Earnings Call
Blue Owl Capital Inc. (OWL)
Earnings Call Transcript - OWL Q1 2022
Operator, Operator
Good morning. My name is Joseph, and I will be your conference operator today. I would like to welcome everyone to the Blue Owl First Quarter 2022 Earnings Call. Welcome to Blue Owl Capital’s First Quarter Conference Call.
Ann Dai, Director of Investor Relations
Thanks, operator. And good morning, everyone. Joining me today are Douglas Ostrover, our Chief Executive Officer; Marc Lipschultz and Michael Rees, our Co-President; 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’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 Investor Resources section of our website at blueowl.com. This morning we issued our financial results for the first quarter of 2022 and reported fee related earnings or FEE of $0.12 per share, and distributable earnings or DE of $0.11 per share. We also declared a dividend of $0.10 per share payable on May 27 to shareholders of record as of May 20. 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 Doug.
Douglas Ostrover, CEO
Thank you, Ann. And good morning, everyone. As you see captured on Slide 9 of our earnings presentation, we reported another quarter of strong results for Blue Owl with AUM up 76%, private wealth fundraising up 172%, management fees up 51%, and FRE up 56% on a year-over-year basis. Pro forma for the Wellfleet acquisition, which closed on April 1, AUM would have been approximately $109 billion. Originations for the quarter more than doubled versus a year ago, and private wealth fundraising reached $2.2 billion. With permanent capital driving 95% of our management fees and an earning stream consisting of stable and growing fee-related earnings, Blue Owl’s financial profile stood in stark contrast to a volatile public equity and debt market backdrop during the first quarter. Our strategies, focused on income generation and downside protection, continued to perform well. Investment pipelines across the platform have been robust, and fundraising for the quarter was strong. More importantly, as we look ahead, there are some meaningful fundraising initiatives starting to bear fruit, which I will highlight in more detail in a few minutes. First, let me start with some commentary on the broader market environment, which has been top of mind for shareholders. Over the past quarter, we have witnessed volatility and dispersion in the public markets resulting from high and persistent inflation, a shifting interest rate environment, geopolitical events, and the ongoing impact from COVID globally. These factors unsurprisingly created some near-term headwinds to industry-wide M&A and capital markets activity as investors paused to react to updated information, market expectations, and a changing investment landscape. Given our scale and patient permanent capital, Blue Owl has been a beneficiary of this market volatility as an increasing number of sponsors and private companies have looked to direct lending for flexible and dependable financing. We are having dialogues on larger deals than we’ve ever seen. And in particular, this has been a very robust environment for our tech lending strategy. The increasing number of public to private transactions have driven incremental market share towards direct lenders who can offer certainty of execution through what can be a lengthy process. For our GP Solutions business, the pipeline for investment has only strengthened as alternative asset managers evaluate the options they have for liquidity and growth capital in today’s market. The opportunity for alternative asset managers to put dry powder to work has improved, pulling forward deployment activity and setting firms up for the next round of fundraising. In real estate, rising corporate borrowing costs should drive incremental demand for our net lease solutions. In aggregate, we’re seeing positive impacts to the investment landscape across Blue Owl as a result of the current market environment. With regards to the rising interest rate environment, as we discussed last quarter, we anticipate a net positive impact across the platform. We expect direct lending to be a beneficiary of rising rates as investor demand increases for senior secured floating rate assets focused on downside protection. Over time, effective rising rates would be positive for the net interest income of our loan portfolios, which Alan will touch on shortly. 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 our real estate business, 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. Moving on to our first quarter results. We continue to demonstrate steady robust growth, hallmarks of the Blue Owl business model as a result of our permanent capital and FRE-centric earnings. Since we don’t have the volatility of carried interest running through our revenue, we just continue to add to the layer cake of earnings through new capital raised and deployed. Fundraising for the quarter was well diversified, with nearly $4 billion of equity capital raised primarily from our diversified lending, technology lending, and GP minority stake strategies, bringing our last 12-month equity capital raise to $11.3 billion. For the second quarter to date, we’re off to a great start, raising $2.8 billion across the platform. In direct lending, we have raised an additional $2.2 billion subsequent to quarter-end across institutional and wealth channels. As we have spoken about in prior quarters, we anticipate that tech lending will be one of the fastest-growing parts of our business over the next few years as our strong performance and exceptional credit quality in that strategy resonates with a wide spectrum of investors. As it relates to our growing private wealth distribution, which we’ve also spoken about frequently as an important focus for Blue Owl, we continue to make very good progress in expanding our platform across products and geographies. $2.2 billion of the capital we raised in the first quarter, or over half of the total, was driven by private wealth. This is over 4 times the amount we raised through wealth in the second quarter of 2021, less than a year ago. We are generating over 9% annualized organic growth just from our current private wealth flows, which are permanent capital and which we think we can grow meaningfully over time. This doesn’t take into account any institutional fundraising, new products that we plan to introduce to the market, or continued expansion of our wealth distribution platform globally. As of May 2, we raised a further $2.1 billion from private wealth across direct lending, GP Solutions, and real estate in the second quarter. As you’ve heard from us before, and will continue to hear going forward, we are very excited about the opportunity ahead in private wealth and look forward to sharing more developments at Investor Day on May 20. Looking forward, as I think about the key elements of our growth over the next few years, I truly believe that each of our businesses has significant growth ahead. We see meaningful runway to raise capital across institutional and wealth channels as investors look for income, inflation-hedge solutions, and downside protection in an uncertain market environment. Each of our businesses has generated scale and offers real competitive advantages that translate into differentiated investment performance, and the returns have resonated with our investors. Today, we have multiple products raising capital on various platforms globally in private wealth. Dyal V fundraising continues, and we are well on our way to fully deploying that fund and being back in the market for Fund VI. We also have, and will have, a number of funds raising capital from institutional investors across direct lending and real estate over the course of the year. Later this month at our Investor Day, we plan to lay out some key growth goals and get into greater detail on the investment and fundraising landscape that we see for each of our businesses. We hope to see all of you there in person or on the webcast and look forward to spending some time highlighting our strategic vision and the substantial growth we see ahead. With that, I’d like to turn the call over to Mark, to give you an update on our direct lending and real estate businesses. Mark?
Marc Lipschultz, Co-President
Thanks, Doug. As you can see on Slide 16, we continue to expand our direct lending business with gross originations of $4.9 billion, more than double what we originated in the first quarter of 2021. Industry-wide the first quarter was a seasonally lighter quarter for M&A and was also affected by market volatility. As Doug alluded to in his remarks, we continue to expand our market share, driven by the predictability, privacy and partnership that we offer to borrowers. We’re also seeing larger deals come to the direct lending space, which we are very well-positioned to address given the scale of Blue Owl’s platform and capital base. For context, last year we evaluated over 40 investments with facility sizes in excess of $1 billion and signed or closed on roughly half of them. Just in the first quarter of 2022 we sourced over 20 investments with facility sizes in excess of $1 billion and committed to roughly half of them. Of those greater than 20 opportunities, 5 had facility sizes in excess of $2.5 billion. We expect some of these to close during the second quarter. For the last 12 months, gross originations in direct lending have been $26.4 billion or 3 times what we originated in the prior 12-month period. We continue to see an extremely active pipeline setting ourselves up for a robust quarter in Q2. Performance remains strong, with growth and net appreciation of the direct lending products of approximately 1% and 0.2% for the first quarter respectively, and 14.1% and 9.7% respectively for the last 12 months. We’ve continued to focus on downside protection, with a weighted average loan-to-value in the low 40s across direct lending portfolios. Credit quality remains very robust, with annualized net realized losses of approximately 5 basis points since inception. We raised $1.9 billion in direct lending strategies during the first quarter, of which retail constituted $1.4 billion, primarily for our Core Income Fund, one of our diversified lending BDCs. Also contributing to the fundraising during the first quarter were closes in tech lending. As of May 2, we raised a further $2.2 billion across direct lending in the second quarter so far. Also on April 1, we announced the closing of our Wellfleet acquisition, which will add almost $7 billion of AUM to our second quarter numbers. Our direct lending business continues to broaden in size and scope, and we remain optimistic about the growth opportunities we see ahead, supported by robust demand from both retail and institutional investors. Now moving on to our real estate business. We continue to have a robust opportunity set with roughly $2 billion of transaction volume under letter of intent or contract to close and a near-term pipeline of more than $20 billion of potential volume. As of today, we’ve invested over half of the equity in our fifth closed-end fund, bringing us closer to launching our real estate fund 6. As Doug mentioned in his remarks, our real estate strategy should benefit from investor demand for inflation-protected cash flows backed by investment-grade and credit-worthy tenants. Our investment opportunity set continues to improve as corporate borrowing costs increase. Contractual rent escalations are structured into all of our triple net leases. 100% of all operating expenses, including cost increases, are borne by the tenant, which further limits the strategies from any adverse effects of inflation. Since inception, we have never had a tenant miss a rent payment, go bankrupt, or default on a lease. We’ve generated a net IRR of 26% on average across our fully realized closed-end funds, and gross and net appreciation across our real estate portfolio of 5.7% and 5% respectively for the first quarter and 36% and 32.1% respectively for the last 12 months. These are remarkable risk-adjusted returns for the underlying credit profile of these portfolios. As we look ahead, we expect to launch our sixth real estate closed-end fund in the latter half of the year and continue to accept capital into our open-end fund net lease property fund. We’re also in the process of working on new products that we will look to discuss in greater detail at Investor Day. With that, let me turn it to Michael to discuss GP Solutions.
Michael Rees, Co-President
Thank you, Marc. Our GP Capital Solutions business has continued to benefit from the secular tailwinds across the alternative asset manager space as more firms enter our investible opportunity set and as these managers' needs for capital continue to expand. Across our partner managers, we continue to see robust fundraising and deployment, particularly as the market sell-off created new and interesting investment opportunities. As of today, we have invested, committed, or have an agreement in principle to commit approximately two-thirds of what we expect to raise for Dyal Fund 5. The pipeline remains strong. Performance remains similarly strong with a gross and net IRR of 32% and 24% respectively for Fund III and 127% and 81% respectively for Fund IV. In addition to the $1 billion raised for Fund V during the first quarter, we have closed on a subsequent $400 million of capital in April, bringing us to $7.2 billion raised for the fund. We remain confident in our prior capital raising expectations for this strategy. Further, we look forward to launching a follow-on vehicle sometime in 2023, as we become more fully committed in this current fund. As we look ahead, we’re very optimistic about what the next year holds for the GP Capital Solutions business, given the constructive trends for growth and the demand we’re experiencing for our strategies. Market volatility and shifts to the status quo will continue to create interesting fundraising and investment opportunities, and we will benefit from that environment as the premier capital solution provider to these managers. With that, I will turn things over to Alan to discuss our financial results.
Alan Kirshenbaum, CFO
Thank you, Michael. Good morning, everyone. I’m going to start off by walking through the numbers for this quarter, and then I’ll touch on a few other items I want to cover today. I’ll be making references to pages in our earnings presentation as Ann mentioned. So please feel free to have that available to follow along. Okay, let’s start off by covering our quarterly results. We closed our acquisition of Wellfleet on April 1, so you won’t see those numbers in our results until the second quarter. Our first quarter was another quarter of strong growth for our business. Management fees are up $41.1 million, or 19% from last quarter, and up over 50% from the first quarter a year ago when you adjust out catch-up fees for Dyal Fund V. Broken down by divisions, direct lending management fees are up $12.8 million, or 11% from last quarter, and up 41% from the first quarter a year ago. GP Capital Solutions’ management fees are up $11.1 million, or 12% from last quarter and up 42% from the first quarter a year ago, again when you adjust out catch-up fees and Dyal Fund V. Real estate management fees, which began contributing to our results on January 1 of this year, were $17.2 million. FRE is up 4% from last quarter, and up 56% from the first quarter a year ago. FRE margins are up a little from last quarter as well. Our ratio of compensation as a percentage of revenue came down a little this quarter to 27.5%. I expect for 2022 we will be in the lower half of the range that we’ve previously guided to, which was 25% to 30%. We announced a dividend of $0.10 per share for the first quarter. All of this is in line with our expectations in what I noted on our earnings call last quarter. We have started off the year in making good progress towards reaching $1.3 billion of revenues for 2022, which would be a 45% growth rate year-over-year and an FRE margin of 60-plus percent for 2022. As it relates to our AUM metrics, on Slide 13, we reported AUM of $102 billion, repaying AUM of $65.6 billion and total permanent capital of $85.6 billion. AUM not yet paying fees was $7.7 billion as of March 31. As Doug mentioned, inclusive of the Wellfleet acquisition, our AUM would be approximately $109 billion. AUM grew $7.5 billion to $102 billion, an 8% increase from last quarter and a 76% increase from the first quarter a year ago, driven primarily by deployment of capital and debt raised in direct lending, the addition of our real estate division and capital raising across the firm. Fee-paying AUM grew $4.1 billion to $65.6 billion, a 7% increase from last quarter, and a 64% increase from the first quarter a year ago, driven primarily by deployment in direct lending, the addition of our real estate division and capital raising across the firm. Permanent capital grew $6.8 billion to $85.6 billion, a 9% increase from last quarter and a 61% increase from the first quarter a year ago, driven primarily by deployment in direct lending, the addition of our real estate division and capital raising across the firm. AUM not yet paying fees was $7.7 billion, including $5.4 billion in direct lending, $0.7 billion in GP Capital Solutions, and $1.6 billion in real estate. This AUM corresponds to an expected increase in annual management fees totaling approximately $105 million, primarily upon deployment for direct lending and real estate. If our tech BDC were to go public, we expect that could be another incremental $65 million of annual management fees due to the fee step-ups. With the launch of our new tech lending BDC, ORTF II, and combined with ORCC III, upon the listing of all 3 of these BDCs, we expect that could be a total incremental $185 million of annual management fees. I plan to get into this more on Investor Day, so please stay tuned for that. As Marc highlighted earlier, we had another strong quarter of deployment in direct lending with gross originations of $4.9 billion and net funded deployment of $3.4 billion. This brings our gross originations for the last 12 months to $26.4 billion with $14.7 billion of net funded deployment. So as it relates to the $5.4 billion of AUM not yet paying fees in direct lending, it would take us less than 2 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 23, we currently have almost $1 billion of liquidity with a very long-dated capital structure. On another note, as Marc touched on, we have raised a significant amount of equity in our direct lending business year-to-date, in particular since quarter end. There are 2 items here I wanted to flag for everyone on this point. The first item, as we continue to fund raise, there will be varying levels of distribution replacement costs associated with different raises for our various BDCs. To provide more clarity here, using the example of raising $1 billion and assuming we pay out $25 million to $30 million in one-time upfront distribution replacement fee expenses on certain equity dollars raised, this will generate over time approximately $50 million of management fees, including Part I fees per year, for permitted capital. Just making the point here that for our second quarter of 2022, based on what we’re seeing so far, we expect to show a potentially large nonrecurring expense in our G&A line related to these fundraises and a much smaller amount of incremental management fees for that quarter due to this timing mismatch. I’ll be sure to call this out in my prepared remarks when and as this happens, so it’s visible and transparent to everyone. The second item, more specifically, as it relates to our ORTIC product, just a reminder that we have a fee waiver in place for this product through October 31 of this year, so we’re not earning management fees on this product for almost all of this year. Full fees start up on November 1. Both of these items were part of the 2022 outlook that I discussed on our last earnings call in February. To wrap up here, before getting to Q&A, there are a few last items I want to cover. First, at our Investor Day coming up on May 20, we’ll be talking about a number of different ways in which we believe we can drive shareholder value. One of the areas we identified was the potential to be included in the Russell indices. On April 11 we announced the change to the voting power of our Class A shares, which represents our public float. When we initially looked into this, we believed we had satisfied all of the other required criteria to be included in the Russell indices with this one exception. We did this to open the potential to be included in the newly reconstituted Russell indices at the end of next month. Next, our stock buyback program. During the first quarter, Blue Owl bought back 2 million shares of stock at an average cost of $12.09 per share. Pulling the lens back a little on this topic, starting this year we generally expect to buy back stock that we issue in connection with stock compensation. We’re not trying to get this exactly right on a quarterly basis or even annually, but over the course of time we expect to buy back shares to offset dilution from stock compensation. Finally, Doug touched on inflation and rising rates in his remarks, so I wanted to hit this with everyone. Our business is very well positioned for a rising rate environment. If you look at Slide 17 of our earnings presentation, you will see that our 1Q annualized FRE revenue could increase by 2- to 4-plus percent if rates increase by 200 to 300 basis points. This would all be incremental to anything we have previously discussed. We didn’t include potential rate changes in our forecast, but not included in the 2022 revenue target given in February of $1.3 billion. Summing it all up, we are very pleased with our results for the quarter. We are hitting all of our key metrics, and we continue to have very exciting growth plans ahead of us, which we feel we are well positioned to execute on. We look forward to seeing everyone later this month at our Investor Day event. Thank you again to everyone who has joined us on the call today. With that, operator, can we please open the line for questions?
Operator, Operator
Your first question comes from the line of Craig Siegenthaler.
Craig Siegenthaler, Analyst
This is Craig Siegenthaler from Bank of America. So Doug, I was actually hoping that you could elaborate on your bullishness on the tech lending backdrop because I’m just thinking if economic conditions moderate, and there’s a period of slower underlying profit growth from the portfolio companies and less investment activity from the private equity industry, which you lend to, I was just curious behind your confidence in the robust growth trajectory in tech.
Marc Lipschultz, Co-President
Craig, it's Marc. I'll take that one. I think it's both our expectations and the reality. Right now, we have never seen more large and high-quality opportunities, primarily in the software space, where we hold the market leadership in terms of capabilities. For context, last year, there were 40 private financings of $1 billion or more, largely driven by software. In this first quarter alone, we see over 20 deals of $1 billion or more. A new category has emerged for financings of $2.5 billion or greater. The significance lies not just in their size; it reflects deployment opportunities, as these are incredibly large, market-leading global companies. We're not commenting specifically on their growth rates—whether they're 20%, 15%, or 25%—what matters to us is the long-term strength and appeal of our tech portfolio. Our tech lending typically has an average loan around the low 30% level. For instance, a hypothetical $5 billion buyout in the tech sector would involve about $1.5 billion in debt and a $3.5 billion equity investment. Our optimism stems from the current high activity levels and the substantial dry powder available, totaling $2 trillion in the hands of private equity, with a strong focus on software and tech that will be deployed. Many sponsors view the current market disruption as an opportunity, and time will reveal the outcome, but that’s the strategy being pursued. This situation has led to some of the most promising developments we've observed. Additionally, we have structured capabilities in tech, designed precisely for this type of environment, involving quality private tech companies that may have experienced inflated valuations. These present some of our most appealing, low-risk prospects while still offering equity upside. I really believe we are at a peak moment for tech opportunities.
Douglas Ostrover, CEO
Yes. And I’ll just chime in for 30 seconds. Marc really hit on all the high points. But I think it’s important to remember, when we talk about technology, we’re talking mostly about enterprise software. We don’t do startups. We look for things that have high recurring revenue, very little churn, and high predictability of cash flow. As we look out across the lending landscape, we actually think these businesses are some, maybe the best things we can lend to. We’re excited about it, and we’re excited about our position in the market.
Marc Lipschultz, Co-President
I apologize for a small comment on that point, which is in our tech lending platform, Owl Rock Tech I, we have since inception still never had a default. We’ve never had a loan in arrears. So the durability, again, isn’t really a case of theory. It’s been the most durable sector in our portfolio and broader than that. But I think there’s a lot to like right now.
Craig Siegenthaler, Analyst
Marc, if we expand the discussion to encompass the entire credit business and Owl Rock, it's reassuring to know that there hasn't been a default in the tech sector. You mentioned earlier that realized losses are quite minimal. However, if we look at the earlier stages of credit quality, such as delinquencies and nonaccruals, as well as what you're observing with covenants, how does the portfolio appear today compared to six months ago, especially considering that economic conditions have eased a bit?
Marc Lipschultz, Co-President
Yes. A couple of things. It’s a great question, of course. First, let me take one step back and as a Blue Owl matter, I think it’s really important for the shareholders. Remember, Blue Owl as a firm, we are essentially 100% fee-driven revenue, management fee-driven revenue. We care deeply about the performance of our products. But actually, the question you’re raising doesn’t affect the earnings of Blue Owl. We don’t have carry. So the question of what happens if credit quality issues tick up or what happens with inflation doesn’t matter to shareholders on this call. Now it matters to us and for our LPs. So let me still answer your question because of course we care a lot about it as a firm. Credit quality has remained very strong, very robust. We continue to run at extremely low delinquency rates, default rates. Any measure you want to use, we continue to feel extremely good. The portfolio is in robust shape. Across our platform in total, we’re running at loan-to-values in the low 40s. We refer to 30s for tech. It’s in the low 40s across the whole firm. As we go into this, most of our borrowers are in very strong shape. Remember, we’ve always built at Owl Rock, Blue Owl in particular, a very defensive strategy. That is to say we’ve always erred on the side of low risk, which, to summarize, you can say hasn’t mattered over the last several years. Well, now it’s going to matter. We want the best companies with low loan-to-values, and you can give us 50 extra basis points to take impairment risk; that’s just not how we operate. Those differences are going to start to show among managers. Here again, let’s go with the statistics: we’re in $56 billion of loans, and we’re running at a 5 basis point realized loss rate, and the losses in total associate with $300 million of original notional loans. Of course, a more rocky environment means that’s an uptick, but I don’t think any of us are planning for what amounts to zero losses. But the portfolio is looking very strong, and final statistics as we go into this across the broader portfolio are EBITDA to interest coverage. We’re heading in with an average of 2.7 times. There’s a lot of room in that statistic for both declines in EBITDA, even though these are generally pretty robust businesses that we invest in, as well as rising rates off a low floor. We’re not being dismissive; we’re thinking real hard about the volatile environment, but we’re feeling quite good.
Operator, Operator
Your next question comes from the line of Alex Blostein.
Alex Blostein, Analyst
So, I wanted to start maybe with a question around real estate. There are a couple of stats I think, Marc, you mentioned in your prepared remarks. I just wanted to understand them a little better. I think one of the things you mentioned was around a $20 billion pipeline. I want to say it was for deployment, but it wasn’t 100% clear. So can you maybe contextualize that a little bit more? And maybe taking a step back, how are you guys thinking about the prospects for the real estate platform over the next 12 to 18 months, given your comments around the new fund raise and the opportunities seen in retail?
Marc Lipschultz, Co-President
Sure. Very happy to, Alex. Thank you. So first off, the $20 billion really refers to our pipeline. It really speaks to the fact that it remains a very, very robust opportunity set, much, much larger than our target deployment levels. So book-to-bill, so to speak, not quite book, but the opportunity set is very robust as we sit here. That was really the purpose of that statistic; it remains very strong compared to historical standards. As to our outlook, to your very good point, so there’s a few forces at work. By and large, this environment is quite appealing for our real estate business. It’s appealing because, as the cost of capital within the corporate structure rises, our triple net lease solutions may, in many cases, look more competitive to what we might have thought of before as low, maybe oddly low borrowing costs for strong corporate borrowers last year, last quarter for that matter. As those costs come up, I think our solutions actually look more competitive, number one. Number two, in a more volatile environment, people obviously look for other ways to finance outside of what might be just the obvious; okay, well, I’ll go issue a bond, I’ll just go borrow from a bank. We offer these structured solutions that, for those who have real estate assets, they could tap into. We look at the backdrop as quite positive for the point of deployment. From the point of view of what that means, though, for the quality of the assets and the performance, here is the beauty of it. First off, since the inception of Oak Street, we were very excited about our credit performance of 5 basis points realized loss. In Oak Street, we’ve never had a single rent payment missed, a single rent payment missed, let alone a default. That durability is, I would say, pretty extraordinary. What we like about this composition is more people are looking for creative solutions, cost of capital is up, so that gives us more room to put our solutions in place. The durability of having both the asset and the corporate counterparty on a 15-, 20-year net lease feels, in a volatile environment, to be a true flight to safety.
Alex Blostein, Analyst
Got it. Great. The other question that I had, and this is probably for you, just wanted to dig in a little bit more into the kind of these placement fee structures and really just kind of trying to understand if we’re going to be in this pretty robust retail fundraising environment. Are these placement fees going to be fairly recurring and sizable for the next several quarters? Or is it more a function of once you get onto a certain platform, there’s a larger upfront cost that you pay, and then it kind of goes down a bit? But help me just kind of understand the distribution in place and fee cost that I guess you guys are going to start calling out in future quarters?
Marc Lipschultz, Co-President
Sure. Thanks, Alex. The lumpiest ones, or the larger upfront ones, are really on our private-to-public BDC raises. We’ve had this a couple of times in the past over the last 7 years, and it could continue from time to time. I expect you’ll see that in Q2. I don’t know that you’ll see it again for the rest of this year on a private-to-public. Some of our permanent privates, we will have some wirehouse costs; they won’t be the big lump upfronts like you’ll see in the private-to-public, but we’ll have that on an ongoing basis as well. That again is not as lumpy as the private-to-public.
Douglas Ostrover, CEO
Yes. And Alex, good to chat with you. Look, when you take a step back, I don’t think they’ll be recurring per se. But for the near term, we’re kind of hoping for large numbers because that means we’ve raised quite a bit of capital and the payback is relatively quick. Obviously, we do our best to drive that cost as low as possible, but it’s a competitive market out there, and we’re not paying any more than any of our peers. But we’re hopeful in the near term to have big numbers, and then I think it will slow down over time. The biggest numbers, as Alan was alluding to, are not really from our recurring funds, our core income funds. It’s when we’re doing a specific BDC, and it’s more of an episodic fund raise. So you’ll see those less frequent and a much smaller number for the funds that are perpetually offered.
Alan Kirshenbaum, CFO
I’m expecting the biggest number, Alex, and we’ll see how the year plays out. But I would expect the biggest number this year comes in Q2, and that could bring a 15% to 20% G&A number as a ratio to revenues. I would expect it ticks down significantly from there in Q3 and then again in Q4.
Alex Blostein, Analyst
Got it. All right. That makes sense. Just one other cleanup for me. A little nuance, but on the equity-based comp, if we look at the back of the deck, I think it’s running quite a bit higher than what we’re used to seeing. I think it’s like $96 million for the quarter. Can you just flush out one more time what the equity-based comp run rate should be on a kind of go-forward basis and why it was elevated this quarter?
Alan Kirshenbaum, CFO
Yes, you’re going to start to see now, and this is all GAAP numbers, obviously, Alex, you’re going to start to see amortization of some of our earnouts for both Oak Street and, coming up, Wellfleet. But that piece you’re seeing is largely Oak Street.
Alex Blostein, Analyst
Okay. But that’s run rate, so like $90-plus million a quarter?
Alan Kirshenbaum, CFO
It should be run rate, yes. We closed that at the very end of December, so you have a full quarter in for 1Q.
Operator, Operator
Your next question comes from the line of Robert Lee.
Unidentified Analyst, Analyst
Maybe, Doug, I kind of probably missed some of it, but could you maybe unpack a little bit some of the quarter-to-date fundraising? And I think I probably missed some of the numbers, but if you could just step through it, was the $2.8 million total so far, the right total? I kind of missed some of it.
Douglas Ostrover, CEO
I’m going to let Alan do it because I’ll make a mistake.
Alan Kirshenbaum, CFO
Robert, how are you?
Unidentified Analyst, Analyst
Good. Thank you.
Alan Kirshenbaum, CFO
So we’ve got year-to-date is about $6.7 billion. The quarter-to-date in Q2 is $2.8 billion. It’s obviously through a couple of days ago. We have some products that closed on the 1st of the month like a core income product and some products that closed mid-month like Dyal Fund V. So it’s a little bit of a mixed bag, whether that’s 1 month or 2 months in our quarter-to-date numbers. Of the $2.8 billion, you’ve got $2.2 billion of that that was raised in direct lending, about $500 million of that in GP Capital Solutions, and then a very small contribution from real estate.
Unidentified Analyst, Analyst
Great. Regarding the GP Solutions business for Mike, could you elaborate a bit more on how the current environment may impact the performance of public managers and its effect on deployment or pricing in the private markets? As you prepare for Fund VI launching in 2023, should we expect the fund raise to differ from Fund V, which was around $9 billion? How should we approach this as we look to the next year?
Michael Rees, Co-President
Thank you, Rob. It's good to speak with you. I apologize for the straightforward answer, but the GP Solution business develops these partnerships over many years of relationship building and careful consideration by the top GPs in this field. The groundwork is laid not just in recent quarters but over several years. Market volatility has minimal impact on the long-term planning of these relationships. Our deployment remains steady when viewed over multiple quarters or years. We aren’t experiencing any slowdown; in fact, deal activity is quite strong. There is some seasonality to these discussions. Since 2015, we have deployed roughly 10% of our capital in the first quarter, with around 65% to 70% typically occurring as we progress past the summer. We are currently observing that trend, which gives us confidence that we will initiate Fund VI in 2023. Fund V is projected at $9 billion, and we will determine our final amount as we move forward. We are certainly confident in that figure and will see if we exceed it. This will then inform our expectations for the size of Fund VI as we enter 2023.
Unidentified Analyst, Analyst
Could you elaborate on how the current environment is affecting your fundraising pace? There seems to be some general concern about fundraising due to market volatility. Considering your limited partner base, do you think this situation might cause your fundraising efforts to stretch longer than usual? How should we interpret this?
Michael Rees, Co-President
Yes, Rob. As you look at the performance of the funds, they’re quite exceptional, we believe. So the demand is there. We’ve heard other peers talk about the denominator effect and how total commitments might be down. We don’t see that. We don’t see that at all across Blue Owl as you’ve heard a big focus on retail. As we focus on institutional fundraising, we’re not seeing a slowdown; we’re not seeing a lower total commitment from large institutional investors. What we’re seeing is a crowded market where bandwidth is the key constraint across the institutional set. As an example, we’re working with a large institution that’s going to make a commitment. They did all their work in January and February, and they’ve just been trying to get us a slot on their investment committee calendar knowing that others in the market are having closes before ours. For our product lineup, we don’t see any real denominator effect, and we’re raising capital ahead of the need for it from a deployment perspective. We’re able to think about a sooner raise for Fund VI than we had anticipated when you look back a couple of years.
Operator, Operator
Your next question comes from the line of Glenn Schorr.
Glenn Schorr, Analyst
So when I look at Slide 16 on the direct lending originations, you see it down sharply for the last couple of quarters and down a little bit year-on-year. But I heard your comments about the big pipeline, and the second quarter looks good. I wonder if we could talk about what produces that type of volatility. If you could talk about whether it be second quarter or the rest of ‘22 in relation to some of the better quarters that you’ve had.
Marc Lipschultz, Co-President
Sure. First, let me provide some context before discussing the future. This quarter, it's important to note that there is a seasonal trend in the private equity and lending business. Typically, the fourth quarter presents the strongest market conditions, as many transactions are finalized before the year ends and new ones start early in the new year. Looking at the numbers, our originations year-over-year have doubled compared to last year, and our net originations are the second highest in our firm's history. I want to clarify the interpretation of Slide 16. This data reflects four consecutive quarters, and this quarter's origination has indeed doubled, with the $3.4 million marking our second highest net originations ever. Regarding our activity, we have been extremely productive. However, there are factors that can delay closing. For example, after initiating a project at the start of the year, unexpected events like a war can impact timelines. This reflects the strength of our model, as many of our significant deals are take privates, which naturally take longer to finalize. We are comfortable with this timeline and plan accordingly for capital deployment. This advantage of private capital, especially in a volatile market, is evident, as some may hesitate to own risk for extended periods. For us, holding the investment, even if it means waiting three to six months within our five- to seven-year loan horizon, is acceptable. Therefore, I anticipate a strong Q2 and Q3, buoyed by the backlog of projects. The forward pipeline and signed deals not yet closed are very promising.
Douglas Ostrover, CEO
I think it’s important to remember, we are primarily funding new buyouts. With over $2 trillion of dry powder sitting in the PE market, we expect M&A to remain robust, and we’re really at the epicenter of all that. As you think about direct lending, I would focus a lot on PE fundraising. As long as that stays strong, we expect over time to continue to have record originations. As Marc said, timing it quarter-to-quarter is nearly impossible. But I can tell you when we look at the amount of activity out there and the amount of dry powder, we expect the pipeline for financing and the pipeline for capital needs to remain really robust.
Alan Kirshenbaum, CFO
I would also add, Glenn, that as you saw, transaction fees come down in Q1, commensurate with gross originations. Marc is talking about atypical levels in Q2 and Q3. Generally expect transaction fees will follow that.
Operator, Operator
Your next question comes from the line of Patrick Davitt.
Patrick Davitt, Analyst
Most of my questions have been answered. Maybe just one on the tech lending side. So you’ve got RTF 2 in the market, right? ORTIC launched and the hope that ORTF I could go public. As we look to the IPO of ORTF I in particular, how do we think about the potential for that to actually happen given the amount of fundraising you’re doing for ORTF II or ORTIC? I think the latter has lower fees than ORTF I would have once it goes public. Could you kind of unpack all those dynamics? Does it push out, I guess, the view to ORTF I going public?
Alan Kirshenbaum, CFO
Thanks, Patrick, and good question. Look, we can’t comment publicly on the exact timing of an IPO. ORTF has had a strong performance. Pulling the lens back on that for a moment; obviously, right now the markets aren’t the right type of markets to try to do an IPO. That portfolio is fully invested; it’s fully levered. Our shareholders are enjoying a low fee structure. We’re not in a rush to get out an IPO. We want to make sure we have the right markets to do that. We’re done fundraising there. We’re done fundraising. We’re done with deployment. We’re just replacing paydowns at this point. So again, fully invested, fully levered portfolio. We’re obviously fundraising now for ORTF 2. Exact timing is TBD; we’ll have to see what the markets hold in the back half of this year, but obviously right now is not the right time to take it out.
Marc Lipschultz, Co-President
Maybe just adding a comment, stitching it together. It is certainly true that the market volatility has implications for the exact timing of when we list it, and I really mean as opposed to IPO because once listed is when the fees step up. That can be done obviously in quite different environments from potential IPO. We’re not going to try to do anything that doesn’t make good sense for everyone, for all the investors. With that said, I mean, could it vary by a quarter as to when that step-up, which then lasts permanently, comes in? It could. Within a quarter, as Doug keeps saying, we don’t try to think about our business quarter-to-quarter that way, but we know where the destination is with that one. That same volatility is what’s creating so much opportunity for investment in the tech space. We already talked about this; I won’t rehash it, but the enormous amount of activity to purchase software companies, what we think will be the significant need for private businesses intact for structured capital. That volatility is quite front for what we think will be the strong results we can deliver in OR Tech II and ORTIC.
Douglas Ostrover, CEO
Just one quick thing. I think on the 20th at Investor Day, we will give everyone a lot more color about our expectations of fundraising in all of those products.
Alan Kirshenbaum, CFO
The other thing I’d add, Patrick, when I gave my guidance on our February call about the $1.3 billion of revenues that we would expect to post for 2022, I’ve talked separately about the $65 million fee step-up. There’s very little of that $65 million in my $1.3 billion.
Operator, Operator
Your next question comes from the line of Adam Beatty.
Adam Beatty, Analyst
Probably just 1 for me today about Wellfleet. I wanted to understand, obviously we saw a business, a good addition to the franchise. I want to understand how you’re thinking about synergies on the product side and maybe the distribution side as well. We’ve been talking a lot about retail and other product development. How does Wellfleet fit into that kind of bigger picture?
Douglas Ostrover, CEO
Well, thanks for the question. There’s just a tremendous amount of synergies with our direct lending business, especially in our core income product where we provide some liquidity. We really needed the public market expertise. We were debating, do we build it internally or do we go out and acquire it and have a group that has a dedicated track record, a great track record, by the way, pays for themselves, and we think we can grow that business significantly. They just joined recently. I think it was April 1. It’s been a seamless transaction. We’re really excited about having that team on. It’s a relatively small business, $6 billion and change of assets. I think we can create a tremendous amount of value there. We think we can make multiples of a return on our investment, but it was a relatively small investment. I don’t think it’s going to have a material impact on our earnings, but I think it will be highly accretive. Again, on Investor Day, we’ll spend some time going through that in a lot more detail.
Operator, Operator
There are no further questions at this time. CEO, Doug Ostrover, I turn the call back over to you.
Douglas Ostrover, CEO
Well, we appreciate everybody spending about an hour with us. We’re grateful for everybody listening in. Our goal is to try to exceed expectations. I really encourage all of you, if you can make it to Investor Day on the 20th, I think you’d find it worthwhile. You’ll be able to watch it over Zoom as well, and we’re excited to really share the vision of what we think we can build here. We look forward to following up again in a few weeks. Thanks again, everyone.
Operator, Operator
This concludes today’s conference call. You may now disconnect.