Blue Owl Capital Inc at Bank of America Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Craig Siegenthaler - BofA - Analyst : So Blue Owl is an alternative asset manager with $270 billion of AUM now. A big focus on private credit, also general partner solutions and real estate. It also has the largest individual investor and private client efforts relative to excise. The firm was founded between a merger of Owl Rock and down 2021, when it's first listed. And this is one of our top high-rated names today. So with that, let's start with the macro setup. We entered a three-year bull market, IPOs are expected to rebound. The yield curve has steepened. There's also a record money marketing on the sidelines. So Doug, my question is, what are your expectations for both fundraising and investing this '25? Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Fundraising and investing. And investing across the board or private credit?

Question: Craig Siegenthaler - BofA - Analyst : So fundraising and investment, we kind of broken out. Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Yes. And so listen, I think investing is going to be better than it has been. However, we're real -- especially in private credit, were really tied to the M&A market. So we're expecting an uptick this year, a meaningful uptick. If you look at the performance of the M&A stocks, they're all up, everybody is expecting it to get better. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference We're seeing with the new President, new regulatory environment, we had a number of multibillion-dollar deals last year that went away because we couldn't get regulatory approval. So discussions are up, but the thing I want to warn everybody is when we talk about an improvement in M&A, it doesn't happen overnight. So you're not going to see it in the first quarter. You may not really even see it in the second quarter. It's really more of a second-half phenomenon. Now that's our private credit business. I'll go very quickly because I know we have limited time. Our triple-net lease business I think will remain our fastest-growing business. We're expecting to do a lot there. We also have an alternative credit business, which does mostly asset-based lending. That is definitely accelerating. And I think we have a real ability there to disintermediate the banks. And I think the -- after our triple net lease, our data center business is going to remain really robust. So I think you should expect for Blue Owl this year deployment to be quite strong. So between raising money and deployment, we're cautiously optimistic, in fact, pretty bullish.

Question: Craig Siegenthaler - BofA - Analyst : So you hosted an Investor Day not too long ago, last Friday. So my question is, I was wondering if you could sort of walk us through those sort of two main growth targets. And also, you've announced a bunch of strategic acquisitions in the last year in sort of high-growth secular growth segments, how big are they a part of you getting to those sort of five-year targets? Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Yeah. So what Craig is referring to, we had Investor Day on Friday. It's part of the reason I'm losing my voice. And I -- and just to give you a sense, we've been growing over -- we went public three years ago. We've been growing FRE in excess of 30% a year for the last three years. We came out on Friday saying that we will do in excess of 20% growth for the next five years, both revenues and FRE. And unlike a lot of our peers, I think Michael changes present, and you mentioned I was with Blackstone, so I know them well. We have a much simpler business model. So let me just describe it and then I'll hand (inaudible) your question. The best way to think about what we've built is we have fewer lines of business, but where we -- our capital is distinct. Most of it is very long dated. So think about much of it -- some of it is truly permanent, but some goes as long as 17, 20 years. So what that means is I can look at our revenue and now that revenue stream is going to go on for a very long period of time. So we choked at Investor Day and January REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference 2, 2025, we turned the lights on, I can look at revenue, the $2 billion we earned in '24 and now that's going to go on in perpetuity. So then the question is, what's our growth beyond that? And so if you listen to our quarterly calls, they're pretty boring because maybe we've raised a little bit more, maybe margins within higher -- by 50 basis points, lower by 50 basis points. There's not a lot of disparity in what we do. So to hit those numbers, we came out and we said there's just a few things we need to do. One, we need to keep our flywheel in wealth going. We're raising on continuously offered products in excess right around $10 billion a year. I think we'll do better than that this year. And we see a path to about $15 billion. And that won't happen day one, but that will include some growth in what we call digital infrastructure, which is what we acquired in our asset-based business, what we acquired. We have a technology BDCs. We have two of them. We've decided to merge them and take them public. Oh, and let me just put a number on this. So $10 billion or so a year is roughly $250 million of revenue a year, every year. $15 billion, 2.5 points is over $300 million. So that's a big driver. Our BDC merger will generate because we get a step-up in fees once it goes public, another $140 million. So those are two major things. The third is we have roughly $25 billion of capital we have in spend, we'll spend it. That will generate another $300 million of revenue. Then we have flagship funds. We have our, what we call, our GP stakes business, where we take stakes, minority stakes and large alternative asset managers. We've closed on about $7 billion. We have in our model. Our last fund was 13,13 again, we feel really good about that and doing a successor fund. A real estate fund, the last fund was $5 billion. We're out of the market. We're about to launch a $7.5 billion fund. And that -- Alan, did I miss anything? I think that's everything, right? So take a step back, it's executing on our flagship funds, keeping wealth going, and then really these new businesses, they will contribute. I think the one thing I left out is digital infrastructure. We are closing on $7 billion, and we're assuming we do a $10 billion next fund. Point I want to make is so: these are things that are very much in our control. And if we execute, which I think we will, the stock has gone from [10] to [25]. I don't see why we can't take the stock from $25 to $50.

Question: Craig Siegenthaler - BofA - Analyst : Now when I saw the five-year targets for FRE, 20% plus. One thing that I thought immediately was that's FRE, not FRE per share. Now I know you addressed this in Q&A at the Investor Day, but what is that 20% FRE growth in excess translate into FRE per share? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder I think you should assume that we will generate -- we expect to generate more than 20%, and I think you should assume that we will grow FRE per share at 20% or greater as well.

Question: Craig Siegenthaler - BofA - Analyst : So let's talk about product innovation, where I think you guys have definitely a [core] competency. There are plans, I believe, to launch an ABF alternative credit semi-liquid vehicle this year. I think there might be plans later in the year to launch more of a digital infra semi-liquid, that's near-term horizon. What are some other product gaps out there that you can launch with existing capabilities? And then what are some other product gaps you may need to acquire or do it team lift out with it. Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder We don't sit around and think about that we have product gaps. What we're always looking for or we're looking for businesses where the demand for capital is greater than the supply of capital. And if we can find a marketplace like that, that's big, that we could scale and we can come in and create alpha for our investors, then we start asking ourselves, should we build it organically or should we buy it? So a great example is the asset-backed market, we identified this big, growing marketplace. [Done a bunch] and equipment, done something in rail. We had done some things in aerospace. And we thought: oh, well, let's just take our existing team. But it was a heavy lift, and it was going to cost us a lot of money and a lot of time. It'd be a first-time fund. And then we didn't go out and solicit this firm at [alaya]. They actually called us and said, we think the world is becoming more competitive. We see firms like Apollo making a big push. We've been doing this 19 years. We're trying to figure out how do we get into wealth, how do we grow our institutional presence globally? How do we strengthen HR, compliance, legal, cybersecurity? And by the way, how do we do all that and allow ourselves to continue to best. So that was once -- and we can talk about culture, but once we decided there was a cultural fit, this was the top 19-year track record decile performance that was easy and we could buy it and make it accretive day one, and they were willing to take all stock. And so it wasn't there, we had identified an opportunity, and we were trying to figure out how do we go about it. Digital infrastructure, we've been looking at infrastructure broadly. You know we have a very big tech lending business. So we kind of had our finger on the pulse of what was happening there, but that, to build organically would have been impossible. So as I look at our business today, I really don't see any gaps. And we are really focused now on integrating the acquisitions. And in those two businesses you mentioned, asset-backed and digital infrastructure, really trying to figure out how do we scale them. You know this, we talked about it at Investor Day. We bought a business called the Oak Street three years ago, a triple net lease business. It's really the template for what -- how we want to operate. We bought this business, we integrated it. And in three years, we have tripled the size of the business, tripled their revenues, almost tripled assets. And we said at Investor Day, we're going to triple it again. So how do we take that REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference playbook and apply it now into the asset-backed market, how do we apply that to the data center market, and really go and grow those both institutionally and especially in wealth? I think both of these products have very limited competition in the wealth channel. And from what we're hearing, again, we haven't officially launched. We're expecting to get a really good reception. And in each of them, it takes time to ramp, but they'll make a contribution. If you were asking me where might there be a product gap, I'll just tell you other areas that we've looked at. We've looked at, as I mentioned, more broadly infrastructure. We've looked at secondaries, and we've looked at European credit. And I would say if those three European credit is probably the least interesting for us at this point.

Question: Craig Siegenthaler - BofA - Analyst : So you had an active period of M&A, four deals in kind of a short period of time. We were debating it's well done? Are they going to go through rate digestion phase? But then actually you hired a star banker from Goldman, Chris Eby. I guess you're not done. I guess you're still looking at things but maybe flesh that out. What is the forward strategy from it? Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Well, Chris is going to be really excited that you call him a star banker. So I'm going to let him know that. But in fact, I'm going to text him as soon as I walk out. No, I think, listen, we -- for better or worse, we're a big firm, right? We have a $35 billion market cap, $265 billion of capital, but we're a young firm. We're -- there's a feeling that we're a more entrepreneurial firm. And I mentioned earlier about somebody in their 40s, they've built a nice business, they're thinking about where they take the business. And so we are getting a lot of inbounds. Now, we did four deals, but we probably looked at 100 businesses. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference I mean really, it's like we're probably investing in less than 2% of what we get a chance to see. But it was a little too haphazard. And if you think about anybody who's a good investor process, (inaudible) a process, a repeatable process to make decisions. So we brought Chris in to add structure and process to the M&A side of things. And he's been with us three or four months now and doing a great job. And honestly, it's not that we're -- we have nothing we're serious about right now, but we get so many inbounds. And we also want to keep our finger on the pulse, not just the inbounds, but what's going on in the M&A market in general. Where are things traded? Why are they trading there? And maybe there's something that we're not approached on that BofA or Goldman or Morgan Stanley is seeing that we didn't see. So Chris is spearheading all of that. And very focused on that outrage.

Question: Craig Siegenthaler - BofA - Analyst : It's also more important is your number one as a percentage of profits. Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Yes.

Question: Craig Siegenthaler - BofA - Analyst : Any other questions in the audience? One -- just wait for the mic right now in the second row. Unidentified Participant (inaudible - microphone inaccessible) Do you agree with that? And if not, why not (inaudible) --? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2025 / 4:20PM, OWL.N - Blue Owl Capital Inc at Bank of America Financial Services Conference Douglas Ostrover - Blue Owl Capital Inc - Chairman of the Board, Co-Chief Executive Officer, Co-Founder Well, I made the comment earlier about Jamie Dimon was yelling from the rooftops about shadow banking. Now that I would tell you, when I launched my first business, it's called GSO Capital and it was the novel idea that, hey, we had been -- when I was at DLJ and Credit Suisse, we have been the number one underwriter for 13 straight years. So the idea was let's go raise a pool of capital and instead of syndicating it, let's just go focus on the best credits and we'll keep them. The reality was the best credits were going to the banks, and we were doing the more marginal stuff. But that was 20 years ago. The business has matured a lot on AG. I would tell you what we're seeing today are the best credits. And the reason for that is I think a lot of PE firms are viewing us as like an insurance policy. Have you ever gone -- when I bought my first house, which you know well, is my neighbor. It was built in the 1930s I was paying up. It was a hot market, had someone do the inspection. And then you get in there, you open the walls and you're like: oh my God, there's wires, there's more asbestos. It's going to cost me more. Today, buying a business is really competitive. There's not enough companies for sale. You've probably all heard about the term EBITDA add-backs. If you're looking at -- when I get a SIM of a deal of PE firms working on, you have trailing EBITDA and then pro forma adjusted, which can be anywhere from [20] on the low-end percent to 60% higher. My point is, you can do all this work, you don't really know what you own until you get in there. So what's happening is there's been a lot more adoption by PE firms. We cover 700 PE firms. They want to talk to us. We've transacted with close to 200 -- and so what they're doing now when you're paying up and you're paying this huge price, you're saying: you know what, I'll go -- I'll do the deal with Blue Owl, I'll pay a few hundred basis points more. I know if there's a problem early on, they're not going to push me into bankruptcy. And once I get my arms around the business, I'll negotiate for a year, 18 months of call protection. At least they'll either lower the rate with them or I'll go to the syndicated market. And so what that -- if you were to think about it, so we're -- our penetration is much greater than it's been. The negative is we have short all provisions. Best case, we're getting 18 months. And so if you're going to pay up, you're a private equity firm, meaning paying up on your debt, you know in 18 months at a one-on-one call price, you can take us out. It's just not that expensive. So I think to answer your question, it started in the old days that we were seeing the weaker stuff. But I mean, we are working on deals. The number of $1 billion, $2 billion, $4 billion type transactions, meaning the debt needs. So that means there's another $1 billion, $2 billion, $4 billion equity underneath us. We're working on big world-class companies that if I took you back just 10 years ago, I think there had been one $1 billion transaction. Now there -- we're working on deals literally every week. So our penetration in the market is much higher and it's growing. But it doesn't mean that -- I'll just end on this, it doesn't mean that the syndicated market is going away. What people fail to realize is the syndicated market is driven by demand. As long as that demand is there, they're going to go price deals to the lowest common denominator. And there will always be companies that are going to say that's attractive. And so today, CLO formation is good, mutual funds are taking in capital -- it's a robust syndicated market. We're still seeing a lot. It just means our spreads are back to around that [200] and they had been closer to [400] just a couple of years ago.