Blue Owl Capital Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to Blue Owl Capital's Third Quarter 2025 Earnings Call. I would like to inform all participants that this conference call is being recorded. I will now pass the call to Ann Dai, Head of Investor Relations for Blue Owl.

Thanks, operator, and good morning to everyone. Joining me today are Marc Lipschultz, our co-Chief Executive Officer; 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 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'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation, available on the Shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund. This morning, we issued our financial results for the third quarter of 2025, reporting fee-related earnings, or FRE, of $0.24 per share and distributable earnings or DE of $0.22 per share. We declared a dividend of $0.225 per share for the third quarter, payable on November 24 for holders of record as of November 10. 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'd like to turn the call over to Marc.

Great. Thank you so much, Ann. The results we reported for the third quarter of 2025 reflect strong growth and business performance across an increasingly diversified set of investment platforms. Not only are we beginning to see the benefits of the ongoing investments being made across our institutional and private wealth distribution channels, but we have also had early successes in new product expansion efforts. We continue to see a comprehensive shift in how assets are being financed globally. Financing offered by the private market is being recognized by borrowers as a compelling solution that offers the ability to execute with certainty, at scale, and with terms tailored to the specific counterparty. This is a structural evolution for which Blue Owl is particularly well positioned given our leading franchises. Concurrently, investor focus has continued to shift toward credit and digital infrastructure, which are taking greater market share away from legacy categories. We're seeing this play out broadly across institutional, insurance, and private wealth channels and have already strategically positioned Blue Owl to be a beneficiary of these trends. We've skated to where the puck is going, and our investors are benefiting from that. Of course, in any period of meaningful structural change within markets, there's always a concern that some participants may act irresponsibly, resulting in negative outcomes. There have been some headlines over the past months detailing idiosyncratic credit issues, which have led to broader questions about the health of the corporate and asset-backed credit markets. Let me start by saying that Blue Owl has no exposure to Tricolor or First Brands, and we do not view the events that have unfolded for those companies as canaries in the coal mine for the health of the private credit markets. However, we believe these two situations remind us that vigilance is required in credit investing. As we have highlighted in previous earnings calls, the health of our credit portfolio remains excellent with an average annual realized loss of just 13 basis points and no signs of meaningful stress. In direct lending, the modest level of nonaccruals we've seen are not thematic in nature, and there's not been an uptick in our watch list levels. Similarly, in alternative credit, we're not seeing anything that would indicate weakness in consumer credit. In fact, you've heard numerous banks highlight the resilience of their consumer portfolios during recent earnings calls despite some of the financial press headlines. The reaction that we have seen in public equity markets has not been consistent with the strong fundamental performance we see in our portfolios. Our software loans have remained the best sector performer with our direct lending portfolio, and we are very pleased with the credit quality and ongoing health of the underlying borrowers there. Moving on to business performance. During the quarter, we saw over $14 billion of new capital commitments, bringing us to another record twelve-month capital raise of $57 billion, the equivalent of 24% of our assets under management a year ago. This capital raising does not yet reflect any contributions from our acquisitions, but we anticipate significant growth over the next couple of years. Notably, we have a growing base of AUM not yet paying fees, $28 billion as of the third quarter, which we expect to largely deploy over the next couple of years and drive over $360 million of management fees upon deployment. In direct lending, we're seeing an uptick in the pipeline for deployment and continue to find high-quality investment opportunities, generally underwriting to a high single-digit unlevered return. With the risk-free rate expected to end the year below 4% and leverage loan and high yield currently offering 6% to 7%, we believe our direct lending strategy continues to offer a meaningful spread premium and an attractive risk-return versus other asset classes. Gross origination in the third quarter was roughly $11 billion, and net deployment increased to $3 billion, bringing last twelve-month gross and net originations to $47 billion and $12 billion, respectively. In alternative credit, we continue to demonstrate scale benefits, deploying approximately $5 billion over the last twelve months, primarily focused on small business, equipment leasing, aviation, and consumer transactions. This is consistent with our broader asset-backed strategy of financing the Main Street economy. The team is making meaningful progress capitalizing on long-standing relationships to deliver for our insurance clients for whom we have originated several billion dollars this year with a robust forward pipeline. We continue to see the power of the integrated platform more broadly as the alternative credit team works closely with direct lending, real assets, and insurance to build focused efforts in areas such as equipment leasing. During the quarter, we announced a forward flow agreement with PayPal, their first partnership of this kind in the U.S. We thought it would be worth spending a moment on how we structure forward flow agreements to create downside protection for our investors and why they're so compelling. One of the most important elements is the dynamic nature of these agreements, meaning we monitor portfolio performance on a daily basis, and we can turn off the flow if the assets are not performing as expected. Our team is focused on partnering with best-in-class originators where we have a high degree of alignment, where originators are, at a minimum, owning risk side by side with us through their balance sheets and are often the first loss risk. Finally, these assets are typically shorter-lived self-amortizing assets with a duration of two years or less, meaning if there is weakness by vintage or originator, it runs off relatively quickly compared to other forms of credit. We underwrite to severely challenged economic conditions, and when we buy our land, our starting point is to assume that credit will get worse. To reiterate my earlier comments, we see no weakness of note. In real assets, we have continued to execute across a record pipeline of capital demand in the data center space specifically with over $50 billion of investment announced over the past two months across two transactions, including $30 billion of capital investment with Meta in Louisiana and over $20 billion of capital investment with Oracle in New Mexico. This is in addition to the previously announced development with Oracle in Abilene, Texas, where Blue Owl has anchored the financing of approximately $15 billion of project value through Phase 2. We are fortunate to be in a position to offer the scale of capital and deep sector expertise that make Blue Owl the preferred partner for the hyperscalers representing the forefront of cloud and AI innovation, as highlighted by our leadership role in all three of the largest financings in the space. Across our diversified Net Lease and digital infrastructure strategies, we have raised more than $15 billion in aggregate capital over the past two years, reflecting strong interest from investors for what we are offering. This only includes $1 billion of the $7 billion digital infrastructure fund we just finished raising. In diversified Net Lease alone, the $14 billion we have raised over that period compares to $26 billion of total AUM for that strategy two years ago. This includes the largest real estate fund raised in 2024, the top real estate products in private wealth on a net capital raise basis, and over $4 billion raised toward our next vintage and associated co-invest. During the third quarter, we announced a substantial strategic partnership with QIA, one of the largest sovereign wealth funds, with a shared goal of further scaling and expanding Blue Owl's digital infrastructure business. Extending our progress on this front, subsequent to quarter-end, we launched our digital infrastructure semi-liquid product ahead of schedule and anticipate a first close in December with significant investor interest already observed. We have built what we believe is an outstanding business in private wealth, where we have raised over $16 billion over the last twelve months, more than doubling our fundraising pace from two years ago. I believe the strength of our results is indicative of the durable partnerships we've built over time and a long track record of bringing innovative solutions to market. Today, we have an installed base of over 160,000 individual investors in Blue Owl products and are adding highly complementary new products in digital infrastructure and alternative credit to the lineup. We're very excited about the runway for these new initiatives and look forward to providing more detail in the coming quarters. In GP Stakes, we closed on two investments during the third quarter, bringing us over 35% invested on our target size for our latest flagship vintage. We also completed our largest strip sales to date, selling about 18% of the assets in Fund IV for proceeds of over $2.5 billion, delivering a 3.2x gross return on the assets sold across two transactions. As you've seen over the past year, we have been successful in delivering liquidity to the investors in these funds while introducing an innovative path for new investors to participate in the strategy. In total, our GP Stakes flagship funds have distributed more than $5.5 billion over the last 18 months in a market increasingly focused on DPI, or distributions to paid-in, situating our funds squarely within the top quartile on this important metric. Considering the strong results we reported for the third quarter and the ongoing momentum across Blue Owl, we continue to center around a few guiding principles that anchor our accomplishments to date and inform our path forward. First, performance remains key. If we do right by our investors, growth will follow, and our focus is always, first and foremost, on delivering exceptional return per unit of risk and protecting the downside. Second, duration of capital is highly important to achieve positive investment outcomes over time. We have an embedded base of permanent capital that supports the investors in our funds and creates meaningful visibility in earnings for the investors in our stock. Finally, we are hypervigilant to the notion of complacency. We always look to be skating to where the puck is going, not where it has been. This focus on innovation and being ahead of the curve has brought us to our current position at the intersection of many of the largest secular trends happening across alternatives, and we believe it will continue to serve our investors well going forward. With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter, marking our 18th consecutive quarter of management fee and FRE growth. Over the last twelve months, management fees increased by 29%, with 86% coming from permanent capital vehicles. FRE was up 19%, and DE was up 15%. We had another very strong quarter of fundraising, taking in over $11 billion of equity in the third quarter and nearly $40 billion over the last twelve months, an increase of over 60% from the prior year and another record for Blue Owl. Of that $40 billion, $23 billion or roughly 60% came from institutional clients, reflecting an increase of over 100% compared to the prior year period. In private wealth, we have gotten off to a great start with two new wealth-focused vehicles, with significant interest in our alternative credit interval funds and our new digital infrastructure fund. We continue to see a growing breadth of interest in our existing product lineup. We highlight the massive secular trends in play for these strategies on Slide 5 of our earnings presentation. To break down the third quarter fundraising numbers across our strategies and products, in credit, we raised $5.6 billion, a near-record quarter for our credit platform. $3 billion was raised in direct lending, of which $2.4 billion came from our nontraded BDC, OCIC, and OTIC. The remainder was primarily raised across our newly launched interval funds, other alternative credit funds, various diversified lending funds, and investment-grade credits. In Real Assets, we raised $3 billion, with $1 billion raised from ORENT, and another $1 billion raised with the 7th vintage of our flagship Net Lease strategy. The remainder was primarily raised in insurance-focused products and co-investor dollars. In GP Strategic Capital, we raised $2.7 billion, most of which was due to the strip sales that Marc referenced earlier. The latest vintage of our large-cap GP stake strategy is now up to $8 billion raised toward our $13 billion goal. From a forward-looking fund raise perspective, as we commented on last quarter's call, we expect the fourth quarter fundraise to come in at a similar level to the second and third quarters. Turning to our platform. In credit, our direct lending strategy gross returns were approximately 3% in the third quarter and 13% over the last twelve months. Weighted average LTVs remain in the high 30s across direct lending and in the low 30s specifically in our software lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits. As Marc mentioned earlier, credit quality remains very strong. In light of the most recent 25 basis point rate cut, we wanted to refresh the framework of how rate cuts impact Blue Owl and underscore the resiliency of our Part 1 fees. For every 100 basis points of rate cuts, the impact on Part 1 fees is approximately $60 million or a modest 2% of our third-quarter revenues annualized. Now, looking backwards, over the last twelve months, we have grown total direct lending management fees by 18% and Part 1 fees by 12% during a period that included 100 basis points of rate cuts and relatively modest sponsor M&A activity, reflecting the advantages of incumbency and scale in this business. Sitting here today, looking at the forward SOFR curve, which shows approximately 100 basis points of average rate decline in 2026 over 2025, and incorporating our current expectations around fundraising and deployment in direct lending, we anticipate continued growth in Part 1 fees in 2026. Turning to alternative credit now. Our strategy gross returns were approximately 4% in the third quarter and 16% over the last twelve months. The vast majority of portfolio returns in this strategy have historically been generated by contractual yield and principal recapture with relatively short duration compared to corporate credit. Over the past two quarters, we held one of the largest first closes for an interval fund at $850 million and have subsequently raised an additional $150 million to date, bringing us to over $1 billion raised for this new product, an incredibly strong start. We are now onboarding at a number of the major custodians, enabling a broader swath of platforms to distribute the product on a continuously offered basis, and we continue to add large distribution platforms for the pipeline for onboarding. We have deployed the majority of this initial fundraise already by upsizing existing partnerships and transactions as we had more demand for capital than we were able to fill previously. In Real Assets, you heard about the strength of our data center pipeline from Marc just now. Combining the demand for capital in this area with robust opportunities we see in logistics and manufacturing onshoring, we continue to expect that Net Lease Fund VI would have committed nearly all of its available capital for investment by year-end. Through September 30, we have deployed roughly 50% of this fund, with much of the remainder slated for deployment over the next 12 to 18 months as various build-to-suit projects reach completion. Our Net Lease pipeline continues to grow with over $50 billion of transaction volume under letter of intent for a contract to close. With regards to performance, gross returns in Net Lease were approximately 4% for the third quarter and 10% over the last twelve months. In GP Strategic Capital, we have now closed on four investments to date in the latest vintage of our GP stake strategy. Year-to-date, we have deployed more than $5 billion of equity in our large-cap strategy, slightly above the average annual deployment over the past few years. Performance in these funds remains strong, with a net IRR of 22% for Fund III, 34% for Fund IV and 13% for Fund V. A few items remaining here that I wanted to cover with everyone. First, during the quarter, we saw a fee step down on a portion of the AUM in Net Lease Fund VI that paid fees on committed capital. This resulted in very modest management fee growth in our Real Assets platform for the third quarter. As we look ahead, we anticipate a meaningful acceleration in management fee growth for real assets given our robust fundraising momentum and the strong pipeline we just discussed, with the anticipated mid-single-digit growth for the fourth quarter, quarter-over-quarter, which annualizes to about 20% growth, and further acceleration expected into 2026. As a reminder, we have committed 90% of Fund VI to be invested but have only deployed roughly 50% of capital from that fund, providing visibility into management fee growth as those projects reach completion. Second, in GP stakes, there was a fee step down for Fund II that is occurring at the end of October and will result in an annual management fee impact of about $22 million. Finally, when we look at our most important key metrics like FRE growth and FRE per share growth, or DE growth and DE per share growth, due to the timing of when shares are issued for each of our acquisitions, shares are issued at close; there can be a natural, very short-term divergence between something like FRE growth and FRE per share growth. To see the best indicator of our current EPS growth rate, we can look at our quarter-over-quarter growth for, say, 1Q to 2Q '25 or 2Q to 3Q '25. Since we closed our last acquisition at the beginning of January, these are clean quarters, meaning each quarter has full share count and full P&L from all acquisitions. What you see in quarter-over-quarter growth for these recent quarters is a meaningful closing of the gap between FRE and FRE per share as well as an acceleration in FRE per share growth. To wrap up, I think you've seen from our business performance that nothing has changed fundamentally across Blue Owl despite the acute reaction we've seen in all stocks over the past month or so. One of the benefits of our model is that we have very high visibility into future earnings given the recurring nature of our revenues, reflecting our very durable business model. Portfolio quality has remained strong across the board, fundraising has been robust, and we continue to lean into our incumbency and scale to drive positive outcomes for our shareholders and investors. Thank you very much for joining us this morning. Operator, can we please open the line for questions.

Your first question comes from Glenn Schorr of Evercore ISI.

I would like to summarize your previous comments regarding the acceleration. I am fine with some dilution if it allows Blue Owl to enter key growth markets, as this might counterbalance any pressures from lower rates and the maturation of legacy businesses. My question revolves around assessing the scale and timing of growth investments, specifically when they will stop diluting and begin to enhance FRE growth, FRE per share growth, and margins. Looking ahead to 2026 and 2027, are we on track for 20-plus percent FRE growth and matching FRE per share growth? Additionally, do you expect margin stabilization and improvement from this point? I’m seeking a summary because that seems to be the focus here.

Yes. Thanks, Glenn. I appreciate the question. The answer is yes, across the board. We expect over time to continue to have margin expansion from where we are today as we get into '26, '27, and certainly our 2029 goals. We expect to see meaningful acceleration of metrics like FRE per share and DE per share as we look '25 to '26, and again, as we look '26 to '27, each of those years builds on each other. We are from everything we see sitting here right on track, with what we call our North Star, our Investor Day goals of 20-plus percent growth for management fees for revenues for 20% growth on metrics like FRE per share.

I want to follow up on what Alan mentioned. First, I understand why people have questions about acquisitions, especially given the mixed history in this industry. However, I want to express that we've executed these acquisitions exceptionally well. Consider our position and the strategy we've adopted for future opportunities, both for our investors and shareholders. Our strong presence in digital infrastructure is a significant advantage. We already have a very successful interval fund in asset-backed, which continues to expand. These capabilities are seamlessly integrated. Look at the Meta transaction; it involved around 100 people across the firm, a feat that wouldn’t have been possible without our organically developed and enhanced capabilities. Regarding the financials, I recognize there's a mathematical angle—issuing shares can affect per-share earnings, and those won't be evident until a year later. However, if you analyze our quarterly results and annualize them, you can already see the positive trends we’re discussing. We’re not just speculating; the numbers demonstrate the acceleration back to the expected levels. As of now, those acquisitions have been completed successfully, and they play a crucial role in our achievements.

I'd like to add one more point. When evaluating early indicators of success, it usually takes years to fully develop products and strategies to achieve a substantial level of assets under management. Initial measures of success can often take between 9 to 12 months to implement a brand-new product or strategy in the business. For example, with our acquisitions, the interval fund reached the market in under 12 months. Our digital infrastructure, a wealth-dedicated product we've frequently discussed, is expected to have its first close in less than 12 months following the acquisition. So, as people consider how much we’re going to raise and what the future holds, it’s important to recognize that this process takes time. However, if you assess those early indicators of success, you'll see that we're on the right track. I completely agree with Marc; we are performing exceptionally well and there’s positive momentum from all these acquisitions.

The next question comes from Patrick Davitt with Autonomous Research.

I have a question on retail flows. I guess, through the lens of the volatility in August. It looks like October 1 subscriptions were still quite strong. Do you have any early view on how the credit volatility we've seen in the news flow has or has not impacted the numbers we're going to see for November 1.

Thanks, Patrick. I appreciate your question. Focusing on our credit activities, I want to take a broader perspective. We are experiencing very strong flows, following a record quarter for our wealth-dedicated products in Q3. This month, we have maintained that momentum and expect to build on last month's performance with products like OCIC. Additionally, we had a record month with ORENT, surpassing $300 million. We are on target to achieve one of our many goals of reaching a $1 billion quarterly run rate for ORENT by the end of this year. We are very encouraged by these developments and see significant resilience in our channel.

ORENT and OCIC are accelerating this month. I need to add this to the list of imaginary concerns people have. It raises the question of whether individual investors are more volatile or fickle. However, the evidence suggests otherwise. In fact, it appears that institutions can sometimes behave in a herd-like manner, reacting to rigid barriers or external opinions. The data indicates that individual investors understand these strategies are performing exceptionally well, possibly even better than what the media and some institutions suggest, although we are also achieving good results with institutions.

The next question comes from Brian McKenna with Citizens.

If I look at all of your public companies that include OWL, OBDC, OTF, all three continue to deliver pretty strong results across the board. You look at the underlying fundamentals, they remain some of the best in the industry. And even for your public BDCs, they are really the best in the industry. And then you look at direct lending, gross returns that you reported today, it should be another strong quarter for your BDC. So your fundamentals remain really strong, but you look at all the stocks and they're trading at a pretty meaningful discount to peers. So what do you think is still misunderstood about your businesses within the market today? And what are you doing as a management team to change these perceptions and ultimately get these stock prices higher? And then does there come a point when insiders start to step in and they ultimately start buying some of these stocks.

It's difficult for us to provide a complete answer to what investors might not understand. You've spoken with many investors, and we can share some insights. We are focused on two main strategies that we believe will address this issue. First, we are executing consistently. Our business is performing well, and we are committed to maintaining that momentum. We recognize that the current digital infrastructure investment cycle presents a significant opportunity for investors and for Blue Owl. Our goal is to continue delivering strong results for our investors, and we are operating in a space where we actually have a need for more capital. Therefore, execution is crucial for us, as is communication. Our senior team is always available, and we enjoy engaging with shareholders, answering any questions they may have. We are also making an effort to address inquiries in the media to improve communication. We believe our value proposition is strong, and rather than focus on complaints—which can be a natural inclination—we will keep delivering impressive results. When we compare our current status with where we were at our Investor Day, we are in alignment. Look at the RDE this year in relation to expectations from a year ago and how that compares to our peers' adjustments. We belong to a distinct category due to our reliable fee stream. We're open to suggestions on improving our methods or understanding the market better, but history shows that those who join us now are likely to benefit significantly from future growth, which we believe will be considerable.

The next question comes from Craig Siegenthaler with Bank of America.

My question is on the digital infra business. We've seen these large deals recently, like the $27 billion deal to develop the Hyperion data center. And I'm sorry, I'm losing my voice a little bit here, but I believe the underlying leases have maturities of about 15 to 20 years. So my question is, under what scenarios can Meta terminate or walk away from the lease earlier than 15 years? And if they do that, what compensation would they owe Blue Owl's funds? And how would that impact the IRR for Blue Owl LPs on that investment?

The leases are intended to last for over 20 years. To clarify, they are designed thoughtfully to offer flexibility for Meta. Recently, we discussed how Meta is increasing its spending rapidly. This flexibility is commendable and is more about adapting to their needs than anything else. In the event of an early termination, there is a mathematical guarantee that ensures we recover our investment and achieve significant equity returns regardless of the situation. We anticipate that this will be a long-term project lasting over 20 years, but if Meta chooses to terminate at any point with the options available, the asset value remains assured. Thus, we are positioned to earn a great return under any circumstances, and we are confident about our long-term success.

The next question comes from Bill Katz with TD Cowen.

I wish it was a day we could ask more than one. Maybe sticking with the digital story. I was wondering if you could help us understand how quickly you might be able to absorb the most recent flagship fundraising given the size of the pipeline? And then secondarily, despite the strong macro dynamics, the fund performance has been pretty weak two quarters in a row. I was wondering if you could help us unpack why that's the case? And would that be a hindrance to drive growth from here?

Yes. Let's first clarify the accounting, which may have led to some confusion regarding the return points. Alan, could you address that first, and then I will discuss the fund.

Sure. Thanks, Bill. This quarter, we saw some mark-to-market on swaps that we have around debt that's in place. So when we look at this, we see these are very long-term projects. The underlying performance of the data centers is very strong. On average, across our digital infrastructure funds, Fund I, II, and III, we have IRRs in the high teens. So we're experiencing great IRRs for our investors. This is short-term noise.

Yes, just to clarify, these are long-term leases with significant rent escalators that have a strong impact over time. We often swap debt related to these leases, securing our returns, which are exceptional. However, for accounting reasons, the swap is marked differently, which does not affect its role in generating a fixed income stream. Regarding the fund, we are already significantly committed through Fund III and plan to launch Fund IV in 2026. Currently, the demand for capital we have, given our partnerships and capabilities, greatly exceeds our available capital. This presents a valuable opportunity for our limited partners and potential strategic partners, such as QIA, which has made a $1 billion commitment to support our continuously offered product. We look forward to expanding this partnership, as they recognize the scale and quality of the opportunities we offer. We are seeing strong fund flows and adoption rates in our continuously offered products, but we still need to gather more capital to seize what we believe are once-in-a-generation opportunities.

Considering the momentum we have, if we look at Fund III, which closed at the end of April, we anticipate being out of our first close for Fund IV within the next 12 to 18 months. This will not only involve marketing but achieving our first close. The digital infrastructure wealth product I mentioned earlier was initially set for launch in early 2026, but we are progressing ahead of that timeline. We have significant momentum, as two of our largest distribution partners are now operational within the system. We are aiming for our first close on December 1 and are very encouraged by the early indicators we are observing in those channels.

The next question comes from Benjamin Budish with Barclays.

I wanted to ask about operating leverage in the business. You mentioned earlier in the Q&A that you expect FRE acceleration in the next few years. Looking at this quarter, there was a significant increase in credit management fees, likely due to the listing of OTF, but margins remain in the low 57% range. This presumably was reflected in your prior full-year guidance. Can you clarify why there wasn't more in this quarter? As we consider the next several years, there’s clearly a lot happening on the fundraising side, but how else are you planning to expand FRE margins and what might that look like?

There's a reason that we grow faster and more predictably than anyone in our industry. There’s a reason we get to strategic places like digital infrastructure and alternative credit. I want to say that other people are doing phenomenal jobs; they are. But there's a reason, when you step back and put the numbers on a piece of paper, we are kind of in a category of our own. And it's because we invest in continuing that track forward. We will continue to be a highly profitable business. You continue to see our margin this quarter at 57% plus. Sure, there's some operating leverage in the business over the medium term. From our point of view, that is not where you make money in our business. I would say, if you gave up investing in the thing that's going to be the continuation of accelerated growth two years from now, it'd be a really terrible trade. Yes, there's operating leverage, but you should expect we want to put that in the business so we continue to outperform dramatically in North Star: $5 billion of revenue, $3 billion of FRE. That’s where we’re going.

The next question comes from Crispin Love with Piper Sandler.

I want to go back to digital infrastructure, definitely had some meaningful announcements recently: the Qatar Investment Authority partnership, the Meta JV. When you think of upcoming data center opportunities, what type of pipeline are you looking at? Are you able to put a dollar value on that? And then as well as just expected structures for these types of investments, could structures evolve? And then just on the Meta JV, why do you think the JV structure made the most sense for that one?

It's a wonderful question about the structures because if you look at the three largest data center complexes financings done, all three are ours. Each one is a different structure. It's important to understand that the pipeline is vast; I can't even quite know how to quantify it because it's so vast in terms of the number of projects we've already signed or that are advanced on or that we're talking about. In excess of $100 billion for sure in terms of how we look at our pipeline, and for practical purposes, it’s kind of infinite. If you think about the size of each one, it's just massive. We just see that there's a dramatic acceleration in capital spending beyond what big numbers people were thinking. There's almost an underspending in the opportunity not over. The point being, we do things under long-dated contracts with exceptionally high-quality companies where we earn really strong yields. The beauty of what we do at Blue Owl is that we can serve as that one-stop shop depending on what kind of solution you want. If you look at the Abilene, Texas or Stargate project, for instance, that project is being developed in partnership with a company called Crusoe, who is a pioneer in this business, and they have big projects they're working on. We're working together on how we look there in the development business, and we're in the owned capital business. In that case, they're the developer, and we're the owner. Then in our case of the BorderPlex project, that’s a $22 billion project. In BorderPlex, we are the developer; we have about 1,000 people on that team, and it's about getting it done to create unique valuations. And then the third iteration is Meta, who is very good at developing their own data centers. They needed a partner to deliver $27 billion of capital. So we're positioned to do all three and we’re happy to do all three.

The next question comes from Brennan Hawken with BMO.

I wanted to ask for clarification and then a more forward-looking question. Alan, in your prepared remarks, you mentioned the GP Stakes business and then discussed fundraising expectations. I was a bit unclear whether those fundraising expectations apply to the entire firm or specifically to the GP Stakes business, where you anticipate that Q4 will be on par with Q2 and Q3 levels. I just want to confirm that. Additionally, you mentioned expectations for management fee acceleration in the real asset business. Does this imply that the fee rate decrease we observed this quarter is expected to recover? Or can we expect strong revenue growth despite the lower fee rate?

Thanks, Brennan. Good question. I appreciate you asking. I'm sorry, I have an opportunity to clarify. On the first question, 4Q similar to 3Q and 2Q, it was a comment in my prepared remarks, strictly related to the sixth vintage of GP Stakes. So that's what I was focused on, narrowly, not broadly for Blue Owl. And on the real asset side, yes, the answer is yes. The fee rate looks lower this quarter. It's a little bit of mix shift. It's a little bit of a Fund VI fee step down, but the fees for Fund VII haven't really fully kicked in. We've called a little bit of capital, but not that much. And so that's the dynamic you're seeing. We've raised money for ORENT. Fees are coming down a little here because of the Fund VI step down. So it's a very modest growth. You're going to see an acceleration of growth and continued fee expansion for real assets.

The next question comes from Steven Chubak with Wolfe Research.

Marc, can you provide some really helpful detail on the forward flow agreements and your approach to underwriting and structuring these deals? Certainly, a growing area of focus among investors. I was hoping to delve a little bit deeper. There's like four subcomponents, I was hoping to unpack. First, if you could talk about the quality of the underlying credits. Second, the amount of subordination you build into these structures. Third is the volume it's expected to produce in a typical quarter. And then the appetite to afford similar agreements. So I know that was quite a bit, but credit quality, subordination, volume, and appetite for more partnerships.

Sure. Let us tackle all, and they're all good questions, and they're all highly salient. These flow partnerships are something we very much like because we look for the people that are best at what they do and work with them. We're talking about prime credit quality; that is why you'll see partnerships with people like PayPal or SoFi, who have strong prime flows in what they take in. So the quality is very high; we don't play in the edges. Now the amount of subordination? I can't give you a numeric answer because that depends on the exact credit quality, how much, what controls there are, but we're not just buying a package and saying, good luck with that. They're keeping a subordinate piece. In these partnerships, we have a great deal of data feeding that connects us daily with these partners. We can then monitor their performance and have tremendous day-to-day checks to prevent deterioration. The volume is, generally speaking, much more about how much we can take on versus how much we put to work in a given moment. Obviously, we can deploy over a couple of years, and we can turn them off if not performing well. And we absolutely will continue to see similar partnerships form. We want the best originators in the world and leverage their capabilities.

The next question comes from Alex Blostein with Goldman Sachs.

Another one for you guys related to credit, and while the three instances that occurred a few weeks ago seemed to be related to fraud, it sounds like there's another one this morning with HPS, kind of those headlines coming out in the last hour or so here. But as you look at the credit exposures broadly across your platform, acknowledging that those four are not really related to you guys, how are you addressing potential fraud risks across the platform? Is there anything differently that you're starting to look at, or is there extra diligence you're starting to deploy throughout the portfolios? And ultimately, will that require any incremental spend if these instances start to kind of percolate throughout the industry?

Let's just start with the ecosystem in total. The credit ecosystem is extremely well capitalized. It's trillions of dollars, and in this case, with a handful of problems rooted in fraud, garnering extraordinary attention. Banks like Wells Fargo and JPMorgan do a phenomenal job. We see it in our books and performance remains strong. We’ve originated over $150 billion of credit over the last decade, and we’re still running at 13 basis-point loss rates. But the key is, it's about recovery. We’re not seeing anything to suggest a shift in overall credit quality; we continue to have those conversations, and that doesn't suggest weakness. If you look at our portfolio, it's performing well, and we are continuously vigilant with our origination metrics and partners. We're observing strong due diligence in place to address these issues.

The next question comes from Chris Kotowski with Oppenheimer.

I'm considering the data center financing space and trying to understand how the recent financing reports relate to your assets under management and fee-paying assets under management, including the timing and amounts involved. For example, regarding Hyperion, the reports suggest you invested approximately $2.5 billion in equity, with $27 billion in debt, and lease terms extending to 2049. This leads to a three-part question: First, I assume your assets under management primarily consist of the $2.5 billion, not the $27 billion; is that correct? Second, I assume the $2.5 billion mainly comes from Net Lease VI and Infra III, and therefore would already be part of your fee-paying assets under management, which might explain your quick return to the market. Lastly, will this amount remain as fee-paying assets under management until 2049, or are there expected reductions before that time?

Yes. Our investment in Meta's equity is roughly $3 billion. That is deployed by us over time into multiple strategies, which include our Net Lease product and digital infrastructure. While $3 billion is a gigantic number, it's relevant because of the homes we have for that capital. The flow of capital could explain our timing for fundraising. Yes, that asset could just stay there forever; no, specific step-downs typically happen.

The next question comes from Brian Bedell with Deutsche Bank.

Continuing on that topic, I'd like to connect it to some earlier comments you made, Marc, regarding the supply of capital for digital infrastructure compared to the extensive deployment opportunities that exist over the long term. How are you approaching the strategy for fundraising to align with these future deployment needs? I understand you have IPI coming up and real estate still available in the market. Considering the timeline over the next 1 to 3 years, how do you view the ongoing demand? What strategies are you considering, such as launching new funds or leveraging retail markets to raise more funds for these projects?

Look, we have great homes for a lot of capital. We have four entry points for investors that allow them to participate in this digital transformation depending on the assets and structure they want to invest in. We will see our target for Real Estate VII, remember, at $7.5 billion, and that target has approximately tripled from two funds ago. Digital infra already was a significant step-up Fund III from Fund II. We haven't set a target for Fund IV yet, but we have opportunities. We have the continuously offered semi-liquid edging point, and we have a great deal of interest in these products.

I would only add to that that it's not just the supply that's driving the demand; it's the amazing risk-adjusted returns we're seeing when we make these investments that are driving the investor today. This is a generational opportunity that we're seeing, and that's a big part of what's driving the demand on the investor side.

The next question comes from Wilma Burdis with Raymond James. This will conclude the Q&A session. I'll turn the call to Marc Lipschultz for closing remarks.

Great. Thank you very much. Look, I think we covered a lot of ground, and we are trying to figure out the right way to balance the bigger picture with the results. It was a great quarter, and we’re really happy with the performance of the products, which leads importantly to great performance at the Blue Owl level, tracking right on with durability and predictability. We’re feeling very good that we skated to where the puck has gone, and we will continue to do that. We're always vigilant. We understand people are concerned, but sitting here today, we love our position and are positive about the future for both Blue Owl and our products. We appreciate your time, and we'll keep executing and communicating.

This concludes today's conference call. Thank you for joining. You may now disconnect.