marking your book to market even though the fourth quarter was not a great market to do -- great time to do that. But a skeptic of investing in BDCs could say, well, if the correlation between net asset value of a BDC is very high relative to the above the syndicated loan market, why wouldn't I just take a leverage position in leverage loans get the same kind of volatility or correlation to BDC and I could just leverage things up however, I thought that. What is the value add for the BDC industry or more specifically for Barings versus that approach?

Dave, if I don't answer your question, please come back and make sure I do answer it, because I think it's kind of a broad question or comparing the two asset class. And the reality is, here we manage leverage vehicles that are focused exclusively on liquid collateral. We manage vehicles that are leveraged, that focus exclusively on illiquid middle market collateral. And we manage vehicles that are a hybrid of those two, as the BDC is currently today. And I think at any one point in time in isolation that we can one of those different three buckets could be more attractive or less attractive relative to the other ones. And each might be -- it can have some different strategies. I think what Bock was trying to point out in the correlation there, was that, what we saw in the fourth quarter is we have predominantly a liquid portfolio as we went into the fourth quarter, is very natural that our work on our liquid collateral would be highly correlated to spread widening or prices falling on those broadly syndicated loans. Different managers have different valuation policies within their illiquid collateral. We take a market input into our illiquid collateral as we then look at valuing that. If you booked an asset today at LIBOR plus 550 and the broadly syndicate loan market went up L550 type of asset, it's hard to argue that illiquidity premium from let's say somewhere from 400 over to 550 although it's hard to argue you still have the same value of that asset. It doesn't mean you don't believe you won't get [indiscernible] eventually, right, which is why I said really realized impact to NAV is the key thing, as opposed to unrealized impact to NAV. And that's what I hope and I believe that you'll see the differentiation is realized impact to NAV. I think this next downturn will be -- we're looking forward to it. I think it will lead to some shakeout of managers, because I think in that next down scenario, that's really where the manager will prove themselves and their ability to manage risk.

Okay, great. I have my own views on that and I think it has a lot to do with the value add that the manager is delivering through underwriting through asset selection and capital allocation. But just interested to hear your perspective on that. My follow-up question is, is related to what all of your thoughts might be on the regulatory frame landscape with regard to comments on AFFE and the 3% rule. Do you have any thoughts or observations on the regulatory front.

AFFE constraints capital, it eliminates the BDCs participation in the larger indices that we all know help drive institutional capital formation, and so extremely supportive of adjustments as it relates to AFFE in order to kind of break the logjam of -- shall we say kind of, less sophisticated investment, and more importantly, some of the perils that come around, not having a really good institutional core group, given some of the issues put out by AFFE and the restrictions that come up from the SEC. And those are unintended consequences, to be clear. Second, as it relates to the 3% rule, also very attractive, one that kind of allows us to think about activism in a different light. And that will be, shall we say, overtime a very transformative event to the extent it occurs. Our job is not to predict, our job's to manage really boring book of asset, to deliver pretty set return and to know what we are and say what we do and do what we say. So at the end of the day, happy to see all those transitions and happy to see the space move in a better direction. But our focus is really on our own portfolio and ourselves.

Okay. Thank you very much. Appreciate it.

Thank you. We’re showing time for one last questioner today. Our last question will be coming from Jim Young of West Family Investment. Please go ahead, sir.

Yeah. Hi, you alluded to the global nature of the various platform. My question is, what percentage of your assets today are coming from outside of the U.S. and what you focus on forward in that regard? Thank you.

Yeah. So, Barings overall, if you think of it is about we manage a little over $300 billion. I can answer that either in the firm overall or within the private asset part, is there a specific area that you look for?

For the BDC.

From the BDC perspective? So today, the BDC is U.S. assets is what we have in the BDC. As far as our global private finance platform we do have a similar, so Ian Fowler is on the phone here, who co-Heads our North American business, has a peer Adam Wheeler, who runs a business for us in Europe and Australia. So if you look at the mix of our assets we really run some strategies that are exclusively Europe, exclusively U.S. and we run some that are global or basically integrate those two businesses. Now currently Europe would represent around little over 20% of our actual invested AUM within our global private finance business. And that's a very similar strategy to what we've articulated here, it's almost exclusively first lien senior secured floating rate investments to companies of similar size, to what we do in the U.S.

Thanks. So I'm hearing that the BDC structure will retain and keep it 100% of your focused orientation?

No, so as it currently that's what it is. We do have the opportunity if you think through the JV, I think Bock referenced that the JV could have liquid or illiquid collateral, U.S., Europe, makes the structure credit, makes a real estate debt. I don't want to represent that the 30% basket or the JV will -- it is currently, but that will stay at a 100% U.S. going forward. What we'll do similar to, as Mike answered to share repurchase, is each quarter you'll have transparency on that, right. If we see value, for some reason we make an investment in that 30% basket, that's different than what it is today, than primarily U.S. first lien senior secured, we’ll articulate the logic we have behind that on each quarterly goal.

Great. And my other question is that regarding the shareholder friendly management fee structure that you alluded to in the press release. Could you just further delineate and quantify how you would define that for us, please?

So if I were to think about fee structures and kind of where friendliness sits, right? I mean, a bit of -- it always starts with appropriate capital allocation management, right? But then always look at what the incentives to an individual manager are, and kind of where that drives their investment. Hurdle rate starts as one of the most -- one of the largest differentiators of risk return, largely because 100% of free incentive fee net investment income gets captured between the low hurdle and then the high hurdle rate, rate, which means that if you are setting a low hurdle to the extent that you have a loan that generates a say mid-ish, 8-ish 9% return, a good majority of those economics get eaten up by the catch up, which means you have to invest at an even higher rate in order to deliver a return that’s promised to an investor. So I always kind of look at it in simple terms, hurdle rates are extremely important and drive it because 100% of the economics on the incentive fee get caught up. That's really important. Then it falls down to the base fee, how reasonable is the base. And then finally you go down to the incentive fee and the capture, right that 20 or 17.5 et cetera, if I were to rank it that way. We can walk through individual math, it's -- there's a lot of analysts that do it out there but our view is it starts with the hurdle rate and then you back in to really what a manager needs to invest back to deliver on their returns promised to you, Jim.

Great, thank you.

Thank you. At this time, I would like to turn the floor back over to Mr. Lloyd, for any closing comments

I just want to wrap up by thanking everybody for the trust you put in us to manage your capital, the time you take today to ask questions or listen to what we've had to say. And we look forward to any follow-up that anybody has.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time and have a wonderful day.