Good morning. My name is Patrick Davitt. I'm the U.S. Asset Managers Analyst at Autonomous Research. It's my pleasure to welcome back Blue Owls co-CEO Mark Lipschultz. As a reminder, if you want to ask any questions, you can do it through the Pigeonhole portal, and they will show up on my iPad here, and I'll try to work them in. Mark, thanks for joining us. Great being here. I appreciate the opportunity. So, as I usually do at this event, given we've had most of the major alternative managers, CEOs, I want to start a little higher level. It's obviously been another crazy winter and spring. It feels like every year we're here. It's been a crazy winter and spring, this time particularly acute for you, given the private credit freak out. But also, you know, concerns around sticky inflation, higher for longer rates, slowing economic growth. It's kind of a toxic mix, it feels like, for levered risk assets. So maybe potentially incrementally positive for private credit. So do you agree with the concerns that are out there? And what is your current thinking on inflation rates in the economy and how Blue Owl is positioned given this kind of macro overlay?

Yeah, well, it's great to be here and the gathering you all pulled together here over the last few days, which obviously credit to Autonomous and to you. And it does, of course, give us all a chance to hear from lots of folks. yeah look it's an uncertain environment and at some level the markets are behaving like it's not an uncertain environment and that combination is always disconcerting and that's not a directional point of view look we don't trade in the public markets as in we don't invest in the public markets and I think importantly to your point about that combination you know whether it's a toxic combination or at least a combination that would lead you to think gee there's a lot of paths from here that we could be on, to me, which I might frame it a little more in the latter, is actually kind of what we're purpose-built for. So on the one hand, I'll say I'll share some perspective based on the ground up of the 400 companies and all the real estate assets and GP stakes and the businesses we see through, but we make it our business to not be in a business of having to have a directional view on something like what will rates be, in point of fact, of course, as you note. In the credit business, the whole purpose is to be insulated from that. In fact, for years, it's been, oh, the rate cycle's about to turn, and it's been wrong every single time. Now, from where we have sat over the last several years, and said this, I think, last year when we were here, we thought higher for longer was the likely reality. Now, that's not because we foresaw a war in Iran. But we did see a continuing strong economy, and we continue to see that we continue to see cost pressures on companies and maybe the ai innovation will start to roll over some version of productivity but in any case in here today there's definitely a lot of upward pressures we can certainly i think probably all agree there's not a lot of easy downward pressures on rates and so that does play well to the direct lending and credit business but more to the point as i said when i think about course of economy we get a share of view we see continued great strength. Our portfolio, average performance of a company, high single-digit revenue, high single-digit EBITDA growth, even better than that. Perhaps we can call it ironic or not in software. We'll come back to that topic, I'm sure. But in any case, great underlying strength and a lot of obvious macro pressures on rates. So put that together, I think that's why we have tried to build a firm that's all about durable performance through a range of outcomes. And that applies in in the most mathematically obvious sense to credit, but actually I would say something like triple net lease is the most durable possible strategy, which is frankly right now a place where we see enormous opportunity. And again, it's built to be really attractive and predictable through a wide range of different paths forward on rates, on the economy, on the dynamics in that case, and the dynamics in tech, of course, has a whole different dynamic around it. So I think I start with a view of, I'm glad we don't have to take a view to make our strategies work, but we certainly would land on economic strength looks good, outlook looks good for the U.S. economy, and rates are likely to be sticky.

Yeah, on the hire for longer conversation, it's obviously more pertinent now in my investor conversations, and I think there's a little misunderstanding on how your portfolio is in particular work. So maybe help us understand how we should think about refinancing risk in the portfolio in a hire for longer environment.

So the thing about the credit business writ large, blue olives, but it applies to all of our peers. Look, we have very, very large diversified portfolios with a wide range of different maturities. And so we've been through all the last five, you just made the point, every time we sit down here, we seem to think, wow, look at what's going on. And it's true, take a five-year trip through the world, starting with the pandemic, and then zero rates, and then hyperinflationary rates, and then a trade war, and then an actual war. Oh, we forgot to run on the banks in Silicon Valley Bank. I mean, this has not been a calm time. Even if I took a step back, it kind of has this directional semi-up-and-to-the-right look to it, certainly in the equity markets. So, you know, when we look at our portfolios, our purpose is to be durable to a wide range of different outcomes. We have multiple businesses. We have a real assets business, our fastest-growing business. That's the ultimate in predictability, durability, 20-year leases with investment-grade parties, and now in, frankly, extraordinary growth mode because of the digital infrastructure build. Credit, we'll obviously, again, spend more time on. But here's a business where we have hundreds of loans, to get to your point, and they've been maturing all along. You know, I love the term, the freak-out, by the way, so I think that's probably pretty accurate. It's not because there isn't a worthy conversation to have, but no one wanted to have a worthy conversation. People just wanted to just, you know, start sort of lighting their hair on fire and talking about, which I can't do, and talking about, you know, like, oh, it's 07. I mean, just kind of these, honestly, these kind of crazy comments. And it did create a hysteria, which is pretty unhealthy. But remember this, you know, that very same time this last quarter we had six billion dollars of loans repay So what was supposed to be like the end of the world in credit is a time We're getting lots of loans repaid so you hit these maturities all along the way and there's a lot of ways they get addressed Remember we're the lender not the equity owner, you know the these maturity wall comments are sure Of course, we're part of that conversation We're a partner with these companies, but they're not, to put it frankly, it's not our wall. It's the owner's walls. It's the private equity firm's walls. It's the corporate wall. They're the ones that have to go over the wall. If you don't go over that wall, well, then we're going to own the companies. It's not our preferred outcome. We do it. We do it successfully. So I think that it's not to say that the idea of a wall is miscast, but especially in private markets, there's a lot of ways to address maturities, including if a company is performing, then you just extend the loan. And I don't mean that in the, everyone likes to talk about like the extend and pretend part. That's not what I'm talking about. I'm saying if you have a performing company and a performing partnership, then why wouldn't you carry forward? And we often have new loans or actually people buying a company from another sponsor and they come to us and say, well, you know this company and we know you. Why don't you finance our purchase? So there becomes this sort of internal, almost captive audience. And a lot of our financings are actually now captive to our system. Got it.

So the other issue that's been, I think, particularly acute for you guys is retail flows. And it looks like the gross flow picture, particularly for direct lending products, is tracking much lower in 2Q versus 1Q. So what are you hearing from distributors on the demand algorithm for those products, for your direct lending products, for your broader retail suite through this ongoing volatility?

So maybe I'll start with a bit of a metaphorical image that I find helpful, and actually accurate, I believe, in the context of the whole retail wealth channel topic. If you think about this sort of, again, I'll use your term, the freak out around private credit, what that translated into was a picture like taking a rock and tossing it into the middle of a pond. And where it splashed, it was a pretty meaningful splash. And then you have these ripples of rings that have come out from it. And there's a lot to like about what I'm about to say, which is actually the splash was pretty abrupt, and to your point. Fundraising for direct lending across the board is clearly down in Q2. We can all see the monthly numbers versus Q1. And I imagine will remain in some depressed fashion for some period of time. It just takes time to heal, just like that splash. The splash is quicker than the ripples all disappear. But the ripples are pretty accurate. As soon as you moved away from that center of gravity, the effects were quite dissipated. So we saw much less of this, for example, in alternative credit, asset-backed credit. Move a ring out and get to something like real assets, real assets is thriving. I mean, sure, there's a ripple everywhere. Wealth had a tough first quarter writ large because you just had recurrent months. Because people were just like, oh, I wonder what this all means. But if you take a product like Orent, we have by far the biggest net fundraiser in all of real estate. And it took a modest dip down in monthly flows, and very modest. And redemptions, in fact, were the lowest we had in six quarters. So the ripple, even a couple of layers out, was already meaningfully dissipated. And we're already seeing, and I think now to come to both, the whole rippled pond, we're actually already seeing it dissipate. and a total change in tone. Now, nothing happens fast, again, the splash is bigger than the time it takes for the water to settle, but we're already seeing a total change in tone. We are, people are interested in investing again across the board, certainly we've already seen the recovery in products, you know, away from direct lending, but direct lending conversations are now, oh, I'm interested, again. It's not the same freak out conversation, and in fact, we'll come on to, I'm sure, the redemption topic, you know, A lot of people have already seen a change in tone there, too. It's not about, I can't wait for the next redemption window. I'm sure that we should all logically conclude that there'll be elevated redemptions for, you know, pick your period of time the rest of the year. There'll be moderated inflows for the rest of the year. But actually, I think the super cycle is already behind us.

So to that point, it sounds like when you're talking to, you know, of the CIO level people at the mayorals of the world that there's no kind of, I guess, concern around allocating to Blue Owl products versus someone else's products?

No, and again, I think there's also an element of sophisticated, more than one might expect, delineation between different kinds of products. You know, product that people are, again, we get it, people are kind of induced into anxiety. Falsely, by the way, we just turned in our April returns for that very, you know, our main product is the core income product in the wealth space. And, you know, guess what? The returns in April were 120 basis points. Again, remember, it was supposed to be the end of the world. Positive 120 basis points. The number of new non-accruals in the first quarter, zero. Zero. Now, zero is as, you know, maybe anomalous a number as if it was four. I mean, there should be some. like that's normal in our business. But zero. You know, we had the only major BDC that has declining non-accruals. Our non-accruals are way below 1% in CIC. So it just, the facts don't comport with the, and people get that. And I will say this, the institutions, the FAs, the CIOs, just was with one of the CIOs of a major platform yesterday. They, or that's not where the freak out happened. They totally get the way these products work. And they're telling people you should, you shouldn't be redeeming. In fact, you should be investing. You know, you're only gonna fight that so much down at the FA level with a client, which I understand. But to the end of the credit and the stability of the ultimate trajectory here, the platforms get it and so do most of the clients. Remember, if you look at the redemptions and that again, I'll keep coming back to this core income products that really are one main wealth product in the credit side, the continuously offered version. Remember, in that product in this last quarter, half of the redemption requests were from 1% of the investors. This is not a broad-based phenomenon. It's actually, and that itself turns out to be explicable. And why was that 1% what it was?

So I think actually the platforms feel very good about the product, the products. they feel you know good about Blaul and our peers and yeah there's more similar than different I'm not here to talk about how fabulous the Blaul credit product is and you know it's immediate neighbors aren't generally the sector is in a healthy place yeah so the other side of the coin to your point is is the redemption requests everyone's I think basically assuming that will be more than 5% for at least the rest of the year but like you just said sounds like the vast majority of those requests are coming from a very small group of the shareholders so if it if that ratio kind of maintains like how long will it take to get below five percent yeah

you know look it's it obviously speculation and i i don't have a direct answer so what i try to do is frame a couple of inputs to that outcome so i'm with you look why wouldn't we all logically assume that it's going to be a five percent level for a period of time in these products that just seems like a logical way to proceed for the short term in any case but the tone actually is healing faster than even i would have expected i think it's partly explicable in this regard well part of its performance there never was a performance problem that's a big difference and in fact performance is strong not even like oh performance is okay you know now for we've have five years in this product and the performance delivered over a 9% return and you get it every month. So here's a couple inputs for people to think about when they're trying to figure out where the inflection occurs. Well performance is strong, well that counts for a lot. People get to see that and experience it, and this is important, every month. Remember, continuous products aren't a monolith, strategies aren't a monolith obviously, and in this product in particular, you get your return every month. It's not an IOU. It's not, oh, I promise you're doing great. I'm telling you, like, don't worry, you're making a fabulous return. But the way the only way you can get that is if you go ask for your money. Here, we send you your money every month. So you're actually, as an investor, getting a reminder every month that the strategy is working exactly as it was before. And in fact, with rates higher, actually, returns are likely to be supported at a higher level. So I think that is another encouraging fact for healing. So then you can kind of say, well, what's the inside? What's the outside? So the sooner the better in terms of getting down below these redemption request levels. But we can look at the other side and say, well, like what's, I don't want to call it the worst case, obviously, but there's a data point out there in BREAT when you had a product that actually had a performance problem, had a liquidity challenge had, you know, genuine negative issues that it had to work through. And that took six-ish quarters. So, you know, you kind of have a little bit of a bracketing, like if you have a lot of issues, we know kind of what that looked like. And if we don't really know what it looks like when you have this, where there's no actually performance issues, but a lot of psychological concern. So somewhere between those two will lie the inflection. But I said, But I don't really see the benefit of being heroic in one's assumptions. It'll take a little time for people to settle back down and get back below those 5% redemptions. But here's one other thing I want to say, the 5% model works. Again, I'm not trying to be a Pollyanna, but I am trying to also find what we've learned from all this. It worked really well, like for all the panic, right? like the run on the bank and all the things, the hysteria. At 5%, it works really. We took in $3 billion of loan repayments. We had $1 billion that went out the door for redemptions. The system is a net cash generator just based on loan repayments, let alone the $11 billion plus of liquidity we have on hand. And so the structures are incredibly durable and predictable. And if we think about healthy long-term growth, It'd be hard to imagine there's anyone left that doesn't understand that when we say semi-liquid, it's semi-liquid, not fully liquid. And I hope now it'd be hard to find someone that didn't get that. We always said it, but you don't know how people absorbed it. And we don't talk to the clients. The FAs do. But that's a healthy fact for long-term growth. And a last comment on that point, because I know this is a topic of great interest to all of us in retail in general. You know take a step back it's sort of compared to what and this gets back to like what's the proposition? The proposition is to benefit from certain private strategies and the premium returns we deliver We've delivered a 300 basis point premium to the liquid credit market during that same Five-year period to the leveraged low market 500 basis points to high yield. That's a heck of an additional return on top of those liquid strategies. And indeed, you have to give up some of your liquidity. But what does that really look like? What it's looked like is of 20 quarters for CIC, in 19 of them, people got the money the minute they asked for it. And in one quarter, the darkest corner that we could all see and we know what we went through, people got 25% of their money back. And if all things stayed the same, which I don't think they are based on what we're seeing, then it would take you a year to get all your money back on that basis. Compared to a fund where you put your money in and 10 years later you get your money, I mean, that's actually a tremendous proposition. It worked. And I think at the end of the day, if we all digest that, not we, but I think as the market digests that, it means there's a really, really healthy way for people to use privates intelligently as part of their portfolios.

That's helpful. Thanks. So I guess broadening out on the retail topic, could you update us on where you are in broadening out the distribution footprint for each of the products, and then beyond that, what does the new product development pipeline look like?

Sure. So the products all follow a curve, and the curve is relatively predictable, which is kind of number of launch points, number of FAs that use them, and then one person told a friend who told a friend, and they all kind of follow this directional curve. Impacted, for sure, in an environment like this changes the front end of that curve. But we're working through those curves in our core products. So let's take a few categories. So the core income product is, let's call it, fully distributed, right? That's not a story about broader distribution. It is about broader adoption. In the short term, it's not. In the short term, it's obviously about reversing this drop-off in use. So that's in its one category. Then you have the category like introduced one of the bigger and more important launches, successful product, which is our asset-backed product. And that product is now in its kind of, it's got a few points of distribution. Points of distribution are broadening. Adoption is coming along. So that one's in the kind of the low period, had one of the biggest starts, which is great. And now we've got to get to the PowerPoint and the curve. Go to something in the middle, like an O-RENT, our real estate product, and there's one where you have generally broad but not complete distribution and a product that is thriving and more and more people adopting it. So now you're in kind of, I might call it the sweet spot, right? If CIC is kind of up here in the more, if you could call it the mature end relative to continuously offered products, and if over here in the nascent end you have like the digital infrastructure product and the asset-backed product, You have to look like O-Rent that lives in the middle and is really powering up that curve of broader distribution, more use. So we have products in each stage of life, which I think is part of how we support our continued business development. Okay, that's helpful.

So I want to move to credit more broadly. Obviously, direct lending specifically is kind of the press's favorite foil. It feels like almost every year at this point. But as the economy potentially slows, rates remain high. Where do you see the biggest risk of something breaking in these portfolios, or do you think the attention should be focused somewhere else entirely?

Yeah, it's funny. You said, like, it's been years of, oh, that's it, private credit. Oh, that's it, private credit. And, like, I can't help but come back to the Mark Twain, right? Like, the news of my death was an exaggeration. And it does have that, like, groundhog version of it. And so let me just take a step back and say that in private credit, A couple of things. Let's talk about the underlying credits, and then let's talk about the structures, because either of those places can cause a problem for any product, and we've seen both happen in the world across different asset classes. I already started the comment, but I'll reinforce the comment. Credit quality remains really high, and that is not to suggest that there are not problems and won't be problems. We should all agree there will be problems, and it will now include software companies that three years ago none of us would have thought would have been on the list of places where there will be some problems. But our business is to be prepared for that. And remember, we're the lender. So we'll cut to your second question. So in a software company, we started on average at 30% of the value of an enterprise, 40% if it's a non-software company. So the structure we'll come on to matters. So there's two kinds of structures. First, there's credit. Credit is strong. And I will also say that in the world of credit, we have a lot of visibility. This is a, and you know this, it's a slow moving process. Because you don't go from average companies performing in the high single digits and well below 1% non-accruals in a quarter to, oh my gosh, what a bunch of problems you've got. Like there's a long journey through, I'm doing fine, not doing so fine, doing poorly, I need an amendment. And so we see, it's not even just like indicators. It's not like trying to read the tea leaves. You'll go through a gate. The gate will be, hey, can I have an amendment? The gate will be, hey, I need some relief. The gate will be, hey, I've used my revolver. Like all that happens before someone says, you know, I'm out. And so we know. So in the foreseeable future, and this is not just us. I'm confident it will be true of the other large cap peers. Small cap's a different business. Large cap peers. There's not going to be some rapid shift in credit quality. So we've got a very nice horizon for some period of time. Now, two years out, obviously, who knows what the state of the world will be. So credit quality, strong. And for the foreseeable future, I expect it will remain very strong. Now, let's go to structure. Two things about structure. There's the structure of what we do itself, which is we're the debt, not the equity. And so you also have to eat through all that equity to get to the debt. Somehow, we did the press. And I don't want to just put it on the press. the press is reflecting like a zeitgeist, but they certainly have amplified it, is this, like, someone we leapt past all the equity and said, let's talk about private credit, and then somehow by putting the word private in front of it, we thought it made it something different from credit. All of that is just misplaced. It doesn't mean there isn't a conversation to have, but private credit is credit that doesn't trade. Credit, where you do more due diligence. Credit, where you have a tighter document. And so we have lots of history and lots of data about credit. And the liquid credit market, where all of a sudden every article is about private credit, but ignoring this adjacent market that has the credits in many cases none of us wanted to do. Not all of them. I've been damned of it. We have to have a good, healthy ecosystem. And I love that we have a healthy private market and public market. But ones with looser documentation, for sure. That we know. Some great companies there too, but somehow we weren't talking about that, we're talking here. So structure matters, we're credit. And we're senior, secured credit above a lot of equity. So we left that. And then last point on structure is where do the loans sit? Because we get into points that could break. So what do I really think could, is there something that could break the system? It's not the credit quality, and we have very diverse portfolios. And even when you do math on extreme stress tests on portfolios, you don't break anything. You end up with lesser returns than you would have wanted. Remember, we've run 10 years at a 13 basis point average loss rate. And we've said this every time I've opened my mouth. Of course, that's not the sustainable and durable and predictable rate. But it doesn't matter. Multiply that by a bunch of times and start with a 9-something percent return. That's not a problem. Then you have credit. Let's take that as, okay, that looks pretty strong. So then we go to structures. And the structures we just talked about, the structures are enormously durable. You aren't going to break the structures on the basis of 5% redemptions in any well-managed BDC. I'm not saying somebody out there in the fringes can't create a problem. I am, and in fact, saying you should pay attention to people's right hand balance sheets, right? That, everyone talks about credits, and a lot of people tend to skip over, like, have you done the right job constructing the right side? We spent a lot of time on that, a lot of time, and that's powerful, too. So, again, I'm not saying you can't mess things up, but at 5% redemption levels in a diversified portfolio with loans coming in and everyone's well-managed fund has liquidity, you're not going to break it there either, and there's only one turn of leverage on those books. So is there anything I would characterize as, gosh, that's what keeps me up at night in terms of a big problem? No, lots of things keep me up at night about each loan and each decision and the marketplace. And certainly, you know, what kept me up for a period of time was, oh, my, what article do I get to read tomorrow morning? That definitely kept me up at night.

That still keeps me up at night.

You and me both.

That's helpful. I want to move to deployment. So, you know, we're always talking about this tug of war between the broadly syndicated market and the direct lending market. it sounds like from the 1Q earnings calls from you and others that there's a better pipeline building. So through that lens, how has your pipeline been tracking? And are you still seeing the trend of better terms in terms of wider spreads and better dots?

Yeah, the one thing you would predictably expect in an environment like this is that spreads have widened. And credit quality has been high throughout. In this case, I'll speak very much for Blue Owl. We never compromised credit quality. Didn't, won't. That's just, there's no loan worth it. There's not, right? We looked at 10,000 loans to select the ones that will be more than that now that we've selected. There's not a loan on earth that's worth doing for us on a stretch basis. Why? I mean, you get paid S plus 550, S600. It wouldn't matter. Make it S700. Not that that's on offer today for a quality loan. none of that's going to compensate for making a bad loan. And that's why I think our portfolio has proven to be, again, perhaps ironic, given the press conversation, one of the very best credit qualities with the most durable performance. Because that's the choice we have always made and always will make. Spreads have widened. That's a good thing. Like, this is a good environment to be making new loans. It's not a run-don't-walk environment. Like, in a way, I would characterize it more as a return to a normal spread, where spreads probably got over compressed a bit during you know like prior to six months six months before all this noise started you know so I sort of and I've said this I think that spreads in our market undulate and you know you undulate up to the high zone during 22 23 when the public market is is very restrained and you undulate down into the lower zone when the public market is more grass over markets in general, like in part of 24 into 25. And now we're back, I think, probably into the middle zone. We have a functioning public market. We have generally a reasonable risk appetite in the market. Maybe it's unreasonable in certain places. And so I think now our spreads are in a nice, healthy, equilibrium state. Deal flow's low, I mean, to be clear, right? M&A activity for sponsors is low. Now, hopefully, with the same noise lifting and the markets as strong as they are, one would logically expect activity to be picking up. But the first quarter where everyone thought, okay, quarter one would be the, speaking for the PE firms, quarter one would be the time. Obviously, PE activity wasn't enormously high in quarter one. Now, that's in contrast to what we're seeing in a world of digital infrastructure, where the numbers are just breathtaking and moving in rates, None of us could possibly have contemplated or comprehended. So the P, activity level, if you said, what's the one thing you would like in direct lending? Yeah, I'd like more activity because the more things we get to pick from, the better.

All right, time to move away from credit. Obviously, there's a lot of noise on the direct lending side, but one of the better growth stories for you guys has been real estate, which is a triple net lease business. You guys pitched this as more of a fixed income replacement than real estate equity. So I'd be curious to get your updated thoughts on how that pitch is resonating through the credit noise.

Yeah, that pitch is, well, it's working. And so since it's working, it's delivering, and investors have seen that. So that's a business, to your point, in our case, our strategies are a very particular type. We do these long-dated leases with very strong counterparties, and so it is a fixed-income replacement. Now, it has some wonderful tax attributes, and I call it an enhanced fixed-income solution. Take, like, our O-Rent product. The O-Rent product has a 7% current yield and delivered last year an 11% return. It's delivered over a 9% return since inception of that product. and the counterparties are investment grade counterparties and then it turns out you can do better than that in this environment when you have the privilege of working with the hyperscalers on these monstrous projects where it takes deep technical skills to be their chosen partner so in that area we've got as large a pipeline as we have basically ever experienced in triple net lease at large and probably $100 billion pipeline working on in the digital infrastructure space. So that place is working, most importantly for the investors. I always start with, does it work for the LP? And it does. And then can we marry them with a user of capital? Well, in this case, the answer is absolutely yes. And we're seeing, therefore, the demand. So O-Rent continues to be a very, very successful, thriving net fundraiser in the wealth channel. And our institutional product, as you know, we raised our record institutional flagship fund in triple net lease only a little over a year ago. We're already into and headed toward our hard cap in our next iteration of that product with tremendous investor interest. Those products where you, in addition to doing what I described, buy and hold the asset, we there also often sell them. Because once you have a fully developed asset and the corporate partner's happy with how it's all set up, then you can sell it on to insurance companies or other real estate funds that are, you'll call them equity funds, maybe they're core funds. And so in that product suite and triple net lease over its life, we've generated over a 20% return doing these long-dated commitments from incredibly strong counterparties. I consider that really pretty special. And on the call you pointed to a what sounded like a particularly strong deployment pipeline maybe update us on that in what the nature of that pipeline looks like yeah that that pipeline is continues to be incredibly strong and things keep moving through it our deployment in that area is very very strong in fact our current triple and at least fund is nearly fully committed at this point. And our digital infrastructure fund, also fund three, which itself was a record fund is nearly fully committed, and we'll be back with that product. And so the pipeline there, again, I'll now focus for a moment on maybe the topic of a little more specific interest digital infrastructure is monumental. And it's not a surprise, right? If you take a market that take the five hyperscalers that matter, and And then I'll add a sixth company, NVIDIA, because NVIDIA is now doing some of their own infrastructure. And safe to say we like their credit too. And we work with all of these, all the hyperscalers. They're, we all know what they have reported. They went from, I don't know, 50 billion of CapEx cumulatively, between all of them a few years ago, to 700 billion this year, probably going to a trillion. Well, when that happens in a market, and then when you have a finite number of people, because a lot of people will correctly say, but isn't there a lot of people that want to invest in this area? Yes, there are a lot of people that want to invest in it. That's good news. But there's very, very few who are actually qualified and equipped to then be the partner to those companies to actually build the projects. Now, once we build, develop, and deliver the capacity, yeah, well, then there's a lot of buyers. But today, you go to Amazon, and you go to Microsoft, and you go to Oracle, Google, Meta, there's a tiny list of people, and we're one of the premier ones, that they're actually going to work with, because we have 1,000 people that do this inside of our operations group. And we've done it 100 times over. Over the last little over a year, we have done four greater than $10 billion hyperscale projects. And almost every large hyposcale project done when a third party's involved has been ours. And the scale is breathtaking. You think about the Hyperion project down in Louisiana, which is the meta project in Louisiana. It's a two gigawatt project, and let's contextualize that. Denver, the city of Denver, uses a gigawatt of power. So two Denvers of power, the land mass it's built on is the size of Manhattan. It costs $30 billion to build the physical part we're doing with that, the part that we're going to own. $30 billion project in nominal dollars, I've done all the real dollar adjustments, I think is the single largest capital project ever undertaken on the face of the earth. And that's the cheap part. That's the cheap part. The expensive part is what they're going to put inside that infrastructure. By the way, another nice feature when you're a landlord, when someone moves $90 billion worth of equipment into your buildings, because that's what they'll do. So that project, that one project is $100 billion program down in northwest Louisiana. And it's one, it's one. We have a gigawatt project going in Abilene, Texas, Stargate. We have a gigawatt project going in New Mexico. You know, the Amazon project, also in Louisiana, is just under, I think, a gigawatt. And there's a lot more of those coming.

Some of your competitors on this point have pointed to a need to only do deals close to large population centers in order to avoid the obsolescence risk. But to your point, you're involved in some rural development. So what makes you comfortable taking that risk when it sounds like others are not willing to take that risk?

Well, others are not willing to take a thing they can't have, so I need to be clear. I mean, we were one of the hyperscalers, and they said this actually in a large group, but I won't attribute it to them. They said, and someone, one of the people in the audience said so, I think you've heard this, they said, so don't you get a lot of people approaching you about doing these data centers, they say, oh, yeah, we get a lot. And 85% of it just gets tossed in the trash because we wouldn't do it with them. They don't, and it's not because they don't think they're great firms. They don't have the ability. And we don't know them. And for us, what we need is this data center built on spec, on time, the sooner the better. And so there's no way they're taking that risk based on cost of capital. Now, so let's talk about that distinction. Data centers also is a monolithic term. If I'm doing a co-location short-term data center, I would agree. And we own a bunch of urban data centers. And they're wonderful to have. Because if you're right in the heart of Atlanta, as we are, and you have the key hub, it's a great asset. However, that has to do with the nature for us of who's the user on what term lease. If you have a co-location data center and you're counting on people to release it, absolutely, I agree with that statement. Absolutely. We don't do that business. So if you're in that business, you're right. You better stay close to an urban center. We lease our projects for 20 years, 17 to 20 years at a time, to one of five, now maybe six, different companies who have, on average, AA credit ratings. There is no terminal question. I mean, sure, we can all talk about 20 years from now, what will they do inside those buildings? But frame it this way. when we go into these investments, we do them in a way where if you even assumed all of that infrastructure, that $30 billion of infrastructure that was built, was worthless, you still have a good investment. And if you assume it has a very small residual value in nominal dollars, remember this is 20 years later, inflation adjusted, well then you're making your double-digit returns, and if you actually ends up having some meaningful, useful life, well, I mean then, you know, off to the races, and we don't have to worry about all the upside cases. And then I'll just make this qualitative comment. None of us in this room know what 20 years from now all that will look like a silly exercise. But I will observe this about the part we build. And you've visited these sites, and those who haven't, it's worth doing. And by the way, we're happy to host anybody who wants to. No, it's really something to see. What is it that we deliver? We deliver power, reliable, backed up power that can never go out 24-7, 365. And when you take power and you convert it through any known technology, again, I don't know, 20 years from now, you produce heat. Has to happen, right? That's what happens. You take the energy and you convert it to a digital activity. So what do we really have? We spend $30 billion producing a massive power input, cooling output, always reliable piece of infrastructure. And what's important to remember is this, it doesn't really matter to us if there's 40,000 chips in one data hall as there is today. Or if in some mystical world 20 years from now, it's one mega chip that sits in the middle of that, like almost in a sci-fi movie, you go in and there's like this one little chip in the middle. it still takes the two gigawatts of power produce its physics right at the end of the day no energy is created or destroyed and so the energy is produced the heat's produced and we have to take it away so i would actually say if you want to go into wild speculation about 20 years from now you still need the power you still need the cooling whatever sits in the middle of it so i think there's a lot to like about that and again importantly i do find people oh, yeah, I'm not comfortable being in Louisiana. Oh, I wouldn't want to own that. Oh, that's, I don't know about that data center. I honestly ask yourself, really? I mean, you really don't want to be an owner of a 20-year eight cap rate product to a AA counterparty with rent escalators at a rock solid lease? You really don't want that? I'm pretty sure you do.

There's a question from the audience on that. How do you evaluate the hyperscaler's ability to stick to their obligations given the revenue to kind of back how much they're committing? Isn't really there yet? And are you just relying on their credit rating and name brand?

Well, we're really relying for sure on their credit rating. These are all often complicated structures, but at the end of it is a commitment from the corporate user. And this is where our triple net lease experience is so deeply valuable. So maybe data centers are like a newish idea to people. And this triple net long data lease is a little newish to people. But it's 15 years of what we've done in triple net lease. And like in every business, yeah, look, you learn through mistakes that happen over the course of time. Now, you don't want people doing those mistakes on your dollar on a $30 billion project. So yeah, definitely tread carefully with who you invest with. But what we've done is over 15 years figure out exactly how to write those leases. And by the by, we have watched leases other people have signed. And they have some holes, doesn't mean there'll be a problem, but they're not ideal. And I like to think we have done leases that we, nothing's perfect. You can fight over anything you want to fight over. But we know a lot about, having done it, I think we have 3,000 properties that we've done triple leases on over the course of history. So I'm pretty sure we know how to get those leases to be as airtight as they can be. And that's the key, because we're counting on their credit. Now, it's never a good idea to own an asset that is fully uneconomic for its user. That's just a bad idea, because you create a bigger and bigger gap to want to get in a fight. Well, these, back to my point, they're loading $90 billion of stuff in here. It's not uneconomic. Now, whether it was a wise or not that wise choice to spend a trillion dollars on this infrastructure. I'm under qualified to comment on. If you want to bet on my opinion or you want to bet on Sergey Brin's opinion, bet on Sergey Brin's opinion. Bet on Mark Zuckerberg's opinion, bet on Larry Ellison's opinion. These are the most successful tech entrepreneurs or entrepreneurs of our lifetime, Elon Musk. They all say this is a great idea, we can't have it soon enough. So I'll defer to them. But in any case, that's their decision. They own all the upside, and there is no case, there's no case where these assets don't produce profits. It's only a matter, and this is another thing that's lost. They'll produce revenues, they'll produce profits. Will they produce enough to have made it worth spending the trillion dollars? Well, that I don't know, we'll find out. And so, and then you have to really be realistic. Are we, Microsoft has a triple A rating. They're gonna pay their bills. Yeah, we're one of their largest landlords in the world. where Amazon's largest landlord in the world. They're going to pay their bills. The conversation ends up often migrating to, well, what about Oracle? I mean, they have a mere $600 billion market cap. And sure, there's a difference between a BBB credit rating and a AAA credit rating. They're mighty good credit ratings, but they all have big backlogs of revenue also. And again, it's not zero or one. They're going to produce a lot of revenue out of these products.

All right, I want to touch a little bit on your asset-backed business. You acquired a business called Adalaya. It feels like this is, you know, through the lens of the direct lending concerns, a business that could see more demand. So how is the demand algorithm tracking for ABF? And given the noise we've seen this year, are you actually seeing that accelerating?

Yeah, so ABF, so let's, again, I always come back to start with, is it working? And it's absolutely working, which is to say the returns and loss experience there has been excellent across the board, both in the funds. So we might get here again, we have an opportunistic fund and then we have this adjacent wealth product. Both are thriving. And in fact, the the fund we reported, I think had a high teens return. And the wealth product is doing great with very, very low loss rates and great returns, not flawless. It's always that there you're ever more built for the idea that asset pools will have things that perform things, that underperform structures that capture that. So the product is working for the investors. In terms of ramp up, that's one, as I said, is very early in introductions. We're just getting it into platforms. And again, back to my ripple point, no doubt my observation would be, direct lending takes most of it. But then you get a ripple out into people don't delineate for some direct lending from private credit. So I think you saw some muting across all of asset-backed lending as a sector compared to where I call it It should be and I think we'll get back to much sooner It didn't go down in the same way either, but that sort of acceleration up the curve You got to pull this haze a little bit off of the term private credit So that probably like lagged the ramp up a bit from what I would consider Expected or ideal, but interest there is high. You didn't get the redemption cycle there So the delineation was already in place. Now you've got a broad distribution, get adoption. It probably will be the beneficiary, if I had to speculate, on if people just have a, I don't know, I just read the direct lending. Okay, well, here's a different credit product. It gives you the same experience. You don't have to decide if you do or don't like direct lending. So I think we'll actually see movement of dollars over the medium term, probably that direction.

Okay, great. So taking all this together, I sense investors are a little skeptical of your guide of high single digit basically fee related earnings growth this year particularly given the gross flow dynamics we've seen in the second quarter so could you put some more meat around that view maybe and help help kind of lay out the levers you see as providing enough juice to kind of offset the downdraft we've seen in the credit flows so we so you know what let's start with the core business model below fee-based revenues off of permanent the capital vehicles for enormous predictability.

When we start the year, we know a whole lot about what that year is gonna look like. Funds flows today into a wealth product are largely about next year. And funds flows, this question of inflows, redemptions, absolutely will affect the trajectory. But remember, we managed $315 billion. And when we get down to this funds flow question, We're down here in a corner where we have $23 billion of total NAV, $20 billion in CIC, $3 billion in TIC. So this is really small, so let's park that to the side. So we're really talking about in this $20 billion, a 5% outflow is $1 billion. So we're talking about the delta between is are you out $1 billion or pick whatever inflow number when things were full throttle and your inflow over $1 billion. dollars. So that's the delta. It's a couple billion dollars, which I don't take lightly, but it's a couple billion dollars against a $315 billion denominator. And, you know, this point joined to about a part year. So what I would say is that is a very modest input to the 2026 question. On the other hand, products like the success we're having in raising our next real estate fund, and the success we're having in Orentis kind of a direct offset, same thing on timing but that has money coming in and as we go out with our digital infrastructure product those are all bringing in revenues sooner and we're deploying at rates much higher than logically one would have expected so there's offsets in there turns on as deployed as the point yep and then we have and therefore as a result we have 350 million dollars in revenues from funds under management not yet deployed and we're still raising obviously a lot of new funds. So I think the way I would say is this, is we're, we are aiming to be predictable, as always. We do appreciate the market is a little more uncertain. We do appreciate the picture on things like fundraising will be a little harder to predict for some period of time, mostly because of the wealth topic. You always have the episodic nature of fund closings and the like. That's not new. So of course, there'll be a little less certainty on fundraising. But But when we look out, and we have a lot of visibility on our revenues. And look, our job is to keep delivering it for our shareholders.

Well, I have a lot more I want to talk about, but we're out of time. Well, we'll take it offline. Yeah, yeah, thanks a lot, Mark.

Thank you very much, Pat, we appreciate it.