Blue Owl Capital Inc Q3 2024 Earnings Call Summary

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

Question: Alex Blostein - Goldman Sachs - Analyst : Hey, good morning. Thanks for the question. So maybe just starting with the dividend in your last point there. I appreciate you guys obviously won't give us a whole lot of color probably beyond 2025 for now. But just philosophically, knowing where you guys have come from, where you said the dividend originally, what payout you said originally, how are you thinking about the payout in the dividend structure over time? Is that still fair to assume that dividend will grow in line with FRE, in line with total earnings, in line with total earnings per share? Kind of how do you think about it off of this $0.90 point?

Question: Alex Blostein - Goldman Sachs - Analyst : All right. Thanks, guys.

Question: Craig Siegenthaler - BofA Global Research - Analyst : Mark, Alan, good morning, and hope everyone's doing well. Our question is on product innovation. So you guys have been very active on the M&A front. You've access to new capabilities and verticals where client demand trends and also performance are both strong. Can you talk about your ability to launch new products, given these new capabilities in the private wealth vertical? And we're hoping to see some new products in the semi liquid over the near term. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes. Thank you very much. And really a critical question on a critical topic. When we take a look at over the last year and, frankly, the last several years as we've been very intentional about filling in product opportunities with two attributes. One, most importantly, where we can deliver an exceptional risk-adjusted return for the investors because of the mismatch of supply and demand of capital. And importantly, where we can then also innovate product to product structure so that as Blue Owl, we can continue our extremely strong growth rates. And so you're absolutely correct in putting your finger on what we can now do with things like alternative credit and with hyperscale data centers. So we tease that out a little more. In both instances and frankly, in all instances, where we've acquired businesses. If you sort of think about this world of organic or inorganic growth, buy or build, what we've really landed on very intentionally is a hybrid strategy, maybe in the three bearers, it's the just right strategy. And it's about how to take an absolute best-of-breed capability, team and marry that together with the Blue Owl platform and be able to infuse superior or enhanced origination capabilities, enhanced operational support and very importantly, to your point, product innovation. So lots of people are going to use the words alternative credit on their calls, in their meetings and lots of people are going to use the word data centers on their calls and in their meetings. But like what does it take to really thrive in the business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call What it takes is again, outstanding skills married with the right kind of innovation and platform. And I think that's exactly what we're offering. And that's why Atalaya chose to come to us and say, hey, we want to be a part of Blue Owl. That's why ICONIQ and Iron Point said we want to join with the Blue Owl platform in order to be able to build our business further. These are proprietary deals done on an incredibly attractive basis, consider that an IPI, we're buying it at 13x, I mean these are businesses that others are buying for twice that level. And the problem with the opportunity that presents for us is to now take what is a $10 billion AUM business and to grow it at a really high rate like we did with Oak Street. So consider Oak Street, we had $10 billion of assets, we've now tripled the assets and tripled the revenues in that business. We see a very similar opportunity sets in those two businesses. And you mentioned product innovation. With regard to product innovation, the wealth channel where we have developed such a strong set of partnerships and where we are the number one gross and net originator of wealth product, depending on how you measure it, one or two, we've really built a partnership with trust by bringing the right products in the right way to the wealth channel. And this is a really important point I'd emphasize. Not every product belongs in -- on a continuously offered product form. Not everybody will successfully support products in the wealth channel. The attributes that count are durability. You want a strong income component. So if you think about alternative credit and you think about hyperscale data centers, (inaudible) with IPI, they are perfect matches for the wealth channel. So we see very, very significant growth ahead in those businesses. It's why Ivan and his team wanted to join us on alt credit. It's why Matt and his team wanted to join us in hyperscale data centers because these people are the best in the business, and now we will bring them to new investor sets and expand the funnel of originations for them.

Question: Glenn Schorr - Evercore ISI - Analyst : Maybe we could pick up where we just left off. So I definitely get and I saw the progress you made with Oak Street on bringing wealth -- bringing the new strategy to the wealth platform in a permanent capital vehicle. So you don't need to repeat what you just said there. But these businesses they have institutional businesses of their own. So I see the extension into a wealth product form for the synergies. Maybe we could talk about how they may or may not work together. In other words, one of the things we think about as a fully integrated platform is being able to deliver like a full solution to certain LPs as they consolidate GPs, is that a plan? Is that like five years down the road? Is that something that's required? Is that something that you can do? And have you cross-sold to LPs of your original three franchises? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes. And collectively, and ourselves included, put, I don't want to say excess emphasis on wealth because it's a monumentally important and distinctive capability we have. but institutional growth has been incredibly important and absolutely be clear, cross-selling has become very much a part of our business. And actually one of, again, the opportunities, you look at the overlap between our LP base, for example, and IPIs LP base, very limited. In fact, they bring some incredible, very large pools of capital we've not historically done business 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. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call And so I think cross-selling is very much a part of that synergy that we all talk about. Again, what we don't want to do ever is disrupt the world-class investment capabilities and processes these firms already have. And that's part of, again, the sort of buy build model. What we do want to do is enhance origination and enhance distribution and you're absolutely correct. The institutional cross-sell is just as important. Doug Ostrover has been circling the globe talking to institutions and the interest in these products when marry two Blue Owl is a big part of the upside story. Remember, take a firm like Atalaya, which has been doing alternative for 20 years. Let me repeat that. 20 years. Everybody is going to talk about, hey, I'm going to get into alternative credit, partly because motivated by, hey, I want to have all solutions for all people. We don't want to have all solutions for all people. We want to have outstanding solutions in every area we participate in and particularly in a series of products that are about downside protection, capital preservation, durability, often with an income component. Think, we know who we are and what we're going to do is not have every product, but we are going to have the best products. And Atalaya is the best in the business and alternative credit. And why would someone want to start and invest in someone's organic undertaking in a business where you have some with 20 years of experience, they have data on 100 million different consumers. You need that data if you're going to do alternative credit successful. You need the data analytics that come with decades of work. IPI. Lots of people would love to build a data center for one of the hyperscalers. But hyperscalers aren't going to build it with most people. They're going to build it with the people they know and trust and the people that have, in the case of IPI, we have stacked our captive operational team. That's 800 people that are experts in power management and conditioning, cooling, redundancy systems, siting, development all of which are the skills that the Microsofts of the world and their peers need and count them. That's what they're paying for. They're not interested in someone saying, oh, I can do it for you, too. So I think we've got to get down to bringing not every product, that's a different strategy. There are many firms that are going all things to all people. What I think we can tell you is when we bring a strategy forward, it's going to be addressing a distinctive mismatch in capital and we are going to be built to deliver best-of-breed results for our investors and that will lead to best-of-breed growth for Blue Owl, Institutional and wealth alike.

Question: Brian Mckenna - Citizens JMP Securities, LLC - Analyst : Okay, thanks. Good morning, everyone. So I had a question on your core direct lending business. You've raised the majority of AUM today through your private BDC. And obviously, you're raising through the wealth channel as well. So moving forward, you'll continue to raise AUM through your non-traded products. But what's the outlook for fundraising on the institutional side? Will you look to add some additional private BDCs? Or is there an opportunity for some GP LP funds? I'm just trying to get a sense of the trajectory of direct lending fundraising from here. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes. Look, it obviously remains a central theme, of course, for us and for our investors. Institutional, wealth alike, again, well, which as you correctly just commented on wealth, it continues to be an incredible engine. We've continued to -- in fact, we've had our REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call record quarter in wealth in aggregate across all our products. We continue to develop very strong interest across platforms and within platforms for our direct lending product and very low redemptions. So that's in a really, really healthy place. With regard to the sort of a prospect for growth in total, look, private BDC is absolutely a continued option depending on the exact strategy and how we want to build it as are GP LP funds, to your good point. Look, we've never wanted the structure to be either the impediment or the definition of what we do. What we want to do and have to is deliver the best results in credit, remember, we've done a $100 billion of loan originations and had a 7-basis-point running loss rate and delivered spectacular yields for our investors. What we want to make sure is that any investor that wants to participate in that has

Question: Brian Mckenna - Citizens JMP Securities, LLC - Analyst : Got it. Helpful. Thank you, guys.

Question: Brennan Hawken - UBS - Analyst : Good morning. Thanks for taking my questions. I was hoping to follow up on the dividend discussion. So can you remind us, number one, like I have from my notes, 100 basis points translate to about $40 million to $50 million of annual Part 1 fees. Is that still the right way to think about it? And when we're thinking about the $0.90, are you still -- you made a couple of references to payout ratio, but it wasn't crystal clear to me whether or not that's changing versus what you guys updated last quarter to have the payout ratio approach and be up to 100%. So is there any shift in either of those? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call

Question: Brennan Hawken - UBS - Analyst : Okay. Thanks for clarifying that. Okay. And man, how about that game last night, oof. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes, that was, for New York, a bit of a hard breaker.

Question: Brennan Hawken - UBS - Analyst : Perfect. Thanks for that clarity.

Question: Steven Chubak - Wolfe Research - Analyst : Hi, good morning. So wanted to start off with just a question on the FRE growth algorithm. Taking a step back, reflecting on the firm's journey over the past few years, at the '22 Investor Day you laid out various targets with the exception of the dividend target, you're on track to meet or exclude many of these goals. Fast forward to today and what we've been hearing on the call, a lot of focus on the increased scale of the platform, more industry verticals, greater channel breadth. I wanted to get a sense as to how you're thinking about the FRE growth algorithm over the next REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call several years, whether there's any sneak peek or bread crumbs you can offer as you're thinking through that growth road map ahead of the February 7 Investor Day? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Let me talk about the positioning for that. And then I think Alan can fill in a bit. Look, obviously, we'll get into a lot of details come February 7, and we look forward to that. I think what we're trying to make sure we convey in a very transparent fashion is, look, this has been monumentally successful chapter. And we also have a lot of conviction, we have now set the stage the table for the next chapter to be monumentally successful. We will continue to outperform in our view, the industry because we're positioned in the highest growth areas with a superior business model. Remember, today, still, 91% of our revenues come from permanent capital and all of our revenues, our fees. Just pause and think about the durability and predictability of that model. And that has led to, I would say, and I'm not -- we're looking back multiple years now, as you said, to our last -- coming up on three years. And here we are on or ahead of nearly every measure through the turbulence in the last few years, I mean, how many revisions have there been in other people's numbers with carry and the like. And here we are just marching on 14th consecutive quarter. We intend to continue that journey. Now we'll get into the exact numbers going forward. But with our existing products that continue to have great organic opportunities real estate. We're already 60% deployed, as you just heard or committed, I should say, in our most recent real estate fund that's only a year old. And mind you, it's been done at spectacular terms. This last quarter in real estate, just to give you a flavor, not to digress far. In real estate, we acquired $800 million of assets, with actually another $650 million of commitments to go with it at over a 9% cap rate over a 9% cap rate with really strong counterparties and simultaneously, we sold over $300 million in net lease properties at a 5.8% cap rate. I mean so the engine that we are creating for our investors and it's unique, distinct and triple net lease has enormous organic growth. But then when we add to it, we add something like an IPI. And again, I don't want to do the repeat the word data centers over and over, like what will happen ad nauseam across all earnings calls in all industries, but rather it's the exact synergistic extension of our triple net lease business, right? We already are the partner of choice for corporate -- investment-grade corporate users to say, how do I manage my real estate and how to deal with a trusted partner. And now we have added one of the market leaders and one of the only dedicated funds for hyperscale data centers and hyperscale data centers, you look at their current funds, their average credit rating is AA. I mean it's like sovereign level credits. So I think what we're doing is setting the stage to both continue organically and create these new product streams that will give us what we need to make the future, at least make the past prologue for the future. And we appreciate maybe history doesn't repeat, but it rhymes and we think the next chapter is going to run pretty well.

Question: Steven Chubak - Wolfe Research - Analyst : Well, I said thanks for taking my questions, guys. Sorry about last night, the debacle. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director To be clear, we're very happy for our LA-based shareholders. We look out for all our stakeholders.

Question: Crispin Love - Piper Sandler & Co. - Analyst : Thank you and good morning, everyone. With lower base rates there that you said to Part 1 fees, which you discussed and is well known, we can all do the math there. But can you discuss some of the offsets that could come with lower rates, whether pick up in deal activity, PE activity that needs to be some fundraising or anything else worth mentioning? And is there any way just share how you're thinking about net impacts when you take into account all that? And I understand it's a little bit of a crystal ball question here, but just curious on your thoughts broadly. Thank you. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Absolutely. And a couple of observations to set the stage. When we think about the comments we made today on the call, it's not taking particularly a view of net impacts, but rather what could be the adverse impacts given the volatility? Because when we think about setting the dividend, look, we're not going to know the answer to 2025 per se until the end of 2025, we're going to set the dividend in the beginning. And so we naturally are going to have to or, I guess, we would say, logically, build for the low case whatever the variable might be, so to speak, and I don't mean the most possible cases in every instance, I'm not trying to be silly, but we take like rates the low case. And yes, there are potential offsets, but we're not going to want to factor those in, in terms of setting expectations around our dividend. So there are offsets. Listen, when rates come down and what we have not factored in here at all, is the -- and I'll call it the inescapable but unknown timing of a material increase in activity. Now remember, there's $2 trillion of private equity capital that's still sitting on the sidelines. And it's good to get invested. And how many -- I know we've heard for quarters, everyone talking about all of the green shoots, the green shoots. You never heard us say it because we didn't see them objectively. I still don't think there's evidence of a material snapback, but I know there will be a material snapback. Oh, there's a lot of reasons we do hypothesize about it likely coming, probably starting in the first quarter, which you can't prove it today and hope is not a strategy. So I think at the end of the day, from our perspective, they're absolutely offsets. They're moderating rate environment or just a stabilizing environment should and eventually will lead to a material pickup in activity. We look forward to that. That drives a lot of activity for us. And remember, there are places where that matters for us, deployed capital is part of the calculation 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. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call And obviously, there's the origination activity. And there's just the demand and interest in reloading funds when people see there's a lot of attractive investment activity occurring. So yes, there are decidedly offsets, which suspect will come into play in a moderated rate environment. But again, logically sitting here today, we're not trying to be so prescriptive about the exact number, but rather, we are trying to make sure we have a comfortable landing spot, assuming more negative relatively speaking cases than positive cases.

Question: Crispin Love - Piper Sandler & Co. - Analyst : Great. Thank you, and appreciate all the color.

Question: Patrick Davitt - Autonomous Research - Analyst : Good morning, everyone. You closed a lot of acquisitions over the last few months. I mentioned Kuvare added $1 billion of gross flow in 3Q. So could you give us an idea more broadly what the scale of flow from all of the deals was in 3Q? Secondly, is the $1 billion from Kuvare kind of the right quarterly run rate to be thinking about, and what could the contribution of all four deals look like in 4Q with Atalaya layering on as well? Thank you.

Question: Patrick Davitt - Autonomous Research - Analyst : And is there a sense of like what Atalaya could run at quarterly, now that it's in the mix?

Question: Patrick Davitt - Autonomous Research - Analyst : Thank you.

Question: Bill Katz - TD Cowen - Analyst : Okay. Thank you very much for taking the question. So just coming back to some of the math behind some of this guidance, if you will, very loose numbers, and I appreciate we still have a quarter to go and rates can do what they're going to do. I'm penciling out to about a 57% FRE margin inclusive of the impact of NCI. I was wondering if you could just unpack if that's right, just unpack some of the key drivers. I think I appreciate the Part 1 fees. I'm trying to better understand investment spending versus the pro forma mix of the transactions, if you will, versus just sort of this opportunity to grow across multi-vectored areas. And is the broader takeaway here that you're just more focus on the top line rather than margin and there could be a little bit more top line growth looking beyond sort of the transition of '25 into '26 at the expense of margins? Thank you.

Question: Bill Katz - TD Cowen - Analyst : I'm sorry, I interrupted you. Just to clarify, that 57%, 58%, just want to make sure I'm thinking about apples-to-apples, is that gross of NCI?

Question: Bill Katz - TD Cowen - Analyst : Super helpful. Sorry to interrupt you, Marc. Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director I was just going to clarify that, look, our -- we're crystal clear on our job for our shareholders, which is to drive outstanding growth, DE growth and deliver the bulk of that to our shareholders. And the decisions we're making, which, again, if you all have, and we REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call appreciate you have mapped us since we've been public, we've steadily made those kinds of decisions to make sure that we are setting the stage not for, hey, what's the single best answer for a given quarter, but what is the answer to continue to lead the market take a step back, we have come over the last -- since we went public, our management fees have compounded at 37%. Our FRE revenues at 34% and our FRE at 32% and our dividend is just about 30%. So I think our job is to make sure we're always and this is what you're counting on us to do, making those sort of short-term decisions and trade-offs to develop that sort of exceptional long-term trajectory. And I think we feel really good that we're getting the pieces in place to -- and I don't mean numerically continue, but this trajectory onward. And at moments that we'll choose to make investments in that, in moments, it will yield kind of excessive results. Our job is to take care of all of that and make sure we continue to be a market leader on all those metrics.

Question: Brian Bedell - Deutsche Bank - Analyst : Great. Thanks so much. Most of my questions were asked and answered. Maybe just one more on deployment. Marc, you talked about -- you gave us some color there on the PE market potentially coming back. Maybe just to about that $260 million of fees that would be activated upon deployment. Any sort of view or update, I guess, on what you are viewing as the timing of that and whether that -- it sounds like that might be softer initially here just in the fourth quarter and going into 1Q? Or is that not correct? Do you think it will spike right back up? Marc Lipschultz - Blue Owl Capital Inc - Co-Chief Executive Officer, Co-Founder, Director Yes, deployment has been really good. I mean, if you take a look at this year, we're tracking at really exceptional levels. We had a record quarter last quarter. this quarter is just about on top of our kind of strongest quarters from 2021. And that is in a very tepid M&A environment or PE M&A environment and one where the syndicated market is wide open. So I actually would take the read-through, frankly, from this quarter to be extraordinarily healthy about the state of the private market and the demand for our solutions. Once we get -- and again, it is a when, not an if. Once we get activity picking up, and if we have any moderation in the syndicated market, I mean, you're setting -- we're collectively setting the stage or looking at an opportunity set for pretty meaningful upticks. So looking this year, it's already high, and it's high in what you would probably consider the least favorable environment for volume of deployment. Active syndicated market, relatively inactive PE markets. So I wasn't trying to top down the -- by any measure, the offsets that will come, and I wouldn't characterize it as an offset, future growth opportunities. Again, we're just trying to make sure when we set different targets, we take a sober view or a conservative view, but in terms of the opportunities that I had, I think we're -- to be clear, very bullish about deployment. And I just -- I can't tell you I know what quarter that switches on right? We've really got to talk to the PE folks about that. But it's going to happen. And the sooner, the more rapidly that goes to work and more rapidly, that converts into fee-paying assets and more rapidly our revenues and earnings grow and it's math. Again, we are not in the volatile business. We're not in the carry realization business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 2:00PM, OWL.N - Q3 2024 Blue Owl Capital Inc Earnings Call We're in the managed for fees business and our march will go on. So when the drummer picks up to beat with PE activity, we'll march faster.

Question: Alex Blostein - Goldman Sachs - Analyst : Hey, guys. Sorry. Appreciate the follow-up. Just to clarify, Alan, just -- we got a couple of questions around. When you talk about a mid-20s FRE kind of guidance target for 2025. That's an all-in FRE dollar number, right? That is not per share, that is not net of NCI, and it's inclusive of the pending like, so IPI is included within that? I don't know. I just want to clarify.

Question: Alex Blostein - Goldman Sachs - Analyst : Right. And all in, including the deal, IPI?

Question: Alex Blostein - Goldman Sachs - Analyst : Thanks for clarifying.