Blue Owl Capital Inc. Q4 FY2021 Earnings Call

Good morning, and welcome to Blue Owl Capital Fourth Quarter 2021 Earnings Conference Call. During the presentation, your line will remain on listen-only mode. I'd like to advise all parties that this conference is being recorded. I would now like to turn the conference over to Ann Dai, Head of Investor Relations of Blue Owl. Please go ahead.

Thanks, operator, and good morning to everyone. Joining me this morning are Doug Ostrover, our Chief Executive Officer; Marc Lipschultz and Michael Rees, our Co-Presidents; and Alan Kirshenbaum, our Chief Financial Officer. I'd like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time-to-time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, available on the Investor Resource's section of our website at blueowl.com. This morning, we issued our financial results for the fourth quarter of 2021 and reported fee-related earnings, or FRE, and distributable earnings, or DE, of $0.12 per share. We also declared a dividend of $0.10 per share, payable on March 7 to shareholders of record as of February 28. During the call today, we'll be referring to the earnings presentation which we posted to our website this morning, so please have that on hand to follow along. With that, I'll turn the call over to Doug.

Thank you, Ann, and good morning, everyone. Today, we reported outstanding growth for Blue Owl with AUM growth of 77%, fee-paying AUM growth of 60% and revenue growth of 73% for the year, with permanent capital driving 98% of our management fees and robust demand for our income-oriented strategies. We are starting 2022 with strong momentum and high visibility into our future growth. More broadly, 2021 was an extraordinary year for alternative asset managers, with robust levels of fundraising and investment activity across the space. Allocations to alternatives have continued to rise across institutional and retail investors, driven by a need for yield and demand for differentiated, uncorrelated returns. And managers were able to deploy their dry powder across a wide spectrum of investment opportunities, driving record M&A activity for the year. As a solutions provider to the alternative space, Blue Owl has benefited from these ongoing secular tailwinds, providing the capital that managers require to finance acquisitions in their funds through our Direct Lending business, and the capital that managers need to expand and diversify their platforms through our GP Solutions business. We closed on our acquisition of Oak Street at the end of 2021, adding a triple net lease real estate capability that further broadens the solutions we offer. I'll discuss our strategic vision for Oak Street in a few minutes. But suffice it to say, we've been running on all cylinders across Blue Owl. We're very pleased with the results we've announced today which cap off the year of growth and transformation for the firm and the industry. Before I cover business performance, I'd like to spend a moment on a subject that is top of mind for investors these days, inflation and the interest rate environment. Higher than expected inflation has impacted expectations for the pace of rate hikes, driving market volatility and adjusting investors' views on earnings growth for many public companies. For Blue Owl specifically, we anticipate a net positive effect on our business from a rising rate environment. We expect Direct Lending to be a beneficiary of rising rates as investor demand would increase for senior secured floating rate assets. And over time, the effect of rising rates would be positive for the net interest income of our loan portfolios. For GP Solutions, market volatility should drive demand for products managed by large diversified managers, benefiting the types of firms Dyal has typically taken stakes in. With respect to Oak Street, we believe there will continue to be strong demand for real estate strategies with long-term contractual income that are positively correlated to inflation and backed by investment grade tenants. Contractual rent escalations are structured into all of Oak Street's triple net leases, and 100% of all operating expenses, including cost increases are borne by the tenant, which further limits the strategies from any adverse effects of inflation. Moving on to our quarterly and full year results, Blue Owl generated meaningful growth across all metrics, with strong Direct Lending gross originations of $7.6 billion for the fourth quarter and nearly $24 billion for the year. AUM grew 34% quarter-over-quarter to $94 billion, reflecting the Oak Street acquisition and nearly $4 billion of equity raised across the platform. Pro forma for the Wellfleet acquisition, which we announced this week, AUM would be over $100 billion. On a year-over-year basis, we have grown AUM by 77% and fee-paying AUM by 60%. But even excluding Oak Street, we still grew AUM and fee-paying AUM organically by 48% and 38%, respectively, year-over-year. Our fee-related earnings for the quarter reached $165 million, up 17% from the prior quarter as a result of new capital commitments and significant capital deployment. This substantial growth has been reflective of the initiatives we've highlighted over the past couple of quarters; ongoing fundraising in GP Solutions and fundraising in capital deployment, indirect lending across a number of new and existing products. In the first quarter of 2022, our revenue and earnings will further benefit from the addition of Oak Street. Retail was a meaningful contributor to our results for the quarter. Of the $3.9 billion of equity capital raised during the fourth quarter, retail constituted approximately 40% or $1.6 billion, a meaningful step up from the roughly $1 billion in the third quarter and three times the $500 million raised in the second quarter. While the Oak Street transaction did not close until the end of the quarter, Oak Street raised a further $175 million from retail during the fourth quarter and would have brought our total retail fundraising to roughly $1.8 billion. Annualizing this $1.8 billion quarterly fundraising figure over our September 30th AUM, we are generating 9% organic growth just from our current retail flows, which we think we can grow meaningfully over time. And this doesn't take into account any institutional fundraising, new products that we plan to introduce to the market, or continued expansion of our retail syndicate. This represents the highest level of organic growth from retail that we are aware of within the publicly traded peer group, and these assets are permanent capital. In January, we raised a further $725 million from retail across Direct Lending, GP Solutions and Real Estate. So we have already made meaningful strides in expanding our retail presence, we are still in the early innings of this initiative. We're optimistic about the future of our retail business, and we continue to invest for growth. During the quarter, we added to our distribution platform globally, including in Asia. And in January, we announced an agreement to bring access to our retail products to the Canadian market, which is a large market under-allocated to alternatives. We look forward to sharing more developments about our growing retail business throughout the year. Moving on, I'd like to provide some brief comments on Oak Street, and then I'll end my remarks with a look at the year ahead. We see a terrific growth trajectory ahead for our real estate strategy, given the vast opportunity in triple net lease. Oak Street brings scale and expertise to a fragmented market and they've built a very strong brand in this space. Their products meet an important void in today's market, providing much needed long-duration income to institutional and retail investors, while helping businesses unlock value from their balance sheets. And their business fits very well with our platform vision of being a one-stop shop solutions provider. Looking back at 2021, we have accomplished a great deal in a short period of time, including completing the Owl Rock and the Dyal merger, announcing and closing the Oak Street acquisition, expanding our already robust retail distribution, and further expanding our institutional relationships. We achieved all of this while maintaining our strong track record and launching new products. Looking ahead, we remain focused on growing our Direct Lending, GP Solutions and Real Estate businesses while evaluating new opportunities organically and through M&A. Fundraising continues for our GP Solutions flagship strategy, which has reached $6.2 billion of equity committed to the fifth fund to date, keeping us on track to meet or exceed our initial targets. We continue to raise equity across retail and institutional channels for our Direct Lending strategies where, as a reminder, we generally earn fees on total assets which includes leverage. And as I mentioned earlier, we plan to support Oak Street's existing robust growth trajectory with the resources of the Blue Owl platform, expanding the opportunity set in real estate. Each of these strategies and each new product within them can be meaningful to our growth trajectory. We have a stable earnings base with 98% of our management fees coming from permanent capital. Between new capital raised and the earnings potential embedded in capital that we have already raised, we have high visibility into the drivers of our growth over the next couple of years. And with a current average fee rate of over 1.5% and FRE margins of 60%, the incremental profitability from each dollar of new capital raised and deployed is very powerful. Finally, let me end by expressing my appreciation for the support that all of our stakeholders have shown us throughout the year. We're very grateful for your trust and partnership. And we look forward to another great year in 2022. With that, I'd like to turn the call over to Marc to give you an update on our Direct Lending business.

Great. Thanks, Doug. 2021 was a very strong year for Direct Lending volumes across the industry driven by record amounts of LBOs and corporate M&A. Blue Owl's permanent capital base has allowed us to create flexible, creative solutions for borrowers. Combined with our broad network of relationships, this has resulted in a year of record gross originations for the firm. As you can see on Slide 16, gross originations were $23.6 billion for 2021, including $7.6 billion of gross originations in the fourth quarter driving record net under-deployment of $5.1 billion for the quarter. Despite some volatility in December, market conditions remain supportive of M&A activity, and this favorable investment environment has sustained through the early days of 2022. The trends for this coming year are likely to be driven by a push and pull of a healthy economy, inflation, policy changes, and supply chain imbalances. However, we ultimately expect the year to remain constructive for credit markets. Direct Lending ended the quarter with $39.2 billion of AUM, reflecting 13% growth from the prior quarter alone as a result of strong capital raising and deployment. For the year, Direct Lending AUM grew by 45%, driven by those same fundraising and deployment trends. And our opportunity set continues to expand as private market AUM grows, deal sizes increase, and a greater portion of financings get done with Direct Lending firms. Over the course of 2021, we evaluated over 40 investments with facility sizes in excess of $1 billion and signed or closed on roughly half of them. And we closed on over 100 investments in total across Owl Rock for the year, a sizable increase from the roughly 60 investments closed in 2020. Performance remains strong with gross appreciation of the Direct Lending products in the mid-teens for the year. And we've continued to focus on downside protection, with a weighted average loan to value in the low 40s across Direct Lending portfolios. Our credit performance remains strong, with annualized net realized losses of approximately 5 basis points since inception. We raised $2.5 billion in Direct Lending strategies during the fourth quarter, of which retail constituted $1 billion primarily for our core income fund, one of our diversified lending BDCs. Also contributing to the fundraising during the fourth quarter were closes on our diversified lending and tech lending products. And in January, the core income fund raised nearly $400 million of capital, over 50% of the retail flows we generate for the month, and we continue to expand our syndicate. This week, we announced the acquisition of Wellfleet Credit Partners, a CLO manager with over $6.5 billion of AUM as of December 31. Wellfleet will sit within the Owl Rock division, adding to our existing credit capabilities with a focus on liquid performing credit. The additional Wellfleet strong capabilities together with its deep institutional knowledge of the syndicated loan market and strong credit research platform will support the ongoing growth of the Owl Rock business. And in turn, the scale of Blue Owl's platform will provide Wellfleet with additional access to resources and growth opportunities. Our Direct Lending business continues to broaden in scope and size, and we remain optimistic about the growth opportunities we see ahead supported by a robust demand for both retail and institutional investors.

Thank you, Marc. As you heard during Doug's comments, the alternative asset management space has continued to expand meaningfully with increased allocations from institutional and retail investors. Our GP Solutions business benefits from these tailwinds as more firms enter our investable opportunity set, and as these managers' needs for capital continue to expand. From a fundraising perspective, our Dyal funds attract LP interest tied to investing and the continued growth of large diversified managers within the private markets industry, as we certainly saw the evidence of these trends across our partner manager relationships with robust fundraising, deployment, and realizations. During the fourth quarter, Dyal was very active, finalizing strong partnerships with top-tier private asset managers such as CVC, MBK, Landmark Properties, Warwick REIT, and I Squared. In 2021, we entered into agreements in principle to commit $3.9 billion to six managers across private equity, credit, real assets, and insurance and investment pace that reflects the robust opportunity set. Our GP Solutions business ended the quarter at $39.9 billion of AUM, up 11% quarter-over-quarter, reflecting $1.5 billion of new capital raised and $2.6 billion of appreciation across the portfolio. Year-over-year, we have grown AUM by 52%, driven by $4.5 billion of capital raised and $9.8 billion of portfolio appreciation. And as Doug alluded to earlier, in addition to the $1.5 billion raised during the fourth quarter, we have closed on a subsequent $400 million of capital as of January 31, bringing us up to $6.2 billion raised for the fifth fund in our GP equity stake strategy. We remain confident in our prior capital raising expectations for this strategy and anticipate that fundraising will continue through the first half of 2022. Further, we look forward to launching a follow-on vehicle sometime in 2023 as we become more fully committed in our current fund. We are optimistic about what this next year holds for the GP Solutions business, given the constructive transfer growth we're seeing across the alternatives landscape and the demand we're experiencing for our strategies. Market volatility and shifts to the status quo create interesting fundraising and investment opportunities across the entire private markets landscape. And we will benefit from that environment as the premier capital solutions provider to these managers.

Thank you, Michael. Good morning, everyone. On our call today, I'll cover some of our accomplishments from this past year, I'll walk through our current results and financial position. And most importantly, I'll take us through what we think we can accomplish in 2022. As Doug commented earlier, it's been a tremendous year of growth and transformation for our firm and for the industry. Blue Owl came together in May of 2021. And in our short history as a combined firm, we have significantly grown our AUM, permanent capital, revenues, and FRE, all of the key metrics that matter. And 98% of our management fees are from permanent capital, as Doug mentioned earlier. Although we have only been a public company six months, from June 30 to December 31, our AUM has grown 51%, our permanent capital has grown 38%, our revenues have grown 31%, and our FRE has grown 27%. To put some numbers on this, our AUM at June 30 was $62.4 billion. And at December 31 is now $94.5 billion. Our permanent capital was $56.9 billion at June 30. And at December 31 is now $78.8 billion. Our adjusted FRE revenue was $209.8 million for the second quarter of 2021. And for the fourth quarter was $274.9 million. And our adjusted FRE was $130.1 million for the second quarter of 2021. And for the fourth quarter was $165.3 million. We are very excited and very focused on continuing our double-digit growth, both organically and through potential M&A. We have also begun to see the synergies of the Owl Rock and Dyal combinations, and have now added the Oak Street Real Estate business to our platform and are working to expand those synergies. Okay, let's cover our quarterly results. We closed our acquisition of Oak Street at the end of December. So although you'll see these numbers in our AUM metrics, you will not see them in our P&L results until 1Q 2022. Our fourth quarter had strong double-digit growth. On Slide 11, you can see adjusted FRE revenues of $274.9 million, up 17% and FRE of $165.3 million, up the same 17%, both compared to the prior quarter. As a reminder, our fourth quarter was also impacted by the significant tax benefit I talked about on last quarter’s call. So what do taxes look like in 2022? To give you some guidance here, it's best to step back and give you a little more color around our structure. Because the merger between Owl Rock and Dyal was a taxable transaction to certain shareholders, Blue Owl now has certain tax benefits that we will be able to use for a number of years. It's hard to predict what those benefits are year-to-year, but for 2022 you should assume an overall tax rate in the low single digits. And that's for 2023 and 2024, for now, we would suggest using a low teens tax rate. Again, taxes are hard to predict. But as we go through the year, we will continue to update you on what future tax rates may look like. To provide additional visibility into our revenues for the quarter, we experienced strong revenue growth from both Direct Lending and GP Capital Solutions. During the quarter, we booked $23.8 million in catch-up fees for Dyal Fund V from new investor commitments. Starting off in 2022, new LPs committing to Dyal Fund V will pay a higher management fee during the course of the investment period, instead of paying a catch-up fee at their initial close. So we're not expecting catch-up management fees in 2022. Also, as of December 31, the fee holiday for Dyal Fund V investors ended which will add approximately $10 million per quarter in management fees starting in 1Q 2022. Finally, as it relates to revenues, we generated annual Part 2 fees from portfolio realizations in our tech BDC of ORTF, resulting in $3.8 million net of performance compensation. We announced the dividend of $0.10 per share for the fourth quarter. This is our third straight quarter where we increased our dividend and represents approximately 85% of DE, which continues to be our dividend target. Moving on to Slide 12. We reported AUM of $94.5 billion, fee-paying AUM of $61.4 billion, total permanent capital of $78.8 billion. AUM not yet paying fees was $11 billion as of December 31. Because we closed the Oak Street acquisition during the fourth quarter and are now including their AUM in our numbers, I'll provide AUM growth both with and without Oak Street. AUM grew 34% to $94.5 billion quarter-over-quarter, driven primarily by the addition of Real Estate as well as by significant deployment of capital in Direct Lending, capital raising across the platform, and portfolio appreciation in GP Capital Solutions. If you look at our AUM before adding Real Estate numbers, we grew AUM organically by over 12% quarter-over-quarter. Fee-paying AUM grew 31% to $61.4 billion quarter-over-quarter, driven primarily by the addition of Real Estate, significant deployment in Direct Lending and capital raising across the platform. Before adding in the Real Estate numbers, we grew fee-paying AUM organically by 13% quarter-over-quarter. AUM not yet paying fees reached $11 billion, including $6.1 billion in Direct Lending, $2.6 billion in GP Capital Solutions, and $2.3 billion in Real Estate. This AUM corresponds to an expected increase in annual management fees totaling over $140 million, primarily upon deployment for Direct Lending and upon the conclusion of the fee holiday for GP Capital Solutions, which ended this past December 31. And, as I noted on our call last quarter, if our tech BDC were to go public, we expect that to be another incremental $65 million of annual management fees. As Marc highlighted earlier, we had another strong quarter of deployment in Direct Lending with gross originations of $7.6 billion and net funded deployment of $5.1 billion. That brings our gross originations for the last 12 months to $23.6 billion, with $11.9 billion of net funded deployment. So as it relates to the $6.1 billion of AUM not yet paying fees in Direct Lending, it would take us approximately two quarters to fully deploy this based on our average net funded deployment pace over the last 12 months. Turning to our balance sheet, we continue to be in a strong capital position. As you can see on Slide 21, we currently have over $1 billion of liquidity with a very long-dated capital structure. This includes the $400 million unsecured debt issuance we did last week. As it relates to our revolver financing, we have amended and upsized this facility, making an unsecured debt, tightening pricing, upsizing from $150 million to $715 million of commitments, and reset the three-year maturity. Finally, I'd like to take a couple of minutes here to cover a few other items. First, I'd like to discuss our employee stock program. In May of last year, in connection with the closing of our merger, our Board of Directors approved a $100 million share employee program. Under this program, we have issued roughly 45 million shares to date, where about 3% of our share is outstanding. About 75% of the shares were issued to employees in connection with our merger to reflect their significant contributions and to create long-term employee retention across the platform with a vesting period of generally five years. The remaining amount of shares were issued under two other programs. First, we recently offered employees a one-time option to exchange existing long-dated cash incentive awards issued under previous programs for Blue Owl stock to continue to align our employees with our shareholders and with the management team who own 25% of our stock. Almost everyone opted for Blue Owl shares, resulting in roughly 7.5 million shares issued. And second, as a result of our normal course year-end compensation process, we issued roughly 2.5 million shares, or less than 1% of our shares outstanding. In trying to provide some level of guidance for you all for how to think about this in the future, we could typically issue about 1% of shares outstanding as part of our annual compensation process. So to wrap up here, when I think about our growth plans and what we think we can accomplish in 2022, here's how I would frame it out. In 2021, we posted $900 million of revenues when you look at Owl Rock and Dyal combined revenues for the year. In 2022, we believe we can post over $1.3 billion of revenues, which would represent a 45% growth rate in our revenues year-over-year.

Certainly. Your first question comes from Glenn Schorr with Evercore ISI. Please state your question.

Hi. Thanks very much. You just got me on that 45% growth. Can you talk about what you think is the contribution maybe from the acquisitions coming onboard relative to what would have only a few months ago been core Dyal and Owl Rock, just disaggregate the 45?

Sure, Glenn. Thank you very much for the question. So some of the numbers I've put in my remarks just now let's refer back to them just for a second as part of that. So we have about $11 billion of AUM not yet paying fees that we think will generate about $140 million of annualized management fees. And if our tech BDC were to go public, that could be another incremental $65 million of annualized management fees. That's a little over $200 million of annualized management fees, which is roughly half, that's about 20% or a little more than 20% on the $900. And so that gets us halfway there without any equity fundraising across any of our products for the whole year. So you can think of that as almost half of that, or at least a quarter of that is already in the ground and has to get deployed, it has to get put to work, fee holidays have to roll off and the rest is us continuing to grow our business through fundraising.

All right, cool. Any reason why you would not do the tech BDC? It seems like a no-brainer. I'm just trying to think through the downside of it, why wouldn't it happen?

There's no reason that we think of today. We want to be careful, because that's an SEC registrant and not provide too much comments here on this call. But there's no reason we could see sitting here today that we wouldn't look at some point in the future to list that vehicle.

Got it. Maybe I'll just do one more. Your inception to date performance across Owl Rock and GP stakes are great. But I didn't see anything on 2021. Can you give us something about absolute and relative performance in 2021?

Thanks, Glenn. It's Michael Rees. The GP Solutions business from a performance at the fund level continues to be extremely strong. Our most recent funds are running IRRs 24% for Fund III and 96% for Fund IV and Fund V is so high, it's not material to report. So on a relative performance basis, our products continue to do exceedingly well. And in a corporate perspective, our fundraising and our market position, again, couldn't be stronger and have probably been enhanced over the last 12 months from the pre-IPO timeframe.

Marc, do you want to comment?

Yes. So on the lending side, we had for all 2021 in total across the various lending products mid-teens gross returns. So we were very pleased with the continued performance. And as I did note, credit performance remains a true bright spot, which of course is our core focus. Since inception, we continue at that 5-basis point realized annualized loss rate. So we're very happy with where the results landed.

All right, great. Thank you for all that.

Thank you, Glenn. I appreciate it.

Your next question comes from the line of Alex Blostein with Goldman Sachs. Please state your question.

Hi. Good morning. Thanks for taking the question, everybody. I was hoping maybe we could start with unpacking some of the retail dynamics you saw in Q4 and obviously the guidance and the observations provided so far in the first quarter, I guess. First, it feels like lots of momentum. Can you specifically parse out what ORCIC flows were in the fourth quarter? And then bigger picture as you're looking into 2022, can you help us kind of frame how you think about building that momentum across both the ORCIC as well as the tech fund and integrating Oak Street, a little more color would be helpful?

Great. Thanks, Alex. This is Marc. Let me just start off. So on ORCIC, which, as you know, is in our primary retail product this year, in the fourth quarter alone, ORCIC, we raised roughly $1 billion. So, as you know and look back at the prior quarters, that is a quite substantial continuing ramp, that still with only a couple of platforms really on the wirehouse side that were distributed. And Doug will comment in a minute on the kind of forward thoughts about retail and some of the growth we see. In January alone, we raised $400 million for ORCIC. So we're very, very pleased. I know if you think back to where we were six months ago on this topic, we're already at that level of $4 million a month, which was even above some people's thoughts and expectations about where we'd ultimately get to, and we're still with those two platforms at this moment of any scale. As to 2022 and more broadly tech and other, let me turn it over to Doug.

Hi, Alex. I don't have any broad projections. But if it's okay, maybe I can take a step back and just remind everybody on the call that we've been at this, the retail space for six years, and I think we built a really strong brand. We had broad distribution. And I think right now we're one of the top players. In fact, I think in credit, we're number two. In terms of resources, we've got a big team, we are covering the largest wirehouses, independent broker dealers, RIAs, family offices, and I don't know the exact number, but I think we're covering well over 100,000 FAs today. We've got over 50 dedicated professionals in sales and support, and we are continuing to add headcount. We've been active in the U.S. and now we're very active in non-U.S. markets as well. And I think you saw in the last couple of months, we announced an expansion of our distribution presence in Asia and a new partnership in Canada. And as Marc referenced, we raised over $1.6 billion of equity capital across retail this quarter, $1 billion of that was from Direct Lending in our core income fund and almost $600 million in GP Solutions. And if I add in Oak Street, that gets us to $1.8 billion for the quarter. And I think Alan referenced this, but if you think about where we ended September at $83 billion of AUM and you run-rate our fourth quarter flows, that's 9% organic growth just from our current retail flows. Doesn't include any institutional fundraising, doesn't include new products we plan to launch. And most importantly, it doesn't include continued expansion of our retail distribution syndicate. Marc said this, but the $1 billion we raised was just from two wirehouses for the quarter. And I can tell you with 100% certainty, we're adding to that syndicate. So flows remain strong. In January, we raised another $400 million for the core income fund. And I guess so where does that leave us for '22? One, we think our products are very competitive. Our performance has been really strong. And one of the unique things about our platform is that we focused on the retail investor from day one. Our goal was really simple when we launched, give the retail investor the identical experience as our institutional investor. And I can tell you that's what we've done and that is a story that is clearly resonating with retail. So where does that leave us? We're optimistic as it relates to retail. No big predictions right now. We're going to have a lot more to say about this in the upcoming quarters.

Great. Thanks for that color. My second question is around GP Solutions business. It looks like the pace of fundraising has been a bit slower than we expected. I think I heard Michael, you said $2 billion or so in funds. Now, you still feel optimistic about getting to $9 billion, but I think it's taken a little bit longer. So what's going on on the ground that perhaps is leading to slowdown relative to maybe the earlier pace of fundraising, and kind of how are you thinking about the opportunity set for the next bit, which I think you said 2023 is now your sort of expectation?

Yes. Thanks, Alex. As we had reported last quarter, we extended the fundraising for Fund V into Calendar 2022 to accommodate the deployment schedules of the large institutional investors around the globe. It is a very busy fundraising calendar out there, which is fantastic for our GP Solutions segment. Many of our largest partners are raising flagship funds that are quite sizable. And so we're working with our large institutional investors to slot into this first half within their calendar. And because we've been deploying capital all along in Fund V and have a really good substantial base to work off of, we're in no real rush. We will close this thing, as I alluded to, at or even possibly above our targets and pull in the Fund VI fundraise likely sooner than what had been originally provided as guidance before the IPO. So very confident in our momentum and our targets and the pace of deployment across our business. We target about $4 billion of deployment a year. We hit that almost to the penny last year, consistent with prior years as well. So absolutely no change to our business model or our momentum, just allowing the institutional investor to utilize some of their 2022 budget for us.

Got it. Thanks. I'll jump back into the queue.

Thank you, Alex.

Your next question comes from the line of Robert Lee with KBW. Please state your question.

Great. Thanks. Everyone, good morning. Hope you are all doing well?

Good morning, Rob.

Hi. Just my first question and then maybe going back to GP Solutions, I'm just curious. When you look at your opportunity set out there, has the competitive environment changed at all? Does the Petershill transaction in any way, shape or form kind of change the competitive dynamics when you're looking to deploy capital or not meaningfully one way or the other? I guess that's my first question.

Thank you, Robert. We find ourselves in a unique position within the alternative segment, as our opportunities for deployment are increasing more rapidly than the capital being raised by us and our competitors. Unlike other sectors, we can be quite selective due to the absence of significant capital overhang. This enables us to choose our manager partnerships wisely and uphold strong pricing discipline, which is evident in our fund returns that I mentioned earlier. There are really only three major players in this space: us, Blackstone, and Petershill. We typically concentrate on larger transactions that, for various reasons, our two peers usually cannot engage in. Our competitive position remains strong and has likely improved as we have successfully raised substantial funds—$9 billion for Fund IV and now another $9 billion for the current fund. Additionally, demand for capital in the larger segment of private market firms continues to grow. As the larger firms expand and the stronger gain more power, they often require growth capital. As mentioned in my prepared remarks, we consider ourselves the leading provider of such capital for the top 200 to 250 general partners in this space. We are enjoying strong momentum and are extremely proud of the competitive advantage our team has built over the past few years.

Great, thanks. And maybe on Wellfleet, just kind of curious. Obviously, it brings some new capabilities in, but just talk to what kind of flush out, how we should maybe think about it from a financial impact perspective? I know CLOs have more modest fee rating than your average generally, but any color you can provide on that?

Yes, this is Marc. I'm happy to discuss this. Wellfleet, which may be new to some, is an excellent CLO manager with $6.5 billion in assets under management. From our perspective, acquiring Wellfleet is a strategic and effective enhancement to our platform. You correctly noted the fee rates associated with CLOs. Our interest is not in branching into many similar businesses, but rather in adding a high-quality operation that complements our Direct Lending capabilities. This acquisition enables us to gain a broader and deeper insight into adjacent liquid markets while also enhancing our capital management for our retail products or permanent private for life BDCs, for instance. It fosters a strong synergy that allows us to continue excelling in Direct Lending and supports the Blue Owl platform in serving this top-tier CLO manager. Financially, there are a few points to note. While I can't provide specific numbers, they align with other CLO managers and the acquisition is accretive in itself. Additionally, it adds capabilities that we would have needed regardless, resulting in cost synergies that represent future savings we would have incurred otherwise to develop these capabilities. Overall, we see it as a solid tactical and financial addition, though it won’t significantly alter our financial figures.

And upon closing, Rob, those numbers will get forwarded into our Direct Lending numbers.

Okay, great. And then maybe just one follow up for you, Alan. So I appreciate the revenue guidance. But any update on how we should be thinking about kind of FRE margins heading into next year, kind of any change to kind of your targets or additions?

Thanks, Rob. No changes to the guidance that I've previously provided on margins, on income to revenue, on G&A. No updates on that. No changes to the previous guidance.

Okay, great. Thanks for taking my questions.

Thank you, Rob.

Your next question comes from the line of Patrick Davitt with Autonomous Research. Please state your question.

Hi. Good morning, guys. One more on Dyal Fund V, I think you said last quarter it was 65% committed. So firstly, what is that number now? And if that's the case, and you do $4 billion of deployment again this year, I would suggest you would need more than $9 billion this year. So why not launch Fund VI earlier than 2023? Thank you.

Yes, very good question. We did have a modest amount of co-investment that sort of brought that number down that was then topped back up by deployment in the fourth quarter. So the percentage deployment of Fund V is relatively in line with that prior number. And yes, we're raising capital throughout the first half and likely to be deploying it. We'll take a brief pause and then be right back on the road. The official launch date of Fund VI is TBD. But your point is very valid that at this deployment rate, we're likely to be in the market relatively soon.

Got it. Makes sense, thanks. And then second question more on the structural side and index inclusion side. First, I'm sure you've seen you're in the wrong MSCI index, given your market cap. So curious if you've been working to fix that? And second, could you speak to your willingness to adjust the share and governance structure to get into Russell in June? Thank you.

Hi, Patrick. It's Ann. So we're very aware about the amount of AUM that follows these indices on a passive and active basis. So we're actively looking at both of those items that you mentioned. And we'll keep you updated as we do that.

Thank you.

Thank you, Patrick.

Your next question comes from the line of Craig Siegenthaler with Bank of America. Please state your question.

Thanks. Good morning, everyone.

Good morning.

So Patrick stole half my question, but the other half is what is your prospects on moving to a fixed dividend? Just given the consistent and predictability of your earning stream, do you see any advantages there in terms of picking up long-only in passive ownership that's sort of restricted to owning fixed dividend stocks?

Thanks, Craig. I appreciate that. For the time being for the next several quarters, we expect to maintain a variable that can continue with the target that we've previously stated for distributions of DE. We are evaluating extensively the concept of moving to a fixed dividend. We expect to have more updates for you as we go through the next couple of quarters.

Thank you, Alan. As a follow-up, I have an open-ended question about Owl Rock. How has the changing macro environment affected your fundraising opportunities in private credit and your BDC vehicles? From your earlier response, it seems that ORCIC is actually improving in the first quarter. I'm particularly interested in how higher rates might lead to higher Part 1 incentives and benefit your financials. However, does this also indicate a shift away from liquid fixed income?

Yes, that’s a good question, and I appreciate it. It’s important to remember what we do. We originate senior secured floating rate instruments, which are some of the best assets to have in a rising rate environment. While I don’t have all the data at the moment, I believe that historically, when the Fed has increased rates multiple times in a given period, floating rate, senior secured risks have performed well. We anticipate that the uncertainty around rates will lead to increased demand for our Direct Lending strategies, and I also think that these higher rates will ultimately benefit our net interest income over time. Regarding retail fundraising, we’re hesitant to make any large predictions, but we are observing consistent flows. The retail market seems to recognize that rates are likely to rise, making this a favorable environment to invest in. Thus, we are cautiously optimistic about our current syndicate and our fundraising potential. I am confident that we will be able to grow our syndicate over time and achieve the corresponding inflows.

Great. Thank you, Doug.

You have a follow-up question from Glenn Schorr with Evercore ISI.

Hi. I appreciate it. One more quick on the retail front. So you now have kind of four brands with domain and dominance in their own right. What is your go-to strategy now in retail for each product and then for your wholesale? I'm just curious on how you're going to do this. I'm sure this is not the last acquisition you will make either.

Currently, we offer a variety of products in the retail sector. There are two primary ways to access retail. One approach involves conducting a short fundraising effort at a major retail institution. What we are focusing on is the continuously offered retail option. At present, the only fund available in the market every day of the year is our core income fund, which follows a Direct Lending strategy. In the upcoming quarters, we plan to share more about the additional strategies we will introduce in retail. Although we can't disclose specifics right now, we are committed to leveraging our distribution platform and the partnerships we have established with large retail distributors.

All right. But can you clarify which brand will be used? I'm sure they will incorporate some of your newly acquired strategies. I'm asking whether everything will be branded as Blue Owl or if they will keep their previous brands.

Oh, I see. Look, for now we are going to maintain our brands. And I think over time, over the next couple of years, we'll roll everything into the Blue Owl umbrella. But for the foreseeable future, we'll maintain our distinct brands.

Okay. Thank you.

Maybe just a quick addition on this topic of brands and acquisitions. As Doug said, we'll have an arc of time in terms of how we manage the actual brands. But the underpinning point is really anything we do we want to deliver a best of class experience for the investors. First and foremost, every time we ought to really be talking about how do we deliver that great experience? And that's why we've really built the businesses in very kind of deep fashion in adjacent spaces, right. The market-leading business with exceptionally attractive returns in GP Solutions, market-leading business in Direct Lending, best of breed risk-return solutions, with Oak Street, the market leader in triple net lease solutions for investment grade counterparties, and continuing to grow and evolve from there. So to us, again, we'll continue to evolve the exact marketing strategy and brand strategy. But I think what you really ought to take away is that you'll continue to see from us is that kind of depth and really focus on being best of breed and delivering for our investors, which will allow us to deliver best of breed FRE growth and revenue growth for our stockholders. In terms of additional acquisitions embedded in your question, again, I want to amplify. We're not looking to be all things to all people. We're looking to be really great at a handful of adjacent products that create this ecosystem of private capital solutions for private capital users. So certainly, we get approached all the time. We'll continue to look at acquisitions. But I think we want to calibrate this properly. You should expect when we do make acquisitions, they're really very strategic to build it around this ecosystem so that we can deliver these great results, and again deliver great growth and returns for our shareholders.

Your next follow-up question comes from the line of Patrick Davitt with Autonomous Research. Please state your question.

Thank you for the follow-up. A quick one on the performance fee. Should we expect more of those, or is that pretty idiosyncratic? And I assume there was no performance fee in the $1.3 million guide.

There is no performance fee included in the $1.3 billion guidance. The performance fee in question is from our tech BDC and is calculated annually rather than quarterly like the Part 1 fees. Therefore, you can anticipate very small potential Part 2 fees that we may collect each fourth quarter. It is really just a rounding effect as you can see from the provided number, but you can expect some in the fourth quarter each year.

Got it. Thanks.

Of course. Thank you.

Your next follow-up question comes from the line of Alex Blostein with Goldman Sachs. Please state your question.

Great. Thank you for the follow-up as well. I had a big picture question around origination and dynamics in this sort of current market backdrop. We've obviously seen pretty materials top and net originations in both the third quarter and fourth quarter out of your Direct Lending business. But given the environment, curious how you are seeing the spot activity today and your ability to deploy capital sort of at the same pace as we've seen recently?

Yes, more than happy to chat about that. So as you did observe origination activity in the third and fourth quarter, it was extraordinary and appealing. And frankly, more indicative than not I think of what we expect. Let's set aside any given week, month, quarter. But in terms of the pace of deployment, remember, we're now sitting with $2 trillion in dry powder and private equity. That will get deployed and it will require private capital solutions. And frankly, our solutions I think in Blue Owl and Owl Rock, in particular, in terms of our share, but more generally, private lenders clearly picking up substantial share. So when there's volatility in the markets, it sometimes causes some slight pauses. Activity continues to be strong. Again, those were exceptionally strong and busy quarters. But overall, when we look at the pace of deployment through the course of last year, if I think about quarters, in total, they took the whole year and just divide that by four. That feels like a very reasonable pace to us over the arc of time. Again, there'll be little variances here and there, but we continue to be busy. I think others continue to be busy. And the built-in structural demand quite frankly seems extraordinary. This amount of demand, especially with the ability that we and just a couple others have to deliver the biggest capital solutions, I think is a pretty powerful tailwind for the business for years to come.

Got it. Okay. Thanks very much.

Your next follow-up question comes from the line of Robert Lee with KBW. Please state your question.

Thanks again. Thanks for taking my follow-up. I don't think I've heard this many follow-up questions in years on the call. So thanks for your patience.

We appreciate the interest.

Thank you for your time. I have a question regarding deployment. As your capital continues to expand rapidly, can you discuss your current approach to investing in your infrastructure? To uphold your investment discipline, you need to evaluate a greater number of opportunities. Additionally, I would like to hear your thoughts on other verticals you might be considering, particularly regarding Wellfleet, liquid credit, and the non-sponsor segment of the marketplace.

Sure, I'm happy to. Investing in our origination process and thoroughly assessing credits is fundamental to our business, and we are putting significant resources into that and will continue to do so. We have one of the largest teams dedicated to Direct Lending, consisting of highly experienced originators and underwriters, and we are actively expanding this team, which may now number around 75 professionals focused solely on Direct Lending. From this perspective, we are observing substantial activity. We aim to maintain the historical flow rate, approximately 5% from the top of the funnel to the bottom, and we expect that to continue. Currently, we cover about 600 sponsors and will keep increasing this number as we benefit from our GP Solutions business. We are always looking for opportunities to identify the best investments. Our realized loss rate of just 5 basis points, which is among the best, reflects our commitment to origination and underwriting. There is plenty of potential to explore, especially considering the $2 trillion in available capital within private equity, generating significant demand. If we consider a straightforward 50-50 capital structure, that adds $2 trillion of new demand in addition to refinancing the trillions already invested. Compared to the broader market, we are still a relatively small player. To illustrate the market shift, five years ago, there were no Direct Lending solutions of $1 billion in the marketplace. This year alone, Owl Rock has evaluated over $40 billion in financing opportunities, closing $20 billion of that. This indicates a strong trend towards Direct Lending as a preferred option, even among large, reputable companies.

Yes, I'll just make one other comment. So we are going to continue to add resources. We are maniacally focused on that deal funnel. I think we're doing a great job in the sponsor community, the VC community and we're taking a hard look at large private companies as well. We got involved with a dedicated tech lending strategy about four years ago. We saw that as an interesting niche. It's turned out to be much bigger than we ever imagined. We have close to $10 billion of loans in that sector. We have over 20 people focused on it. And look, we're constantly evaluating are there other large sizable sectors like technology that we should make a push in? And my guess is over the next couple of quarters, we'll be in a position to start talking about those. So as Marc alluded to, the opportunity set is big. It's growing. And we're seeing just more and more private equity firms and these private companies starting to say, hey, this is a pretty good alternative to the large banks. So we're pretty optimistic about that deployment pace and where we can take the business.

At this time, there are no further questions. I will now turn the floor back to Doug Ostrover for any additional or closing remarks.

Well, maybe we set a record going over an hour. But I want to thank everybody for the partnership and taking the time. I really want to thank everyone for all the great questions. We're available anytime if anybody has any follow-up. And our goal is to continue to try to exceed expectations. So thank you, and we look forward to talking to all of you soon.

This concludes today's conference call. You may now disconnect your lines at this time.