Blue Owl Capital Inc Q2 2025 Earnings Call Transcript

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

Question: Craig Siegenthaler - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Congrats on the record fundraising quarter. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Thank you.

Question: Brian McKenna - Citizens JMP Securities LLC - Analyst : So we're a few quarters removed here from the series of acquisitions you made. There's clearly been a lot of upfront cost and investment, and I appreciate it will take some time for all these to scale. But what should we be looking for from the outside in terms of the integration and the scaling of these businesses really starting to inflect? Is it the trajectory of fundraising in flows? Is it an acceleration in management fees or is it as simple as an inflection in that FRE margin? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Well, I'll start and Alan will join, too. But let me just baseline for a moment. It's already happening. It already even happened. If you look at this quarter, you're already seeing the fruits of those benefits. These businesses are fully integrated, and we are getting benefits from those integrations for all LPs. So it's both for the LPs, for example, of asset-backed by being married to this much broader credit origination engine. Remember, we have companies -- with 400-plus companies in our portfolio, many of whom need asset-backed financing solutions. And behold, they are part of the bx family. So the benefits flow to, for example, in that case, asset-backed. Same thing the other way. We work with companies who are looking at asset-backed solutions and also, of course, the corporate solutions. So that integration has already happened. Look at digital infrastructure and our real estate business, our fastest growing real assets business in total. Look at our project with Oracle and OpenAI in Texas, biggest data center project in America. And that is for both products are participating in that because that is a great project that reflects an opportunity for a generalized, a diversified triple net lease real estate business and for a deep vertical digital infrastructure business, and we're coming now with the adjacent continuously offered product, again, seeing this movie, we know how to do this. And we're going to bring what today we do think is best risk-return opportunities that we've probably ever seen. And this is the moment, and we have both the unique talent and we have the structures and experience to deliver it. So I guess I would say it's already happened. In terms of the inflection, you'll get -- we grew our fee revenues by 30% this quarter. If I translate that maybe into kind of which you said where else you start to see it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call Well, remember, the one place you won't see it fully until we wrap through the year is in per share only because we buy the businesses first, and then, of course, you have to get a full year. But I mean that's nothing but a passage of time exercise. So the integration has happened, the new product innovation, the origination and then in terms of what comes beyond that may just turn to Alan and say, now we talk more of the other follow-on benefits as it goes to new product launches and the like anything, Alan, you want to add?

Question: Crispin Love - Piper Jaffray Inc - Analyst : In real estate, focusing on triple net lease, can you just talk about the competitive environment there? And if you're seeing more activity from others? You've definitely been a leader in net lease, but BlackRock recently did a deal with So curious if you're noticing any shifts in the competitive landscape or others trying to grow just versus the overall opportunity that would seem to have increased meaningfully just based on the data center opportunity that you mentioned? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes, the data center opportunity has expanded dramatically and in the right format like the Oracle project, that's well suited to triple net lease real estate. In many instances, it's better and will be suited to the digital infrastructure product. But as for triple net lease, to go direct to your question, the market is absolutely expanding and candidly, no, we're to go to. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call We're not seeing any change. We see our pipeline growing. We see ever more trust built with partners, making us the partner of choice. We continue to have every one of the largest funds where, as you saw, we already have launched our newest fund already and the first close of $2 billion. So I think investors have observed. This is a great opportunity. It's growing and there is an unquestioned market leader. So I never question all the people will try to do things that I would underestimate that, but no, our leadership is accelerating, not the other way around.

Question: Bill Katz - Cowen and Company LLC - Analyst : Great. Maybe just to circle a little bit more of a narrow part of the conversation. I wonder if you could talk a little bit about activity levels on direct lending maybe how the quarter itself transpired maybe the exit velocity and what you might be seeing into the third quarter? One of your peers had a very constructive update for the month of July. Any relatedly, I'm wondering if you could maybe speak to what you're seeing in terms of spreads on incremental capital deployed? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Absolutely. So this environment, as you would broadly expect is extremely good for the direct lending business with the abstracts being okay, but we need that return of M&A activity to just more to do. But credit quality is exceptional that we've known, we've seen it and we've said it, but it remains absolutely true today. At some point, people are going to have to stop trying to find the bogeyman because it's not there. The private credit portfolio and our credit business is doing really, really well, and it partly reflects the macro environment in the US, and it reflects really disciplined investment management. We're not indices. We're picking very specific businesses in very specific industries. This past quarter, our portfolio on average grew over 10% EBITDA. This is really -- and we're the lender through 40% on average, closer to 30% in software. So the setup is excellent. And yet you have a world where there's certainly some meaningful what we'll call more exogenous and hard to predict variables, right? You have flash zones and war zones around the world. You have obviously the resolution of trade and tariff. And when those things come together and maybe a moment people get nervous, that kind of uncertainty for now is yet another reason people use our products. So in the quarter, we had very high credit quality in terms of new opportunities. We like the deals, we're doing very much. We are obviously, of course, seeing a slowdown in refinancing because that that has moved through the system very heavily. And while the quarter itself was moderate and given disruptions in April, probably not surprising, moderate in terms of originations, yes, we likewise have seen in the last few weeks quite a meaningful pickup in activity, really interesting companies, in some cases, quite large. So let's not get too far out of ourselves, but there's some reasonable indicators that maybe that moment has finally come and the surrounding would suggest that, too, right? At this point, six months ago, lots of debates about where is the economy? We now know the economy is strong. Lots of debates about where are we with interest rates and inflation? It's all settling into a tight range. And that brings us to a good environment to transact. And now the trillions of dollars in dry powder, it's got to go to work. So I think, yes, we are seeing current signs, but they're early. So it's not overspend that statement yet. But yes, so right now, I think there's cause for optimism on that last which is just overall volume in the market. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call

Question: Patrick Davitt - Bernstein Autonomous LLP - Analyst : My question is on flows. I think last quarter, you've been talking about the picture looking much better in the second half than the first half. But given the big 2Q beat, is that still your view or did that pull some of that view forward?

Question: Alexander Blostein - Goldman Sachs Group Inc - Analyst : I wanted to zoom out a little bit. The franchise continues to fund rates through more kind of vehicles than what we've seen in the past across more strategies, I guess. And the fact that it's shown up and kind of fees yet to be deployed or yet to be turned on upon deployment increasing nicely helps as well. So maybe help unpack the bridge from last quarters to this quarter is $379 million, quite sizable. What are kind of some of the bigger buckets? And importantly, I guess, how quickly do you guys think you will put that to work and also if there are any offsets against that? You talked about a couple of step downs that obviously impact the net number, but I'm just kind of trying to put the $379 million in the context of the firm's overall management fee growth over the next 18 to 24 months.

Question: Kyle Voigt - Keefe Bruyette & Woods Inc - Analyst : So Marc, there was an FT article in secondaries published this morning, it's quoting that you would have a very open -- you would be very open to a full suite of large acquisitions or building a business organically. I was just wondering if you could clarify whether that comment was specific to secondaries or simply a broad-based comment? And then maybe you could just update us on how you're thinking about M&A right now? Are there certain areas that you find attractive or want to accelerate your growth in? And how should we think about your appetite for larger M&A versus bolt-ons right now? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Great. Thank you. So with regard to -- let me start with the broader topic of M&A, and then come down to the secondaries topic specifically. So with regard to M&A, as, of course, you all have observed, it's been a very, very successful part of our overall strategy. It's a minority part of our overall strategy. Recall that while we did several very important strategic acquisitions in terms of capabilities last year. It was less than 10% of our market cap that was invested to create those opportunities and look at the benefits that are already yielding for us. And so I think for us, look, we are all about risk management as a firm, like that's our DNA. Everything we do is about how do we create products, how do we manage a firm, permanent capital, fee-based income. So we're always focused on risk management. So that includes what we buy, the culture fit, the nature of the product, the ability for us to then in turn grow it. And so all of those are variables and we will continue to evaluate M&A opportunities. It's quite clear that consolidation is a real part of the landscape for alternatives. And we're one of the few, frankly, demonstrated people who can truly do it successfully, not just for our shareholders. but for the teams that join us and then thrive as a part of this platform. So we are -- we continue to be active. We will always be looking, though, for our strategy that is consistent with our DNA, again, about those durable, protected strategies, culture fit for sure. And we will always be looking for things, therefore, that are a place where we can bring an advantaged result for the investor. We are not going to be all things to all people. We don't want to be. We are going to be the best for what we do for the people that we're lucky enough to work with. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call So we're better, we're deeper, and you can see that in these adjacencies and the synergies we're getting synergies being origination synergies as well as infrastructure and capital raising. So we don't have like a goal to acquire things. We have an extremely open mind about when we see a place where we want to skate to because that's where the puck is going. We're always going to look at organic; we'll look at small, as you call them bolt-on; and we'll look at large acquisitions. All of those are options, whichever one is the winning strategy to both, on the one hand, win for the investors, the LPs and by extension win for Blue Owl. So it will continue to be a part of our game plan and our strategy, but you should expect us to continue to be highly selective, but also not to be lost, we've proven we know how to do it. Again, these acquisitions -- last year, we had a lot of questions about this during last year's calls very understandably. But look where we are now: real estate credit, thriving, right? We've already got that thriving. Insurance, we just talked about the origination power that we're already delivering. We talk -- of course, talked a lot about digital in pressure and asset-backed where we already have now raised our new interval fund. So we've got skilled the template and the plan. Now as for secondaries, the comment in that article was particular to secondaries in talking about the full sweep from organic to large Look, we think that is a good business for us because it's another solution for the exact ecosystem that we serve. And don't forget, we're already pioneering back to the point of buy versus build, what we think is actually probably one of the most interesting new areas within the broadly defined secondaries, that's GP-led secondaries. This is an area with no market leader, and we plan to be the market leader. We are now already up to $1.7 billion, and that's from a standing start creating this business. We've already deployed meaningful amounts of that capital in portfolio companies that are doing really well. And I think that market has got enormous room to run because that solves the liquidity issue that is binding up the system with the same time allows the PE sponsor to keep their best in trophy assets. And that's a place where we're building and the scalability, it's early days, but the scalability of that business is enormous as we think about this next phase of PE, which is not like the older phases, right? There's going to be a lot more about how do you -- what do you do with these accumulated assets? There's going to be less -- relatively speaking, less acceleration in capital raise for PE. It's a different stage, needs different tools, we have it. So secondary will be a very complementary strategy. Last thing I'll say, just because you cited the article is: With all that said, and you'll hear this in everything we ever talk about. We are not interested in hype. We are not interested in doing anything other than deliver fundamentally great results for investors. Secondary can be done really well. It's a good business, but there is an element today where like some of you'll think they're just harvesting free money because part of it is there's this accounting work to the way you buy something at $0.80 and then the nanosecond later, it's $1. And so it was nothing wrong with that account fact. But it's creating the sense that people are just like picking up free money and almost mania. And we're not playing into that. That is not the answer. But we're sure is a great business to be had being a really thoughtful buyer of secondary interest when you have more sellers today than you've ever had in the past.

Question: Brian Bedell - Deutsche Bank AG - Analyst : (inaudible) but maybe just to circle back on 401(k) and the partnership with Voya. You've got good leadership in retail vehicles already. So I'm just wondering to what extent you could sort of activate these into the market sooner rather than later? And I say that just because they're -- and I'd be interested in your perspective on this. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call But obviously, there's a longer-term development timeline for plan sponsors to be comfortable with adding these vehicles into target date products. But are you -- do you feel like you're positioned so that you might be able to target, let's say, the small plan market with financial advisers and model portfolios. Maybe if you could just sort of comment on that dynamic? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes. It's a very keen question, Brian, because actually, given our leadership position in the world of BDCs, BDCs are already eligible products. I mean, in fact, today, someone done right in a partnership like a Voya. If someone wanted to through their 401(k) buy a BDC share, they could. Now most people don't run their 401(k)s that way, right? Most people tend to run with target date funds. So the bulk of that capital doesn't live in a place we are making those kinds of decisions. But actually, you're spot on. The nature of both our strategies and our product structures mean we're already in position to start to meet the needs of that market. And as you note, too, we already work with a very wide sweep of FAs, increasingly with wonderful partners like Voya. So yes, I think we're in a place to be on the front edge of the -- what might be a minority portion of that $12 trillion. But then, of course, again, also have the products that are correct and are now being formatted, right, for what you're right. It's going to be a more medium-term development to get into these target portfolios and work with fiduciaries and do the education that we should do to make sure that people are prudently using these products as part of their retirement strategy. So yes, we like the setup. It does max hand in glove with Blue Owl in particular.

Question: Benjamin Budish - Barclays Services Corp - Analyst : Just a couple of maybe housekeeping items on the modeling side, thinking about the back half of the year. On the transaction fees, this quarter was a little bit better sequentially despite softer net deployment. I know there's a lot of factors that go into that number beyond the magnitude of deployment itself, but anything you can share in terms of what that means for that revenue line for the next couple of quarters? And then similarly, just on the FRE margins, trending kind of at the lower end of the full year range, but I assume there's some benefit from OTF turning on and giving you a full quarter of fees. Any other considerations there in terms of what that means for the full year?

Question: Benjamin Budish - Barclays Services Corp - Analyst : Just on the transaction fees were up a bit sequentially despite net deployment down a little bit. Just anything to read into there, how to think about that in the back half of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2025 / 2:00PM, OWL.N - Q2 2025 Blue Owl Capital Inc Earnings Call