Blue Owl Capital Inc at Goldman Sachs U.S. Financial Services Conference Transcript

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

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : Okay. Well, on two more important topics, I guess. Let's start with your priorities for 2025. As I mentioned, you guys continue to put up some of the best growth in the space. Earnings are tracking north of 20% for 2024. And at the same time, you've done quite a lot of deals, four acquisitions announced across different verticals, right? So, we've got old credit insurance, most recently also digital infra. So as you pack it all in, what are your top priorities for 2025? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director So it's such a great time to be here, and I mean it quite sincerely. I always love being at Goldman event with you. But it's also a particularly good time because we're sort of closing one chapter and opening another. We went public a few years ago, and it has been a tremendously successful time for us. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 6:40PM, OWL.N - Blue Owl Capital Inc at Goldman Sachs U.S. Financial Services Conference We've grown every key metric at over a 30% compound rate. And that has been also something that we were able to kind of forecast with a lot of precision and speaks to business model. But now we're also kind of entering, okay, what's next? What's the next phase? As per your question, I would put it in sort of three, I would say, buckets, but three adjacent attributes. There's diversification, there's scaling and there's innovation. And those are the three things that are, I think, the clarion calls of 2025 and beyond. And that speaks to what we've done organically and inorganically. So when I look at the priorities, just to put a little more meat on those bones, is continuing to drive the organic growth of the core businesses that we're in today. We have a market-leading position in our triple net lease, our particular flavor of real estate. We have a market-leading position in direct lending. We have a market-leading position in GP Stakes, and two of those indisputably the one position in direct lending. We're fortunate to be one of the leaders. And those are all really great markets. Some growing faster than others. Our real estate opportunity set is growing even faster than our direct lending or GP stakes opportunity set. And so, we will continue to scale where we are already an incumbent and an established leader. And I don't say that with any complacency, but I mean just understanding our market position and how you leverage that scale and capability. Now looking beyond that, those are sort of built off of decisions that we made five and 10 years ago, right? So you get to that position today. The other priority as I look into 2025 and beyond that scaling is the combination of diversification and innovation. Which is, again, either done in-house or done by acquisition, which is to position ourselves today for the places that we think you want to be 10 years from now, and that's where things like alternative credit at Elia come into the mix. That's our digital infrastructure, our IPI business, hyperscale data centers. That's where that comes into the mix. Those are, by our look, where direct lending was 10 years ago. And I think that analog actually really holds if you can stress test it and unpack it. And I think we can do now with the addition of those capabilities much like we've already done over the last several years in public for the last decade since the creation of the business.

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : Yes. Let's talk about that diversification point you mentioned related to the deals. And look, we've all been in this business for a while. Asset management deals are tough to do. They're tough to integrate. It's tough to get the culture right, and you guys have done four of them. So, talk a little bit about your integration plans for the next 12 to 18 months. And then most importantly, what are the key kind of objectives? What are the milestones, whether it's revenues or expenses we could see from the outside in to sort of evaluate whether or not these deals are tracking in line with your expectations? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director So, I say this with due caution of not wanting to play a word games, but I would recalibrate this. It's not for acquisitions, but it is true. I mean of course, it is legally speaking, we've acquired these businesses. But as a matter of practice, I think there's a big distinction. What we have in four cases is add groups of entrepreneurs who have built exceptional investment capabilities and partly scale their businesses, say, Hey, you know what, I want to join Blue Owl because if I can join up with the Blue Owl team and integrate into this business and this platform, I can do better for my LPs and I can build a bigger, better business. It takes scale today to succeed. And I think when we've seen in each of these instances, then we should delineate, some are quite small by a number of people, take like PRIMA, which is our real estate credit business. Again, here's work. Real estate credit, Lots of people would say, wow, that's been challenging. Not if you have pretty. Not if you're doing and you're the market leader in the single asset, single borrower risk retention space, where in its 30-year history, they've had two losses. So there are ways to slice each of these opportunity sets. But it was a very small group of people. They're fully integrated, but dusted, so to speak. And again, don't say that dismissively. It's just a fact that, that team is fully integrated with our real estate team. It is also the case on the credit side. We've already fully integrated Atalaya Alternative Credit because it was the whole team saying, Hey, we want to join and be a part of it. And I have in and his partners who founded that business, they're running that business at Blue Owl. We didn't take it and say, Oh, okay, well, we've got kinds of new ideas for you. We bought that business as opposed to trying to say as many are do organically why would an investor want to give me money to do it organically, if I can have people that have done it for 20 years successfully and have them bought into this integrated culture? So, I think when you unpack it, I would look at it as joining the team as opposed to acquiring and not that we're opposed to acquiring, but it's pretty different when someone says, great. it's all yours. That's, I think, we see a lot of it occur.

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : Got it. Okay. Let's turn the page to fundraising. I want to spend a couple of minutes on that. So Al raised, I think, over $24 billion of capital over the last 12 months. So very good organic growth and pretty well balanced too. Like I think 13-ish billion wealth and about 11-ish institutional. So looking out into 2025, what are your expectations for fundraising? And I guess more importantly, what are the key building blocks that you would kind of put together to get these rules? I don't know if you want to comment on the institutional pipeline as well. As part of that, something we have not as much visibility into. So, any color there would be helpful. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yeah, Look, fundraising was very successful. And in some regards, I look at fundraising is almost like the output of us doing our job right. If we deliver great results, then we raise a lot of capital, so eye on the prize. The good news is we delivered great results. When I look at our direct lending businesses, we have now, for years and years and years, delivered double-digit net results to investors through thick and thin, through times of higher rates and lower rates. Same thing with our real estate business has thrived our GP stakes business. So we have the results. That's really important to driving growth. So, what's happened, though, by the diversification, so let's go to that word. And I don't mean just by strategy, but it means we have more time in the market to match the needs of our investors. Look, I don't want to sell an investor something they don't want to or shouldn't invest it, but what I do want to do is work with our investors, it's an ever broader base of wealth investors and institutional investors to match their needs with what we can do distinctively. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 6:40PM, OWL.N - Blue Owl Capital Inc at Goldman Sachs U.S. Financial Services Conference And the good news is, in this world of more downside protected, income-oriented, predictable sort of result products, we have a pretty unique portfolio to offer. So we're matching, I think where a lot of people are looking to go. People have invested for decades now in private equity. They're looking for like, okay, but what am I supposed to do now that, that market has kind of matured? And I think that's where our portfolio comes so powerful. So what that means is we now have a series of products some of which are continuously offered, right? To your point about the wealth channel, we've raised $13 billion in wealth because we have products like our core income product or our tech income product, both of which are generating double-digit returns for our investors that are always available and are growing tremendously. Then we have our periodic products, and we have a lot more of those now than we had before, our GP Stakes fund in the market now. Said, we expect to raise $13 billion like we did in the prior fund, and we're well on our way. We have our real estate Fund VI, as you know, which we just completed. That was double the size of real estate 5. It's heavily committed. We'll be back in with real estate seve next year. We now have IPI. IPI itself is just closing. It's third fund, that will be very successful. We'll close our acquisition. In the first quarter, we expect that will be a $6 billion or $7 billion fund IPI 3. And frankly, again, line of sight most of that capital with some pretty big users is largely spoken for. So it won't be long before we're back. So again, I don't like to over it's important for all of us. I'd like to overemphasize fundraising because I don't want to just go will raise money, but I do want to raise money where that's going to give us the firepower to deliver a great result for those LPs. And now between continuously offered products and flagship products and taking flagship products and creating the continuously offered versions. We will create a continuously offer version of alternative credit. We will create a continuously offered version of digital infrastructure wrap that all together, we have a lot more lines in the water, ores in the water, what whatever metaphor you prefer.

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : Great. All right. I want to spend a minute on private credit. Not surprisingly, it's your still biggest vertical. I think accounts for a little north of 50% of management fees. You guys have had a tremendous amount of success there, you and the industry as a whole. But there are definitely questions around the competitive landscape and really the direction of returns in direct lending, particularly larger size direct lending, just given the amount of spread compression that we are seeing and probably lower base rates at some point of time, rates start to come down a little bit. You'll layer in acquisitions. Obviously, BlackRock HPS potentially could infuse a very different competitive force into the market. How are you thinking about your competitive position within all of that? What do you think that means for fees in this product and also really the runway for additional growth? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Look, I think the future for private credit is really good. direct lending. Sure, there's competition. I would expect in any marketplaces to be competition, the question is value proposition. There are plenty of people who have tried to be in track lending and failed. Now why? It's not because they weren't in the right market, but they didn't have the right value proposition and undoubtedly today, scale intensity and credibility of established relationships is not only critical, I would say, irreplaceable. There are only a few. There are a few. It's why I have to be clear, we wake up every day sort of paranoid driven to sort of move to the next level, but that's why we have 130 people just doing invest in direct lending. That's why we've done well over $100 billion in loans. That's why our loss rate has been running at 7 basis points. And sure, spreads go up, spreads come down -- but they undulate in a practical range. Here's the beauty of this marketplace. It's just different enough that for the user of the capital, that is to say the private equity firm that's saying, Hey, I need to borrow money. They care they care who they get it from. Because remember, part of the proposition they're paying for is that partnership. It is, I know who my lender is that I get to work with. And that's part of the premium of proposition. So it doesn't matter. You can show up with all the money you want and just about any spreads you want, it isn't going to answer that question, but you can't show up with all the money you want and any spreads you want because when I say it's just different enough, let's also remember, it is still substitutable. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 6:40PM, OWL.N - Blue Owl Capital Inc at Goldman Sachs U.S. Financial Services Conference So what is the proposition for someone new to say, okay, I get it. There's a few really scaled players. I'd like to be one of those two. What's the pitch to the LP? I'm going to do better than 7 basis point loss rates. I'm going to beat them by undercutting them on rates. I mean neither of those are pricing propositions. And I think reflects what you see today. Structure hasn't actually changed that much. There's a lot of people in the lower end of the market. At the large end of the market, it's a lot of very familiar names. They have gotten bigger ourselves included. But there's a structural reason for that, and it's actually pretty defensible. So look, at the end of the day, if you have group of pretty capable and disciplined investors would not wildly dissimilar cost of capital, it tends to create practical band, right? At the end of the day, we have no desire to land below spread that allows us to meet that expectation of our investor, and I doubt other good players do either. We'll do what want to do, but they have investors that are probably looking for a somewhat common experience. And so I think at the end of the day, the structure is actually quite healthy. And what more and more people are realizing is the private answer works. And sure, I preferred the spreads two years ago, but I prefer the volume today. I mean through the first nine months of this year, we literally have I think it's 4 times the origination of the year before that, but it's true that spreads are lower today. But if we can keep operating would I prefer to deliver a 12% return to an 11% return, of course? Of course. But as long as we're delivering a very attractive premium to that liquid market and we are, then I think our future is quite bright, not just ours, but the industry. One last comment. You talked about spread compression or the large end of the market. And I'm going to say with a lot of conviction, the large end of the market in private credit is a way better place to be. Period full stop, as a matter of being an LP investor. Now we can debate where people might convince investors to put their capital, that might be a different GP question. But it's all about credit performance. And I can tell you because we see the lower end of the market, it's always available to us. Spreads are not meaningfully better or at all better and the credits are decidedly interior. It doesn't make it a bad business. saying if I had to take one and put it somewhere, you're going to put it to large-cap market.

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : I got you. So more of like a cover type of playbook? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 6:40PM, OWL.N - Blue Owl Capital Inc at Goldman Sachs U.S. Financial Services Conference Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes.

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : Is that likely 2025 event? Or do you think it takes six months? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director No, I think that we'll -- we're hard to work on that. I think there's a lot of demand for it. And look, everything takes time. I don't want to suggest 2025 is still a year about how do you we already know 2025 as you know the way our business is built. We're in a great place to deliver very attractive growth in 2025. A lot of what I'm talking about, it's important for us to get it done so that we sustain that kind of growth in 2027, 2028, when I'm talking about matters for 2025 strategically, but not financially.