Blue Owl Capital Inc.

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Blue Owl Q4 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. Please limit yourself to one initial question, and you may re-queue for a follow-up. Thank you. And I, Head of Investor Relations, You may begin.

Thanks, Operator, and good morning to everyone. Joining me today are Doug Ostrover, our Chief Executive Officer, Mark Lipschultz and Michael Reif, our Co-President, and Alan Kirschenbaum, 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 in the Investor Resources section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl Fund. This morning, we issued our financial results for the fourth quarter and full year of 2022. For the fourth quarter, we reported fee-related earnings, or FRE, of $0.16 per share and distributable earnings, or DE, of $0.15 per share, bringing full-year FRE to $0.57 per share and full-year DE to $0.53 per share. We declared a dividend of 13 cents per share for the fourth quarter, payable on March 6th to holders of record as of February 24th, and also announced a fixed dividend of 56 cents for 2023, or 14 cents per quarter, starting with our first quarter 2023 earnings. 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.

Thank you, Anne, and good morning, everyone. Today we reported another strong quarter of growth for Blue Owl, capping off our first full year as a public company. Since Blue Owl's entrance to the public markets, we have grown our AUM by 122% and fee-paying AUM by 107%, anchored largely by permanent capital. And over the past year, we have achieved over 40% growth on the key metrics we use to evaluate our business, including management fees, FRE, and DE, and have maintained an industry-leading margin of 60%. This extraordinary growth has been driven by robust fundraising and capital deployment, despite a very challenging period in the markets. Let me provide some color on our achievements that drove this growth. We raised 25 billion of fee-paying AUM in 2022, bringing us halfway to our 50 billion fundraising goal for 2022 and 2023. Notably, in the third quarter of 2022 alone, we raised more equity in that quarter than we had the entire year of 2021. reflecting robust demand and the expanding power of our increasingly global and integrated fundraising platforms across institutional and private wealth channels. Our strategies appeal to investors looking for positive leverage to rising interest rates, income generation with downside protection, inflation hedging, and access to the positive secular trends across the alternative asset manager space, and we continue to see strong demand for these investment characteristics. Not only have we had strong fundraising trends, but our redemptions from products that offer quarterly tenders have remained de minimis, with just 186 million of tenders received on the $13.4 billion of fee-paying AUM managed by those funds. or less than 1.5%. By contrast, inflows into those same products were close to $1.6 billion during the quarter. Private wealth remains a successful market for Blue Owl, with healthy flows despite a more challenging market environment, a testament to the attractiveness of our products and the relationships we've built in the space. In direct lending, we had gross originations of $22 billion for the year, just slightly off our pace from the prior year, despite a 20% decline in U.S. leveraged loan volumes and a 42% decline in announced U.S. M&A transactions. This speaks to the increasing breadth and scale of Blue Isle's platform, as well as the importance of direct lenders in today's marketplace. Volatility and uncertainty have created an environment where other market participants are unable or unwilling to lend capital despite the very attractive opportunities present today, and we are benefiting greatly from that dynamic. In GP Capital Solutions, we deployed about $4 billion of capital, completing transactions with world-class managers such as Dragoneer, KPS, Veritas, and PAI, and bringing us to 70% committed for Fund 5. During the fourth quarter, we held a final close for Fund 5 at nearly $13 billion, over 40% higher than our $9 billion target during a period that many across the industry have described as a difficult fundraising environment. And in real estate, we are now fundraising for our net lease strategy across multiple product offerings, and we are off to a great start. We closed approximately $2 billion for our drawdown product during the fourth quarter and are confident in reaching our fundraising target during the first half of 2023. In this current market environment, what we're seeing is that the safety, inflation hedging, and tax-advantaged yield characteristics of this strategy have resonated with investors, and the cost of capital relative to the public markets has resonated with companies. We're very proud of the substantial asset growth Luau has achieved over this short period of time, but our goal is not to be asset gatherers. Not all AUM is created equal. And our focus is on raising very long-dated assets with attractive fee and margin characteristics where we can provide a differentiated experience for our investors. That is how we look to drive meaningful earnings and dividend growth for our shareholders. And we believe that should translate into substantial value over time. And we look to do so in a way that is predictable and resilient to a wide range of market conditions which is why our permanent capital base and FRE-centric model are so important. Since our investor day in May, sell-side analysts' expectations for 2022 earnings growth across our peer groups steadily declined as the street adjusted its view of carried interest and other difficult-to-predict earnings streams. In contrast, expectations for Blue Owl were unchanged. speaking to our differentiated financial profile, and we delivered on what we said we would do, achieving our goal of reaching $1.3 billion of revenue in 2022. For the year, Blue Owl generated FRE growth of 46% and DE growth of 42%, while maintaining an industry-leading 60% FRE margin. This is especially notable given the market headwinds present throughout the year, which impacted the larger financial sector. We have nearly doubled our dividend over the last six quarters. And as Alan will highlight in greater detail later, we are now moving to a fixed dividend that we expect to grow meaningfully over time. Our asset base is very resilient. It's based on permanent capital. Compared to our peers who must monetize assets, return capital, and raise a new fund and hopefully larger fund, we generally hold on to the assets we have. So each dollar of incremental assets raised is additive to our capital base. This is what we call the layer cake model. On top of that, we have over 10 billion of AUM that will start paying fees once the capital is deployed. providing incremental visibility into our earnings growth ahead. This is what we call the embedded earnings power of our business. All of this should sound familiar to those of you who already know the Blue Owl story. Although the public equity and credit markets have been volatile, although interest rates have moved significantly this year, and although inflation rose swiftly and has remained persistently high, weighing on GDP and many corporate earnings, The core goals that we outlined for you at Investor Day back in May have not changed. And for those that are just getting to know us, we think the past seven quarters as a public company have proven out the predictability, the stability, the resiliency, and the growth potential of our business. Looking to 2023, we're excited about the runway we see ahead In spite of the challenging market environment, we continue to progress towards the financial goals we laid out for our shareholders at Investor Day. We are committed to providing strong performance, attractive income solutions, and downside-protected returns for our fund investors. We continue to deepen the relationships we have with our current institutional and wealth partners and build many new ones. and we continue to innovate to stay ahead of the competition and drive growth for our shareholders. The market backdrop has changed significantly since we've been public and continues to shift. But we think Blue Owl's business was purpose-built for this type of market, and our value proposition increases during environments such as these. That's not to say that these are easy environments to navigate, to fundraise through, or to deploy capital into. It is truly a testament to the incredible efforts of our employees, the invaluable expertise we have across the firm, and the benefits we're seeing from bringing these businesses together. Ultimately, the way I think about our business is this. We operate a capital-light model focused on subsidizing capital return to shareholders, supported by a very stable and growing asset and fee base, essentially an annuity with growth. And in thinking about our earnings profile over the next few years, the question for us is not, as it is for many companies, whether we're going to grow. It's how fast we'll grow. That is the value of permanent capital and management fee-driven earnings. 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. Great. Thanks so much, Doug.

Throughout the fourth quarter, Blal continued to play an integral role as a liquidity provider to sponsors in a market where capital has been scarce. We continue to see attractive opportunities at wider spreads and lower loan-to-values than a year ago, financing large and high-quality companies. In 2022, gross originations and direct lending were $22 billion, just 7% below our 2021 originations, despite a meaningful drop off in industry volume. We looked at nearly 70 deals with facility sizes in excess of $1 billion, well exceeding the over 40 investments of that size we evaluated in 2021. In the fourth quarter, gross originations were $3.5 billion and net funded deployment was $2.5 billion. A moderate slowdown from our year-to-date pace that reflected timing considerations and slower repayments. We remain constructive about the deployment environment and continue to see a robust pipeline for investment, though we don't anticipate origination volume to look like the second half of 2021 and the early months of 2022 until there's a broader recovery in M&A volumes. Credit quality always remains a key focus for us, and we have been very stringent in our underwriting standards from day one. closing on approximately 5% of the deals we've evaluated since inception. We have been focused on the larger end of the direct lending market, financing companies that are key strategic players in their respective markets. In addition, we've largely stayed away from cyclical businesses in sectors that we view as carrying greater risk. We believe this selectivity has benefited the investors in our funds and our loan portfolio remains in very good shape. Since inception, we have originated over $73 billion of loans with annualized realized losses of less than five basis points. And inclusive of realized gains, we've actually had annualized net realized gains of three basis points. Our weighted average loan value remains in the low 40s across our direct lending portfolio and in the low 30s across our tech portfolio. We've continued to see resiliency in the portfolio with ongoing positive revenue and EBITDA growth. at the underlying companies despite the headwinds of inflation. Now turning to performance, the direct lending portfolio achieved gross appreciation of 3.6% for the fourth quarter and 9.4% for 2022, outperforming the leveraged loan index by approximately nine points and the high yield index by over 20 points for the year. Now moving to real estate, we continue to see high levels of interest in our net lease strategy from investors and companies alike. With corporate borrowing costs elevated and financing markets choppier, the attractiveness of a net lease solution has resonated and our pipeline of opportunities remains robust, with roughly $5.1 billion of transaction volume under letter of intent or contract to close and a near-term pipeline of about $24.5 billion of potential volume. Inclusive of announced acquisition activity, we have invested or committed nearly all of the equity in our fifth closed-end fund. Persistently high inflation remains a focus for many investors, driving demand for a net lease strategy with desirable inflation hedging characteristics as the CapEx, maintenance, taxes, and other expenses of owning real estate are borne solely by the tenant. Our latest open-end product, Net Lease Trust, has reached $1 billion of capital raised, primarily through just one large wire house platform, and we look forward to continuing to expand the syndicate over the coming quarters. And we held the first flows on our sixth drawdown fund for our net lease strategy at approximately $2 billion and expect to wrap up fundraising sometime in the first half of 2023. We achieved gross appreciation across our real estate portfolio of 4% for the fourth quarter and 20.6% for 2022. We think these are noteworthy risk-adjusted returns for the very strong underlying credit profile of these portfolios, particularly given the downside protection presented by the contractual income streams and the long-duration leases. In summary, we continue to see very strong demand from investors for our income-generating, downside-protected strategies across our direct lending and real estate businesses, and we continue to find attractive opportunities to put capital to work. With that, let me turn to Michael to discuss GP Capital Solutions.

Thank you, Mark. 2022 was a very successful year for our GP Capital Solutions business as we closed our fifth fund at a record $12.9 billion, over 40% above our initial target, making it the largest fund ever raised in the space. During the year, we deployed about $4 billion of capital into attractive opportunities, closing nine transactions in Dial 5 across new and existing partner managers. This is consistent with our long-term deployment objectives, and makes 2022 one of our most active years ever. We now have 17 partner managers in Fund 5, constituting a diversified group of world-class managers that we believe will grow substantially and benefit most from the growth and market share trends that shape private markets today. Given our scale, we remain focused on the largest firms within the alternatives universe. And those are the managers that continue to raise the lion's share of institutional and retail capital. And we see this dynamic accelerate during years where the fundraising environment is more challenging. Through the third quarter of 2022, funds greater than $1 billion received roughly three-quarters of the total capital raised across the industry, up from two-thirds in prior years. Total invested commitments for Dial 5, including agreements and principles, will bring Fund 5 to $8.9 billion of capital committed, or roughly 70% of the funds. The forward pipeline remains strong, and we continue to evaluate numerous opportunities that are quite attractive. Our business services platform, which provides strategic value-added services to our partner managers across key areas such as corporate strategy, talent management, ESG advisory, and data science, remained very active during the year. The team at BSP supported our partner managers with growth initiatives across their businesses, assisting with recruitment efforts, advising on new product launches and M&A, and working with them on digital transformation projects, among others. Performance across style funds remains strong, with a net IRR of 24% for Fund 3, 51% for Fund 4, and 37% for Fund 5, all of which compare favorably to the median returns for private equity funds of the same vintages. Moving to our professional sports minority investment strategy, we have sold our minority stake in the Phoenix Suns at an attractive multiple, In addition, to date, we have closed on over $500 million of commitments to the strategy. We're very optimistic about what the next 12 months hold for the GP Capital Solutions business. LP demand for GP stakes remains high, as demonstrated by our recent Dial 5 fundraise, and we look forward to expanding the breadth of our investor base even further with the next fund. From a deployment perspective, we continue to see robust interest from well-known and scaled alternative asset managers. We look forward to launching conversations with investors on Fund 6 later this year and are actively working to expand our LP base further, exploring additional strategic relationships and partnerships in wealth and educating our combined institutional investor base on the benefits of GP solutions as a strategy. With that, I will turn things over to Alan to discuss our financial results.

Thank you, Michael. Good morning, everyone. I'm going to start off by walking through the numbers for the fourth quarter and the full year 2022. 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, so please feel free to have that available to follow along. To start off, we are very pleased with our fourth quarter and full year 2022 results. As you can see on slide five, we are right where we said we would be and have achieved the goals we set out for ourselves in 2022. We achieved our goal of $1.3 billion of revenue, We achieved our goal of a 60% FRE margin, and we tracked nicely in very tough and volatile markets against our goal of raising 50 billion of fee-paying AUM by the end of 2023 by completing the year 2022 with 25 billion raised halfway towards our goal. Some other key highlights include total revenues are up 47% year-over-year, FRE is up 46% year-over-year, and DE is up 42% year-over-year. All of this was because we built our business differently than our peers. We built our business with a foundation of permanent capital and steady, predictable management fee cash flows. Okay, let's cover our quarterly and full-year results. Our fourth quarter was another quarter of strong growth for our business. Management fees are up 24.1 million, or 7% from last quarter, and up 61% year-over-year. when you adjust for one-time catch-up fees in GP Capital Solutions. Broken down by strategy, direct lending management fees are up 21.2 million, or 12% from last quarter, and up 48% year-over-year. GP Capital Solutions management fees are up 1.3 million, or 1% from last quarter, and up 53% year-over-year, excluding catch-up fees. And real estate management fees are up 1.6 million, or 8% from last quarter. Compensation expense came in, in line with our expectations, at 27% comp to revenue. G&A expense came in, also in line with our expectations, at $46 million for the quarter. For the full year 2022, total G&A costs came in at about $170 million, placement costs being approximately $70 million of that, and regular way G&A expense, excluding placement costs, being approximately $100 million. As we think about 2023, we're expecting a roughly similar level of overall G&A expense, maybe slightly higher, with placement costs likely down and regular way G&A higher, driven by the overall growth of our business. FRE is up 12.1 million, or 6% from last quarter, and up 46% year over year. Our FRE margin came in right on top of the 60% level that we've all spoken about on previous calls. And we announced a dividend of 13 cents per share for the fourth quarter, up from 12 cents per share last quarter and 10 cents per share in the fourth quarter a year ago, resulting in a 30% increase in our dividend year over year. All of this is in line with our expectations and what we noted at Investor Day in May of 2022 and on our earnings call last quarter. Now I'd like to spend a moment on our fundraising efforts. We were pleased with our results for the quarter, in particular, considering the strong headwinds and challenging markets the last six months. As a reminder, as you can see on slide 13, in the fourth quarter of 2021, we raised $3.9 billion, and now in the fourth quarter of 2022, we raised $4.9 billion. I'll break this down across our strategies and products. In direct lending, we raised $1.7 billion, almost $1 billion raised in our tech lending strategy, and over $700 million raised in our diversified lending strategy, including almost $600 million raised in our retail distributed core income BDC, ORCIC. In GP Capital Solutions, we raised approximately $600 million as we completed the fundraise for Fund 5. In terms of guidance for a run rate revenue number for 2023 for the GP Capital Solutions strategy overall, I would think of that as around $550 million. In real estate, we raised $2.7 billion, $1.9 billion in our new real estate fund six. We generally expect to wrap up fundraising for this product in the first half of this year, and we remain on track with our investor day goals for fundraising here. And $800 million for our net lease trust product, our new non-traded REIT. As it relates to our AUM metrics, on slide 12, we reported AUM of $138.2 billion, fee paying AUM of $88.8 billion and total permanent capital of $110.7 billion. AUM not yet paying fees with $10.8 billion as of December 31st. AUM grew $6.1 billion to $138.2 billion, a 5% increase from last quarter and a 46% increase from the fourth quarter a year ago. Fee paying AUM grew $4.7 billion to $88.8 billion, a 6% increase from last quarter and a 45% increase from the fourth quarter a year ago. Both metrics driven primarily by capital raised in deployment and direct lending, capital raised in GP Stakes Fund 5, capital raised in Real Estate Fund 6 and the REITs, and when looking at the growth from a year ago, the addition of our CLO business. Permanent capital grew $4.7 billion to $110.7 billion, a 4% increase from last quarter, and a 40% increase from the fourth quarter a year ago. As a reminder, 94% of our management fees are from these permanent capital vehicles. AUM not yet paying fees was $10.8 billion, including $7.4 billion in direct lending, $1 billion in GP capital solutions, and $2.4 billion in real estate. This AUM corresponds to an expected increase in annual management fees, totaling over $140 million once deployed. As Mark highlighted earlier, in our direct lending strategy, we had gross originations of $3.5 billion for the quarter and net funded deployment of $2.5 billion. This brings our gross originations for the last 12 months to $22 billion with $14.4 billion of net funded deployment. So as it relates to the $7.4 billion of AUM not yet paying fees in direct lending, it would take us about two quarters to fully deploy this based on our average net funded deployment pace over the last 12 months although our current deployment pace is a little slower than that. Turning to our balance sheet, we continue to be in a strong capital position. As you can see on slide 21, we currently have about $1 billion of liquidity with an average 14-year maturity and low 2.9% cost of borrowing. Now let's spend a few minutes talking about 2023, both our P&L and our move to a fixed dividend. When we think about our P&L, we have previously stated our goal for 2023 was to generate $1.8 billion of revenue, double our 2021 revenues, and would represent a 35% growth from 2022. We have previously stated our goal was to raise $50 billion of fee-paying AUM over the course of 2022 and 2023. As I mentioned earlier, we are halfway there through the end of 2022. The market backdrop is incredibly challenging, though. And what we're seeing is a little of a mixed shift in our fundraising, with some pressure on retail channels, but we're seeing continued institutional interest. We'll continue to update you. It's clearly a bit fluid, but we are tracking towards the $50 billion goal. And most importantly, we have previously stated our goal for 2023 was to generate $1 billion of distributable earnings, which would be an increase of approximately 35% from 2022. And these remain our expectations, despite the very challenging market environment we are living through right now. Now turning our focus to our fixed dividend for 2023, here's how we thought through it. As I just noted, we expect to post $1 billion of DE in 2023. We currently have approximately $1.4 billion of outstanding shares. That math kicks out roughly 70 cents per share in distributable earnings for 2023. We feel it's prudent from a capital allocation policy perspective to fix our dividend at 56 cents for 2023 or 14 cents per quarter to allow flexibility for capital allocation uses such as our share buyback program, funding GP commits, and potential strategic acquisitions. And that comes out to an 80% distribution rate in line with our policy of maximizing our distributable earnings payout ratio and a dividend yield over 4% based on our current share price. Based on our 46 cents in dividends in 2022, this year's 56 cents represents a healthy increase in our dividend of 22% year over year. Looking forward, we expect to significantly increase our dividend on an annual basis, progressing towards our 2025 goal of $1 per share. So to wrap up here, before getting to Q&A, there are a few other items I want to cover. A final update on buying back shares for 2022. Over the course of the year, we bought back approximately 7.8 million shares for a total of approximately $81 million. On a separate note, I have commented throughout the year about the rising rate environment we're in and the potential impact it could have on our business. As expected, and in line with our previous guidance, we saw another increase in our Part 1 fees from the previous quarter. In the fourth quarter, included in our management fee line, our Part 1 fees from our BDCs increased $15.4 million were 25% from the third quarter. A large portion of this was driven by higher interest rates, and some of it was from AUM growth in our newer BDCs like ORCIC and ORTF2. We are expecting to see some additional increases in our Part 1 fees in 2023, albeit at a much more modest level as interest rates begin to stabilize in 2023 from the large increases in 2022. Now to shift gears to taxes. So what do taxes look like in 2023? To give you some guidance here, it's best to remind everyone about our structure. Largely because the formation of Blue Owl was a taxable transaction to certain shareholders, Blue Owl now has certain tax benefits that we will be able to use for a number of years. It's hard to predict what those benefits are year to year, but for 2023, you should assume an overall tax rate in the mid-single digits. As for 24 and 25, for now we would suggest using a low teens tax rate. Again, taxes are hard to predict, but as we go through the year, we'll continue to update you on what future tax rates may look like. And finally, driving shareholder value. Earlier in 2022, we made a change to our voting structure, which enabled us to be added to the Russell Indices, and today we announced a fixed dividend for 2023. We believe that these initiatives will help drive shareholder value over time, and this will remain an area of focus for us. So summing it all up, we are very pleased with how the year wrapped up. We delivered strong growth year over year in all of our key metrics, AUM, fee-paying AUM, permanent capital, management fees, FRE, and DE, with each of these metrics up over 40%. As I think about all of the items I just ran through in my prepared remarks, I see them as a very strong message about our business model. In these times of market dislocation, volatility, and overall strong headwinds, We continue to demonstrate strong, predictable, high-margin growth. Thank you again to everyone who has joined us on the call today. With that, operator, can we please open the line for questions?

Thank you. As a reminder, if you'd like to ask a question, please press star then 1 on your telephone keypad. Please limit yourself to one initial question, and you may recue for a follow-up. Our first question is from Alex Blostein with Goldman Sachs. Your line is open.

Hey, good morning, everybody. Thanks for the question. So maybe we can start off a little bit higher level, given the first question, just around the confidence on 2023 targets for you guys. So obviously, if the retail backdrop is a bit softer and capital markets trends are not as helpful, there might be questions just around ability to both kind of get to the retail numbers, but also to recoup some of the fee waivers and see some of the fee step ups that I think were originally incorporated in your kind of walk back from the investor day. So maybe put some meat around the bones on kind of what gives you confidence that you can hit the targets that you guys have outlined and sort of help bridge the gap from where we are now to what the goals are.

Sure. Thanks, Alex. It's Alan. Thanks for the question. So we continue to look at our forecast. We go through it every quarter. We refresh it every quarter. I did mention that to your question or comment about softness on the retail side, we are seeing a little bit of a mixed shift where retail we think in 2022 we saw retail raise a little more than institutional and what we're thinking out of the 25 billion that was raised. And what we're seeing sitting here today is the inverse of that, which is we raised the other 25 billion in 2023. an institutional raise a little more than retail of that final 25. So we are seeing a mixed shift in that. I commented on that. We don't know what the markets hold in terms of IPO markets or any of our products stepping up to full fees. But as you know, when we turn the lights on every year because of the permanent capital base that we have, 94% of our management fees are from permanent capital. We have a very steady, predictable cash-flowing business. And so we are expecting, based on all the inputs that go into our forecast, for us to hit the billion aid of revenue, the billion of DE, and the $50 billion of fee-paying AUM raise.

Hey, Alex, just one comment. I think you know this, but just remind everybody. Look, we raised $25 billion last year in what I would describe as a really challenging and choppy market. We're not saying it's going to be easy, but as we go through and take a look at what we have in the market and do a demand assessment, both retail and institutionally, we feel pretty good about hitting that number. But I think you know this. Assets are clearly really important to us, but our ultimate focus is on earnings. And Alan mentioned this. We feel very good about... hitting that billion of DE in 23.

Great. Thank you both.

Thank you.

Thanks, Alex.

The next question is from Glenn Shore with Evercore ISI. Your line is open.

Hello there. Hey, Glenn. Hello. Look, I wish I had even more dry powder. because it sounds like the investing landscape, particularly on the direct lending side, is pretty good. So I wonder if you could talk to, you know, I think that indigestion in PE land for LPs is well known. Could you talk about the state of direct lending backdrop? I would think given the availability of like much better yields on an on-lever basis out there, there'd be a lot of demand on the institutional side. in direct lending, but can you put that in a package for us and how it feeds into obviously your confidence in 23? Thanks.

Absolutely, Glenn. So it's a great question. First of all, I share your wishes. We wish we had more dry powder also in direct lending. It really is an exceptional time. 2022, the intersection of credit quality, most importantly in a Blue Owl world, as well as spreads, terms, sort of all the intersecting components, you know, is as good as we've ever seen. And, you know, reflects itself ultimately in the role direct lending played in 2022 and continues to play. You take a look at the largest take private transactions all of the year, about half of them, were done by direct lenders. And frankly, of those half, we were a lead in almost every one of them. And we really think the opportunity is tremendous. We think about just looking over a year, a year and a half between base rates and then some incremental spread one gets today on an incremental loan. You go from a world of making an 8% unlevered to making a 12% unlevered. It takes senior secured risk. and, in fact, many of these were software, which we particularly specialize and lead in. You're talking about loan-to-values in the low 30s. So all the way of reinforcing, you know, I think your observation about the market, it's a very attractive time for us to deploy capital, and I would say institutions get that. We are seeing a lot of interest from institutions because they see the risk return. You'll be able to generate double-digit net returns to take extremely high in the cap stack risk in an uncertain world is pretty appealing. So we are seeing a lot of interest on the institutional side, and we continue to see a lot of interest on the retail side. As Alan said, a bit of a mix shift, but in many regards, there's some turbulence in the retail market, but more than anything, that mix shift probably reflects the strength of institutional drive toward this asset class. And you see people talking about it exactly as that, as an asset class now. For many people, it wasn't even an asset class before. So we're very, very positive on the outlook for institutional involvement in this, again, asset class this year and beyond for that matter.

Okay, thanks. Sorry to hear you're not a KD fan.

Thanks, Brian.

The next question is from Patrick Davitt with Autonomous Research. Your line is open.

Good morning. Thank you.

I was trying to think about what wealth flows could look like this year, and I understand it can be a volatile group of investors. Could you maybe update us on how the gross sales and redemption requests look so far in one queue? And then secondly, how is the – What is the visible pipeline for adding new platforms, and what's your best guess for the cadence of those coming online for each of the three big retail products?

Sure.

Thank you, Patrick.

I'll cover the redemption side, and then Doug will talk to pulling the lens back, what are we seeing, and how are we building our syndicates. So on the redemption side, we are seeing much lighter redemptions than others in the space. We have the similar 5%. per quarter levels in our docs. And we're seeing about half of that come through by way of redemptions. And that's actually been pretty consistent the last three or so quarters in a row. And more importantly, on the net flow side, we are still seeing very positive, strong net flows. So the net flows coming in, the gross flows are significantly above the redemption levels in each of our products.

Sure. Thanks, Patrick. So look, we really weren't that surprised to see wealth flows slow down during 22. The markets were incredibly volatile. And I, you know, we got into this seven, eight years ago. We never thought it was going to be a straight line up to the right. And I can tell you as an institution, we're still really excited about the opportunity. We still believe that over time, I can't tell you the exact amount of time, but over time, trillions of dollars are going to go from the wealth channel into the alternative space. And I think we are uniquely positioned to capture more than our fair share of that money flowing in. I think Alan commented during his comments across our platform in the fourth quarter, We had 2.2 billion of inflows from the wealth channel, and we only had 186 million of redemptions. Let me say that one more time. 2.2 billion of inflows, 186 million of redemptions. We think that's pretty good. And as you think about the markets going forward, if they were to remain choppy or volatile, it's probably a good starting point for us. No guarantees, but I think what we've done is a couple of things. One, with the market pulling back, it's given everybody a chance to just catch their breath. And so we have been out, we've met with all the wire houses, our RIAs, other distributors, spending a lot of time on education. And I think that's helped minimize redemptions. But we've also gotten a sense of, what are the products they think they want to bring later this year, early next year? And I can tell you that two things I feel pretty good about. One, over the next 12, maximum 18 months, you will see us introduce into the wealth space a number of differentiated products. And two, and I can't give you exact numbers and timing, you will see us significantly increase the syndicates for our products that are currently in the market. So net-net, we are still unbelievably bullish, and we're pleased with how we're performing in this difficult market.

Thank you.

The next question is from Brian McKenna with J&P Securities. Your line is open.

Great. Thanks. So I appreciate the color on the dividend and payout ratio. So if I assume an 80% payout ratio on your 2025 dividend of a dollar, that implies $1.25 of EPS or about 35% EPS growth annually in 2024 and 2025. So could you maybe just talk about some of the underlying drivers that will ultimately get you to these figures?

Sure, Brian, thank you. I appreciate the question. We spent a lot of time going through, as I mentioned earlier, the forecast in particular for 2023. but we certainly refreshed on 2025. I wouldn't lock in an 80 percent distribution rate. I expect that we will move around over time up and down from the 85 percent level that we were at in 2022. So this year we're going to do a little lower, 80 percent. You could certainly see us going higher from 85 to 90 plus percent in future years. It really depends on capital allocation, how much we want to hold back depending on you know, things we're talking about at the management table. So that's one. And look, we have a lot of exciting products that Doug and Mark and Michael have talked about on this call and on previous calls. You know, something like GP Stakes Fund 6. We're doing a lot in the real estate business right now, both for Real Estate Fund 6 and the new REIT that we just launched later last year. And then in the direct lending business, we have a number of new product rollouts as well. we would continue to expect to grow our business year over year at pretty substantial growth rates and be able to put up that dollar share dividend that we've all talked about in 2025. Helpful.

Thanks, Alan.

Of course. Thank you, Brian.

The next question is from Adam Beattie with UBS. Your line is open.

Thank you, and good morning. Just want to ask about some of the underlying performance in the direct lending book. A lot of the questions and concerns we have from investors is around sort of credit quality and you know recognize that you guys have had really de minimis loss rates over the years offset by gains etc you know but just in terms of the underlying portfolio you know whether it's maybe non-accrual rates or you know or EBITDA growth of the portfolio companies or any anything else you could give just to give some color and and support around the performance of the portfolio thanks

More than happy to. Credit quality has always been and will be the central focus for the Blue Owl credit strategies. That's really what we live and breathe. That matters a tremendous amount to us. We focus on it intensely, and thankfully we've been able to deliver world-class results in it. I do want to say, before I jump into the answers to your question, for a Blue Owl shareholder, It doesn't actually matter. Remember, you get paid fees. We have a fee-only business and fee-only business from permanent capital. Now, again, it matters a lot to us because this is what we live and breathe and how we deliver for our LPs. But I just want to remind us, depending on exactly where you sit, and in this case, as a shareholder, it doesn't actually impact you. With that said, credit quality remains very strong. We continue to see very strong portfolio performance. That is to say, if we look at revenue and EBITDA growth year over year, it continues to be very strong across the portfolio on average. We have not seen any material increase in amendment requests. We have not seen a material increase in KIC requests. We continue to monitor the portfolio, but it continues to perform on average very well. Of course, it's an uncertain environment, so I don't say that. as if we're not sitting here spending every day thinking about what happens if, what happens if, because that's indeed where we spend our time and where we should spend our time. But we are not seeing it in the underlying performance of the companies or the portfolio today. I think we only have three companies total on non-accrual across our very large platform. So I think we all continue to feel very good about the underwriting that got us here in the first place and the performance of the portfolio from there. And Just to pull back up and cap it off on the numbers, if you look sitting here today, we've originated about $73 billion in loans since inception, and we continue, as we sit here, to run at an average annualized loss rate of less than five basis points. In fact, when you take into account gains in those portfolios as well, we actually have a net realized gain of three basis points. So really continues to be our strength, and we'll continue to be vigilant, and we'll continue to plan for darker days, but we're in a good place as we head into that.

Excellent. Thank you, Mark, for the detail and my context. Appreciate it.

Thank you.

The next question is from Ken Worthington with J.P. Morgan. Your line is open.

Hi. Good morning. One of the stats you gave is that you've closed on 5% of deals that you've looked at since inception. I guess, how did that statistic look in, say, the second half of 2022? And how did it vary between more general lending versus tech lending? And then along these same lines, what are you seeing from the banks in terms of re-engagement in direct lending as we start the year? And is the 5% close what you'd expect to see for 2023?

It's generally been steady. I mean, look, there are certainly variances quarter to quarter, year to year, but no pattern there of note that we've observed recently. You know, I would say a statistic we obviously pay a lot of attention to. I would say this. Listen, we'd be perfectly happy if the mix of deals was so great that the number was higher. We're always going to do it. Maybe days will be lower, maybe days will be higher. The key is to see a tremendous amount of investment opportunity and be extremely selective. And so whatever that lands to mathematically is more, of course, output than an input. And we continue to really like what we're seeing. There's no doubt that M&A volume, of course, when I said this in my earlier comments, Obviously, M&A volume is down. PE activity is down. And we're not going to defy that. And obviously, our originations, therefore, in Q4 and originations as we enter this new year are lower than they were if you look at comparable times a year ago. So we don't live in a vacuum. But the quality of what we're seeing and the sort of selectivity we can still apply by having 100 people that spent every day out originating and looking at and underwriting and having built these relationships. We have credits that now we've known are in our system. They're likely to stay in our system even when those companies get sold. There's just a lot of forces at work that benefit us as an incumbent and as someone that's proven to be a really reliable partner to so many great firms and great companies. So that's all kind of the context I'd say to selectivity. The was the second part of the question on the banks the banks yeah so you know listen it's a big world out there right it's a multi-trillion dollar credit market and i know a lot of a lot of stories are about the banks versus the private lenders it's a it's a world that needs both now today the private lenders and frankly during covid proved to be the stabilizing force for the market and this is an interesting change if you think about the arc of 20 years which is today the private lenders, ourselves and a couple others of real scale, are the ones that are consistently available to commercial users. And the public markets come and go. So we actually stabilize the capital markets and the economy in a way that, frankly, the public markets used to. The banks play a role in syndication. Today they obviously are sitting on many tens of billions of dollars of paper that they need to work through. So we do not see a meaningfully active syndicated market today. It was really nearly non-existent, so to speak, of in the fourth quarter. So this has been a time where we've certainly taken up a lot of that slack and therefore share, but there'll be plenty of room for both in the world all the time.

Okay, great. Thank you.

Thanks, Ken.

The next question is from Ryan Bedell with Deutsche Bank. The line is open.

Great. Thanks. Good morning, folks. If we can zoom back in on retail, can you maybe characterize how you're sensing that risk appetite? Obviously, it's a tougher environment, but we do have a couple quarters of positive markets. Do you think that is improving the risk appetite near term or people are remaining cautious? And then kind of contrasting that with the conversations that you're having with the gatekeepers of the platforms, are they also cautious or more likely to embrace some of your differentiated products, including real estate? And then I don't know if you want to comment on, you mentioned some new products that you might be rolling out over the next 12 to 18 months. I don't know if you're able to comment on any of those, but any color would be great.

All right. That's a lot for me to try to hit. So in terms of new products, unfortunately, we'll announce them as we roll them out. In terms of risk appetite of the firms, they really want new, interesting, differentiated type of strategies. And the reason the firms, the gatekeepers want it, because that's what the end customers want. They want things that will allow them, allow the wirehouses in particular, to differentiate themselves with their client bases. So they have been very receptive. Now, we haven't rolled any of these out, but I think, you know, hopefully in the next quarter or two, we'll announce at least one and maybe two that we'll be working on. In terms of the risk appetite, the retail investor You know, it's too early to say. With the market up year to date, our flows are still decent, but we haven't seen a big uptick or downtick. But my guess would be if the market stays robust, we will see risk appetite increase, and you should expect flows to increase with the market going up. But really hard to predict the mindset. But I just want to go back to what I said earlier. We're unbelievably bullish about the opportunity. I know there's this focus on quarter over quarter, but we're thinking year over year. And I will tell you, as we go out and we talk to those gatekeepers in particular and some of the largest advisors, they are all very focused on all. So I think we're in the right place. We're well situated. And as I said earlier, I would anticipate we continue to get more than our fair share in the space.

And one thing I could add, it's far from a monolith, this idea of retail products or individual access points. There's a lot of difference in these products, even if by headline they have the same names. Our products, which have been the Blue Owl brand, the Blue Owl place within the system, is all built around products that are about stability, predictability, and very strong yields. Remember, in our credit products, we talked about the strength of the credit performance before. We've also been raising the distribution rates. How many products, how many asset classes in 2022 were people calling investors and saying, I want to let you know the returns are going to be better than you thought? I mean, that's not a common thread. And even when you talk about real estate, definitely not a monolith. Remember, our real estate strategy is very, very different from what else is in the market. Triple net lease, long-dated commitments from extremely high credit quality counterparties where you take all of your expenses and costs and pass them through to the tenant. And you're not talking about trying to buy a building and release it or hope it stays leased and deal with operating expenses and vacancies and and hope for a better cap rate. None of that is part of our model. Our model is 15-, 20-year leases on critical assets to critical clients. And our product, for example, pays a 7% yield with tax advantage attributes for many investors. So it's just totally different, even though it lives under the word real estate. So even within these categories, there are real differences that I think play to our strength, and we'll continue to develop new products, as Doug said, that hopefully continue that trend. that streak of delivering something different to our partner managers.

That's great, Tyler.

Thank you.

Thank you.

The next question is from Mike Brown with KBW. Your line is open.

Great. Hi. Good morning, everyone. So I wanted to ask on the... I just wanted to ask on the FRE margin. So you achieved the 60% margin target for 2022. And Alan, you gave the G&A guidance for 23. So it sounds like the margin can continue to see expansion into 2023, but just wanted to check, are there any puts and takes we need to consider here? And then, you know, is there a target that you have for 2023? Sure. Thanks, Mike.

Appreciate the question. In 2022, what we saw was, you know, our 60% FRE margin that margin is going to move around a little bit based on, in particular, placement costs, distribution costs. And so, you know, I talked about the mixed shift. Doug touched on the mixed shift as well. In 2023, I'm reaffirming the 60% FRE margin. That's what I think folks should look for and, frankly, expect of us in 2023. That can move up or down a little bit based on where we ultimately end up for placement costs. If we continue to see the mix shift, we see a little more institutional than retail. Institutional takes a little longer to close. It's a little lower fee basis, but also has less placement costs. So if we continue to see that, we could see a little bit higher on the FRE margin. And on the flip side, if retail really comes through, you know, maybe starting in 2Q, but in the back half of the year in particular, We could see a little more in placement costs, a little lower in FRE margin, but that also sets us up to certainly meet, if not exceed, the $50 billion of fee-paying AUM raise. So there's a little bit of a push and pull when you think about FRE margin and think about the mix of our fundraise and how much is from the wealth or retail channels and how much is from the institutional channel.

Great. Thank you for the explanation. Thank you for taking my question. Thank you, Mike.

The next question is from Chris Katowski with Oppenheimer. Your line is open.

Yeah, good morning. Thanks for taking my question. It's a question for Michael, and I guess I just would love a bit more color on the dynamics of the handoff of one fund from another. I mean, those of us who are used to looking at the fund tables from a normal perspective, you know, private equity fund, you know, we watch it get to like 60% invested and then they start raising the next one. And then when it's 80 or 90%, it flops over. But when I look at the fund tables in your most recent 10Q, you know, funds four and five, excuse me, three and four were only about 60% invested. And, you know, presumably the rest of that money is spoken for. but not drawn, and fund five is only about 11% invested, but you're already talking about. So how should we exactly expect that? How does the drawdowns and the dynamics of the handoff from one fund to the next work

Thanks for the question, Chris. What you really should focus on is the date that we, quote, turn on the fund. And that's when economics start to be paid to the management company. And we will then be out in the market raising capital for that given fund. And that can span a reasonable amount of time, upwards of a year or even two. but the fees are all then payable once the commitments come in. So I wouldn't focus as much on the amount of capital that's gone into each fund. We commit to deals of about 100% of each fund. So it's not like that money isn't earmarked for investments. It might not all go in the ground on a rapid fashion. There might be delayed payments that are paid over time. So that metric doesn't really impact the blue out P&L. What we all focus on at the management company level is how much we've raised in total commitments per fund. And we've got about $4 billion left in fund five. That's about a good annual pace for our deployment and our pipeline looks really good. So it's going to mean that we're going to start talking to investors towards the middle to end of 23 about Fund 6. And the key question is, when will we flip the switch and turn on fees for Fund 6? It's likely to be at some point in 24, depending on pacing of deployment for the rest of this year.

Okay, and by the time it flips over and turns over, I mean, let's assume you were targeting 10% or 20% more for Fund 6 than for Fund 5, but presumably the first close would be some fraction of that, right? Correct.

That's correct. It's unlikely that we will have a one-and-done close for a big fund like that. It's not how we typically do it. Okay.

That's it for me. Thank you.

The next question is from Patrick Davitt with Autonomous Research. Your line is open.

Just a follow-up on the guidance this year. Firstly, you mentioned the lighter deployment rate this year. What are you kind of assuming year-over-year in terms of deployment in that guide? And are you anticipating any inorganic growth in that guide? Thank you.

Sure. Thanks, Patrick. Inorganic, I'll leave that to one of my partners to talk about. In terms of the fundraise, I think what we're seeing is a little, or what we're expecting, I should say, Patrick, is a little lighter on the retail side and a little heavier on the institutional side. That balances out to raise the other half of the $25 billion in 2023.

Sorry, I meant deployment. Yeah, because that's obviously a part of the equation as well in credit.

Yeah, with regard to deployment in credit in particular, it's slower right now. As I said, we saw that in the fourth quarter. We see it now. We're not suggesting we have a crystal ball. But, again, remember, with our permanent capital pools, And with the variances, the deals we see, the investments we see, we really like. So our shortage, if anything today, is really capital, certainly not opportunity. Well, put another way, it's the shortage of capital against those opportunities. So the exact state of the M&A market in the second half, don't really know. In terms of impact on P&L, frankly, that really only shows up in the sort of fees, in the arrangement fees. So again, we don't predict that quarter to quarter. We're assuming a more tepid pace this year than we've seen in prior more robust years, and that's what we're built on. With regard to inorganic, if you want a quick comment on that, look, we continue to be interested but extremely selective in the idea of adding adjacent capabilities. When we add capabilities, there's things that are very much front of mind for us, which is, is it really a complementary product that suits our DNA and allows us to sort of deliver on the strengths of Blue Owl and across the platform? Is it a place where we can really deliver a market-leading role and performance? Clearly, in the spaces we're in, In GP Solutions, in TripleNet Lease, we're the clear market leader in direct lending, one of a couple. And that's important to us, that we be in products where we can really lead. We are not all things to all people. We want to be a handful of really good things to a wonderful set of investors. And then culture fit, critically important. To take all that together, Oak Street is certainly a study in the kind of opportunity that we look for. We get a lot of inbounds, as you would expect. and we will continue to look, but that one we can never predict when that will happen or won't happen, but we certainly continue to be active in the inorganic side as well.

That will conclude our question and answer session.

I'll turn it over to Doug Ostrover for any closing remarks.

Well, thanks, everybody. We appreciate all the questions. We're clearly proud of our results for 22. You've heard us in the past describe our business using the words, I think Mark touched on this, stability, profitability, and growth. And just to highlight the growth again, revenue, FRE, DE, AUM, all up well over 40%. year over year, and I think you got a sense on this call we're equally as excited about 2023 and we're reaffirming that billion of DE. So, appreciate all the support and look forward to talking to everyone soon.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.