Blue Owl Capital Inc.

Good morning and welcome to Blue Owl Capital's fourth quarter and full year 2025 earnings call. During the presentation, your lines will remain on listen only. After the presentation, there will be a question and answer session. To ask a question, please press star 1 on your telephone keypad. I'd like to advise all participants that this conference call is being recorded. I will now turn the call over to Ann Dye, Head of Investor Relations for Blue Owl.

Thanks, Operator, and good morning to everyone. Joining me today are Mark Lipschultz, our Co-Chief Executive Officer, 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 on the shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl Fund. This morning, we issued our financial results for the fourth quarter of 2025, reporting fee-related earnings, or FRE, of 27 cents per share and distributable earnings, or DE, of 24 cents per share. For the full year 2025, we reported FRE of 96 cents per share and DE of 84 cents per share. We declared a dividend of 22.5 cents per share for the fourth quarter, payable on March 2nd to holders of record as of February 20th. And we also announced an annual fixed dividend of 92 cents for 2026, or 23 cents per quarter, starting with our first quarter 2026 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 Mark.

Great. Thank you so much, Anne. Blue Owl experienced significant growth in 2025, measured by record fundraising across an increasingly diversified set of strategies globally. We raised $56 billion of capital across the business, including over $17 billion during the fourth quarter, with record years for both our institutional and private wealth channels. During the fourth quarter, we crossed $300 billion of AUM, another milestone for the firm, and we are seeing robust investor demand and investment pipelines across the business as we enter 2026. Our ability to drive strong results for shareholders starts with investment performance, and we continue to deliver for our clients. Investment performance matters greatly to us as it relates to long-term growth for Blue Owl, and if we deliver great results, business growth will follow. Performance of funds we manage remains strong, supported by our focus on generating attractive returns to income, leveraging our scale to create opportunities that offer attractive return per unit of risk, and protecting the downside through investment structure and rigorous underwriting. Our net lease strategy generated gross returns of over 13% in 2025, and our O-Rent product net return was approximately 11%, meaningfully outperforming the FTSE REIT index total return of 2.3% due to our differentiated investment strategy. And fundraising for O-Rent has accelerated. with inflows up 11% quarter over quarter and 55% year over year, making O-Rent the top net fundraiser in non-traded REITs in 2025. On a fully realized basis, our net lease flagship funds have generated a net IRR of 24% since inception. During the fourth quarter, we sold the final assets of our digital infrastructure fund one for a realized net IRR of approximately 11.5%. Direct lending net returns were 8.7% for the year, compared to the leverage loan index return of 5.9%. And our continuously offered BDCs had continued strong performance, with net returns of 7.4% for OCIC and 8.4% for OTIC. And our GP stakes funds continued to generate very strong IRRs, with a significant amount driven by cash yield. In credit, the fourth quarter was marked by a high level of debate and discussion about the health of the private credit markets. The fact of the matter is the trends we observed within Blue Owl's credit portfolios remained strong and did not align with the headlines or investor fears. The sentiment seems to be echoed broadly by other asset managers and banks alike across broader credit markets. As of the fourth quarter, we continue to see resilient KPIs across our direct lending strategy with healthy underlying portfolio company growth and no meaningful movement in our metrics such as watch list, LTVs, amendment requests, or revolver draws. On average, our borrowers have delivered high single-digit revenue growth and low teens EBITDA growth year over year. Specifically, our tech lending portfolio, this growth has been even higher in the low to mid-teens range on average. Notably, since the launch of ChatGPT in November 2022, which is widely regarded as a turning point in AI, borrowers in our tech portfolio have achieved cumulative weighted average revenue growth of nearly 40% and cumulative weighted average EBITDA growth of nearly 50% through September. Our average annualized net realized loss rate has been eight basis points, encompassing realized losses and gains. This remains well below industry average. Remember, this is not a zero-loss strategy. We have hundreds of borrowers, and we will have losses in the portfolio. No one can loan money without having losses. The expectation of our investors is that we will rigorously underwrite our deals to minimize the faults and maximize recoveries over time, which will drive attractive total returns, as we have done very well. In alternative credit, our portfolios similarly continue to perform as expected, putting up gross returns of 16.6% for the year with no meaningful signs of stress. From a fundraising perspective, industry-wide, non-traded BDCs experienced a slowdown in capital raising and elevated redemptions during the fourth quarter. This is in line with what we have seen in prior market environments with heightened volatility and fear. We saw this during COVID. with the Silicon Valley bank failure and after tariffs were announced last year. We've always managed our funds with a sharp focus on leverage and liquidity, and during the fourth quarter, we met all investor requests for tenders as we have every quarter since inception. Our view is that while sentiment for a particular product, strategy, or asset class will fluctuate, Strong risk-adjusted performance is the only thing that matters over the intermediate and long term, and our products have performed very well in this regard across a wide range of economic and market environments. Despite the headwinds, we had a record quarter for equity raised in private wealth, with about $5 billion raised during the fourth quarter and over $17 billion for the full year. We are now beginning to see the synergies of the acquisitions we made over the past 18 months, During the fourth quarter, we held a $1.7 billion first close on our digital infrastructure evergreen product, Odip, which followed an $850 million close earlier in the year on our alternative credit interval fund, OwlCX, which has already reached $1.8 billion of AUM in just three quarters. In 2025, equity capital raised across our five well-dedicated evergreen products totaled $15.4 billion for the year. which represents 66% of the beginning of the period fee-paying AUM in these products, despite substantial market shocks earlier in the year and near-term headwinds in the non-traded BDCs. All this is to say we have expanded and diversified our private wealth footprint substantially, and we continue to feel that we are just scratching the surface of this market. Moving to our institutional business, we likewise benefited from ongoing diversification and the investments we have made in global distribution. we saw record institutional equity fund rates of $25 billion in 2025, up 80% year-over-year and constituting about 60% of total equity raised in 2025. This includes about $5 billion raised for direct lending across funds and SMAs and over $6.5 billion raised for our net lease strategy across our global, European, and co-invest vehicles. Since 2020, the average time to market for a real estate fund has nearly doubled to more than two years, with roughly half of those funds also falling short of their fundraising targets, highlighting the broader challenges in this asset class. Blue Owl's net lease strategy bucked these trends, with our prior flagship fund, Net Lease Fund 6, holding a final close in the fourth quarter of 2024 above its hard cap, having been in market for just 16 months. The momentum has continued into our current vintage, which remains in market and has raised 60% of its hard cap in just three quarters. And now we have very complementary capabilities in digital infrastructure, which is similarly focused on generating attractive income-driven returns through a net lease structure, working with tenants that have some of the best credit ratings in the world. We think we have a very unique offering for investors in digital infrastructure, a pure play that will benefit from the demand for hyperscalers for data centers while remaining focused on principal preservation. And finally, to call out some of the contributors to our fundraising that have been less observable, we have now reached our $2.5 billion target for the latest vintage of our opportunistic alternative credit product, with $1 billion of that raised in 2025. In total, we raised nearly $4 billion across alternative credit in 2025 after having closed on the acquisition in September 2024. Our GP-led continuation strategy is approaching the final close of its first vintage, for which it will have raised approximately $2.5 billion. We think this is an excellent result for a first-time raise in a new strategy. It has exceeded our recent expectations on fundraising, and we've deployed a meaningful amount of the capital already. And in GP stakes, as we previously disclosed, the strip sales we completed in 2025 drove $2.6 billion of capital raised on top of fundraising for our minority stakes funds. Looking at the big picture on fundraising, we took substantial steps forward by strengthening our global distribution platform, launching new products, and expanding or launching new partnerships throughout the course of 2025. Entering the year, we knew this would be an investment and execution year, laying the tracks for future earnings growth. You can see the early successes of that long-term plan in the results that we reported this morning. Despite the significant investments we've made, we were able to end the year with FRE margins slightly above our guidance for 2025. And heading into 2026, we believe we can achieve modest operating leverage and continue to make progress on FRE per share growth. Bringing it back to where I started. We continue to deliver for our clients. We strongly believe that high-quality performance drives business growth over time and that the continued diversification of the business will support well-balanced growth. We're very proud of the work that we've done over the past two years to position Blue Owl for long-term success across a variety of market environments, and we look forward to sharing more updates in the quarters to come. With that, let me turn it to Alan to discuss our financial results.

Thank you, Mark, and good morning, everyone. We are very pleased with the results we reported this quarter and for the full year. We had another very strong quarter of fundraising in 4Q, raising $12 billion of equity. You can see the breakdowns on slide 14 of our earnings presentation. As you can see from our results, we ended the year with FRA margins of 58.3%, slightly above our guidance for 2025 and showing disciplined expense management. And we believe we can see modest margin expansion for 2026, targeting approximately 58.5% FRE margin. We also ended 2025 with FRE per share growth of 12%. As we focus on 2026, we believe we can show a modest increase in the growth rate for FRE per share. And we feel we can accelerate that growth in 2027 versus 2026. Now a quick run through of some other metrics for 2025. We grew FRE 19% and DE 16%. Total capital rates was $56 billion, which represents an increase of 18% year over year. And equity fundraising was $42 billion, which represents an increase of more than 50% year over year. AUM not yet paying fees grew to $28.4 billion, representing over $325 million of expected annual management fees once deployed. This is equivalent to approximately 13% embedded growth off of 2025 management fees. And as Mark walked through in his remarks, the performance across our strategies continues to be very strong. As you can see throughout our earnings presentation, including on slides 4 and 22, we continue to deliver for our clients. Our products performed very well, again, in 2025. Turning to our platforms, in credit, weighted average LTVs remains in the high 30s across direct lending and in the low 30s specifically in our tech lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits. As Mark mentioned earlier, credit quality remains very strong. In direct lending, growth and net origination in the fourth quarter were $12 billion and $3.3 billion, bringing last 12-month growth and net originations to $45.4 billion and $13.2 billion, respectively. Despite strong public loan market conditions, we continue to see a growing pipeline of discussions, and importantly, we are seeing the benefits of incumbency as approximately 60% of our gross originations in 2025 resulted from existing borrower relationships. We also continue to see very large deals being done in the direct lending market with an average deal size of nearly $2 billion for Blue Owl in 2025, up 23% from the prior year, and we continue to lead or co-lead many of them. Turning to alternative credit, we have continued to deploy meaningfully across investment grade and non-investment grade. In this strategy, we have been able to take advantage of market dislocations given the flexibility with which we approach various asset classes. We can buy assets, finance assets, or engage in structured capital transactions depending on where we see relative risk reward. In real assets, we remain focused on our core competency, owning mission-critical assets from investment-grade counterparties, whether those are logistics facilities, manufacturing plants, or data centers leased to some of the largest companies in the world with exceptional credit ratings. We have called close to two-thirds of the capital for NetLease Fund 6, and believe that we will have nearly fully deployed the fund within the next couple of quarters within three years of its final close. We have also started committing capital out of the current vintage of net lease with a meaningful pipeline of over $60 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are similarly seeing a substantial pipeline and have called over 50% of the capital in Fund 3 which just held its final close in April of 2025. In GP strategic capital, performance across the funds remains strong. We have begun to see increasing levels of activity in partner manager funds across both deployment and monetization, including what we believe to be the largest transaction ever announced by a sponsor. The consolidation trend remains in place with the percentage of capital raised by funds raising more than $5 billion continuing to increase over the past five years. This has been a central part of our investment thesis and our large-cap strategy, and our fund investors have been beneficiaries, with the AUM of our partner managers growing more than 30% faster than the broader market over the past 10 years. Okay, a couple of notes I wanted to highlight before we wrap up. On our effective tax rate, we expect 2026 to be in the mid to high single-digit percentage range, in line with our general expectation that our effective tax rate increases a few percent each year. As a reminder, we pay our tax receivable agreement during the first quarter each year, so expect a higher effective tax rate for the first quarter of 2026 and a much lower for the second through fourth quarters. For reference, we disclose an estimate of the next few years' TRA payments in our quarterly SEC filings. On stock buybacks, The company buyback and senior executive purchases totaled approximately $70 million in the fourth quarter of 2025. When we see our stock deeply discounted, we intend to utilize our existing stock repurchase program. As it relates to share count, we currently expect 2% growth in 2026, with roughly 14 million shares to be issued related to the acquisition of our digital infrastructure strategy and the remainder being driven by normal course stock compensation. As for stock compensation, we have three types of items running through our stock comp expense numbers, all on slide 28 of the earnings presentation. The line to focus on, our regular way year-end stock compensation expense, is equity-based compensation other, which we expect will be running at approximately $365 million for 2026. As a reminder, the amortization of stock-based compensation from business combination grants will tail off by the end of 2026. And the line called acquisition related is GAAP amortization expense related to some of the acquisitions we've made over the last few years. Finally, I'd like to pull the lens back for a moment. There's been a lot of noise about our sector over the past several months. Across our portfolios, we have a very diversified set of investments that generate high income for our investors with downside protection. We have high FRE margins that we expect will continue to expand and are laser focused on increasing the growth rate of our FRE per share each year. We have invested for expansion and diversification across the business, with the results showing continued strong fundraising across our products, and importantly, strong performance returns. Thank you very much for joining us this morning. Operator, can we please open the line for questions?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We ask that you limit yourself to one question, and please rejoin the queue if needed. Thank you. Your first question comes from the line of Craig Seegenthaler with Bank of America. Your line is open.

Good morning, Mark, Alan. Hope everyone's doing well. And despite the stock reaction, it's nice to see the strong fundraising and 62% FRE margin result in the quarter. Thanks, Craig. Thank you. So my question is on software AI disruption, which has really emerged as a big theme recently. Can you help us size up your exposure across both debt and equity? And then as you take a step back and look across your hundreds of private investments, like what are you seeing in the pipeline in terms of credit quality? Because if you look at returns, revenue, EBITDA growth, interest coverage, general credit quality, Like it doesn't look like there's any red flags yet. So are there any sections of the software book that concern you?

Yeah, thank you very much. So let's level set and come to those specific answers. So a couple of observations to start with. Tech lending has worked, continues to work, and to get very direct right to your answer, no, we don't have red flags in point of fact. We don't have yellow flags. We actually have largely green flags. The tech portfolio continues to be the most pristine amongst all of our portfolios, amongst all of our subsectors. I appreciate we're all looking forward, but remember these are loans that are on average 30% of the value of the enterprise at time of acquisition or LTV with huge equity cushions. These are companies on average, let's be fact-based as opposed to headline-driven, Since, let's use November 22, the advent of ChatGPT as some kind of moment of AI's arrival. Since that time, the portfolio on average has grown revenue 40% and EBITDA 50%. The software needs to bring it much more current because we can all agree that in November it was doing poems, so maybe it didn't matter. But let's bring it to this quarter, the fourth quarter. The revenue growth was... 10% and the EBITDA growth in those software names was mid-teens. That's fourth quarter, quarter over quarter. It is not a monolith. Listen, this is the opportunity because obviously when this happens, of course, markets get deeply disrupted. That hopefully leads to spread opportunity. It certainly leads to dispersion in performance and we will outperform. If you look at all of our products, and we led with this in my early beginning of my comments here, we're there for a reason. At the end of the day, you know, stories don't drive results. Results drive results. As you can see, we have delivered on every one of our products an absolutely top-level performance in both total return and in terms of non-accruals and in terms of loss. Think about what we've run at, an eight-basis point net performance. net loss rate. And so these facts do matter. Remember, you know, yesterday, everyone I'm sure is tuned in to both on the one hand, the software performance, but on the other, I mean, that's to say the software stock performance. But then, you know, folks that actually understand this, like, let's say, you can all agree Jensen Wong has a pretty good understanding of AI, say this idea that AI is the end of software is one of the most ridiculous things he's heard. And the reason it's ridiculous is because software itself is not a monolith. Software, it's a system of record where you are integrated into the business processes of large companies. And our business processes are a big part of how companies operate. Software is an enabler. And the best companies, what we are seeing, that are embedded in that position and have data moats and operating environments like healthcare and financial services with zero tolerance, for risk environments, regulatory limitations. What we're seeing is they're the ones that are the adopters of AI. They're the ones that are then turning around and saying, here, I can offer you an agentic solution to replace some of your human costs, some of your labor costs, by integrating these capabilities into the software I already have resident in your system and fully integrate it into your daily behavior. So, you know, we understand the generic idea There are certain parts of software that are vulnerable, and they are. We've studied our portfolios very carefully. We do not see any meaningful exposure to those more susceptible areas. We see deep exposure where we have it to businesses that have the attributes I described, where there are actually very significant business processes, data, and kind of environmental regulatory constraints, and we see them adopting Ejectic solutions. Now, as to the specific numbers, Remember, we have a variety of different vehicles, and to be clear, the tech-only vehicles actually have the best credit performance. So I want to be clear, we're not negative in any manner on software. However, we also run diversified funds. If you take, for example, our continuously offered BDC, our credit fund, actually amongst the peer group, we have the lowest software exposures. So, you know, again, even we're not a monolith. There's different strategies and different ways to participate in those strategies, but the reality is we don't see any material indication, any change in the accruals or non-accruals asks for amendments. You know, at this point, things look very healthy, which certainly gives us a meaningful, certainly a very meaningful runway. Last point I'll say is the PE firms, let's remember, remain active in this space. I want to make sure everyone understands that software remains an area where sophisticated buyers are still highly active because, again, if you have the right software solutions, you're going to benefit from the adoption of AI. And so, again, this monolithic view and action people are taking is going to prove I think, quite misguided and it's going to lead to a miss in significant opportunities. The book is strong. We don't see meaningful losses. We don't see deterioration in performance. And last point, the typical duration of a loan remaining in our books, let's say the software loan, is a few years. So when you have a business that is still growing double digits and only a few years left and a 70% equity cushion, all we're talking about is do we get our money back? We're not a software company. You know, we're not here to tell you whether the model will be better or worse, whether growth is higher or lower. We're not a software company. We are an asset manager. We're not a bank. We're an asset manager. We get paid to manage assets and do it well, and that's what we're doing very successfully. If the, you know, software business evolves over time, well, that'll be to the maybe a benefit or loss of the equity holders, but we're in a position, we think, to continue to get our capital back and earn a very strong return.

The only thing I'll add quickly here, Craig, is, as I think we would all agree, in this type of market environment, it's important to ground down to the facts, the data. So our publicly traded BDC OTF, 11.4% inception to date return, 18% NAV growth since inception, In this case, a positive net gain of 16 basis points since inception. Non-accruals is 0.1%, 0.1% of the portfolio. Average rate at EBITDA is almost $300 million, 94% leading private equity sponsor-backed. And with 185 positions, it's half a percent on average for position size.

Thanks, Alan.

Thank you, Craig.

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

Hi, there. So, hello, Glenn. Hello, hello. I appreciate the comments you made earlier on the past periods of anxiety and how you've met all requests for tenders each of those times. So, my question is a little bit on should this time be different, meaning we all got to live through the B-REIT experience. and I felt like it trained the wealth channel to understand what semi-liquid or not-so-liquid means. But you and others have gotten some high redemption requests and have been making good on them. A bit of a confidence in your portfolio good thing. The flip side is what are we undoing in terms of the teachings we've taught in the channel on how these products are supposed to act and what investors are going to expect going forward. So I know it's a big-picture thing, but I feel like it's – really important because you have lots of products in the channel that we kind of want to smooth volatility over time. Thanks so much.

Sure. Look, our job is to deliver for our investors, our LPs and our shareholders. And to do that, you know, what that means is considering the results of a tender and what fulfilling those investor requests would do for remaining shareholders and And, of course, obviously, by action, we're seeing the preferences of the shareholders that are seeking redemptions. We've seen these periods of volatility, as you know. We've seen the pattern of behavior where there's these moments of, you know, kind of fear, and they, in the face of facts, facts, again, will bear out this time. They tend to fade because performance, in fact, is strong and remains strong. With regard to fulfilling tender requests or not, starting with something like liquidity management and portfolio position is a meaningful consideration. Indeed, there is a structure that has been built with this semi-liquid nature, and to your point, you say investors have been trained. I mean, they're aware for sure, as they should be, that there are limits, and that limit might be the 5%. But at the same time, investor behavior in the presence of limiting people can also be very negative. Remember how long you can get into a world of negative outflows, negative redemption cycles, when people feel trapped. And if they're, in fact, really not trapped, what behavior are you conditioning people to understand? Is it just, look, the hard cap is a mechanical hard cap, or is the hard cap the proper limitation, unless you have the added flexibility to accommodate? I put it in the latter category. We manage our businesses with very low leverage. We manage with a lot of liquidity. I say this with no arrogance. We're very good at both the liability and asset side of the book. In this instance, when we had these large redemption requests, we have lots and lots of liquidity, still do, lots of liquidity. So there really was no reason to not fulfill an investor's request for their capital back, and we see that as actually meeting investor needs, being an investor-friendly and investor-focused firm, which we think leads to much quicker recoveries in fund flows and leads to much better performance, that is to say growth in funds flows over time. pay attention to your customer, your client, meet their needs. If you can't do that in a manner that would leave the remaining investors and remaining portfolio in an equally or even perhaps better place, then, of course, the limit is there for a good reason. But if you have plenty of capital, as we did in these vehicles, then we fulfill those requests, and that is meeting client needs, client satisfaction, and that will lead to more wealth growth over time.

Thanks, Mark.

The next question comes from Brian McKenna with Citizens. Your line is open.

Great. Thanks. Good morning, everyone. So, I had a question on OWL CX. You know, there's clearly a ton of great momentum here, but a few things stand out to me. 80% of these assets are fixed rate, while leverage stands at just 0.2 times, yet the strategy generated net returns of nearly 3% in the fourth quarter. So I'm curious, is there an opportunity to expand leverage here, drive even stronger performance over time? And then given the fixed nature of these assets, the fixed rate nature of these assets versus floating rate at the BDCs, are you seeing any incremental demand or an acceleration in flows into alternative credit more broadly?

Yeah, thank you, Brian. I appreciate the question. We think there's a very big opportunity in alternative credit. We think there's a big opportunity with the interval fund. We're actually really excited about We are in a very short timeframe, already over $100 million a month in flows with the interval fund. So we've made really great progress in a short amount of time. When you think about, you know, overall opportunity in the wealth sector, first let's talk about what does it take to be successful in the private wealth channels. We have large – because you have to build a foundation and then – Using that foundation, how do you go out and expand and continue to grow, even in environments like this? So we have a large high-quality, mostly, most importantly, well-performing products. How do you scale with wealth? With well-performing products. That's the key to scaling these products. Last year, we added two new wealth products, as we all know, ODIT, which is our digital infrastructure wealth-dedicated product, and the Interval Fund, which you just asked about. So we now have three key categories, private real estate, private credit, and private infrastructure. And so each one of our wealth products we offer is scaled. We've been able to scale these very quickly, in particular, as I mentioned, the Interval Fund and ODIT. So all of our products are now of scale. And we're still in the early days. We know adoption rates are low. And so there's no doubt that sentiment and demand will move around based on market conditions. Our expectation, though, is real assets and asset-based finance are of more interest today. And we're in a great position to take advantage of this. But now from a tactical execution perspective – And we're only able to do these things because we built that foundation. But what we're able to do now is to continue to look at new local feeders. So what did we do in 2025? We added a Japan feeder. We added an Australia feeder. So we're very focused on continuing to be able to do this into 2026. We are onboarding new distribution partners, whether it's RIA platforms, wirehouses, private banks, independent broker dealers, so continue to expand our distribution partners for each of our well-dedicated products, and expanding the amount of FAs that sell our products with existing distribution partners. Now, because we have large, well-performing evergreen funds, as I just mentioned, we're now being placed in many model portfolios, and we expect to be in the forefront of adoption in this regard. And I guess lastly, as the rulemaking around 401 s evolves, We have our partnership with Voya. We're launching our CIT shortly. Our target date funds will be out later this year. Just 2026 will still be more of a building year than a flows year, but there's a lot of momentum around this build, so we think there's a lot of runway here overall. Appreciate it, Alan. Brian, thank you.

The next question comes from Bill Katz of TD Cowan. Your line is open.

Okay, thank you very much for taking the question. It's a little bit of a two-parter, so I apologize for violating the one-question rule, but I think these are two things that are pretty salient on the stock. First, can you help maybe unpack the disconnection that seems to be happening between the prolific CapEx cycle on the hyperscalers against the opportunity set that you speak to on the digital side, and maybe walk us through how you think about credit risk And then the second thing that's been coming up quite a bit is can you reshape or just go through where you sit today versus your investor day goals and how you get to those goals given some of your 25 and 2026 sort of implied guides? Thank you.

So on the CapEx cycle, most clearly encapsulated yesterday in Google, you know, raising their CapEx guidance to $175 to $185 billion up from $93 billion. You know, this is something we've been talking about and is an enormous opportunity. As you know, we are in the premier position and premier provider of capital solutions to the hyperscalers. That capital cycle is only accelerating. You know, again, we're sometimes fact and fiction or too much noise. Whether there is or isn't an AI bubble in valuations is secondary to the question of whether people with some of the largest market caps and best credit ratings in the world, A, think otherwise, and B, are willing to commit to 15- and 20-year leases, which they are with us, which is allowing us to deliver outstanding results for our investors in digital infrastructure and in triple net lease. Remember, our O-Rent product, as an example, delivered an 11% return. this past year, we just raised the yield on our O-Rent product to 7%. 7% exceeds the performance in and of itself of almost every other real estate product out there. So, again, all the headlines and noise aside, facts matter, and we're delivering those results. We see that continued super cycle as an enormous opportunity. We know how to structure those leases so that they're ironclad. We have a unique skill to actually build, develop, operate as people want it. We've done it with every one of the big hyperscalers in terms of being their partner and proven we can be a really great partner. I captured it perfectly in the meta-transaction. So this is going to continue to be an area of great opportunity for LPs, investors, by extension for us. You saw the great success we had in raising our latest digital infrastructure fund, which we already are heavily invested. So we'll be back this year with Digital Infrastructure Fund 4. You saw our real estate fund, which was closed fourth quarter 2024. We're already back, as you know, and well down the path toward our target on our next real estate fund. So we have big, successful flagships that are raising faster, deploying faster, and very importantly, most importantly, delivering spectacular results for our investors. And that makes us a pretty special animal. And last note in the wealth channel, O-Rent has become the market leader by every measure. We have raised over the last two years $5.5 billion with almost no redemptions. This has become a gigantic and market-leading product because it's different. It's better. Back to this question. These are not monolithic answers. Our job is to deliver exceptional results. That's what we've done, and we think we're in position to do that across the board on our products.

So, Bill, on your second question, as it stands now, we're behind our investor day goals. Now, remember, we're just one year into a five-year long-term target, but we've seen the last few months we've had headwinds in private credit, AI, software. We've seen a slowdown for non-traded BDCs and private wealth flows. We've seen an increase in the tenders for non-traded BDCs. So what you heard in my prepared remarks is we believe we can show a modest increase in the growth rate of FRE per share in 26 versus 25, and we feel we can accelerate that growth in 27 versus 26. We also brought our FRE margins above our initial guide of 57 to 58, and we have another guide out there with another modest increase in 2026. First 2025.

The next question comes from Crispin Love with Piper Sandler. Your line is open.

Thank you. Good morning. I appreciate you taking my question. On software exposure and the metrics, can you just let us know what needs to happen for you to take losses in your software portfolio and then impact the net returns to your end investors, just from a standpoint of LTVs, how much is first lien senior secured, remaining maturities there, kind of private equity value destruction that would need to happen ahead of you. And then if there are companies failing, how you think about recoveries. I'm just trying to differentiate between equity and debt here and then what could happen in a draconian scenario because that's what it seems that markets are pricing in today. And then just what is software exposure as a percentile total AUM?

So it's a really important question you're asking, and again, let me just be really factual for a moment. The equity versus debt is kind of an important starting point, and all of this is getting conflated. Over the last three years, the software index is up 23%. We're all reading about and know what happened in the last year. It's down 20% now in the last year. but it's up 23% over the last three years. If you think about that as some indicator of the vintage of a lot of big software deals PE firms did, in point of fact, software equities are up. We are our first lean lender in almost every instance when we talk about software. We are, on average, around 30% loan-to-value. So what's happened objectively in the marketplace is since the vintage of those transactions, equity values on average are up 23%, but pick whatever number you want. We started at 30. So now let's answer your question. In order for us to have material losses, I can't describe for you anything based in fact, anything based in any measure of default rates recoveries. that would lead to a material degradation in performance of the funds. This is not a mathematical, of course I can do it in math, but there's no relation to any practical statistic that would lead to anything other than, sure, you could have a lower return for a year, you could have a lower return for a couple of years, but you have to destroy 70% of the value of every one of these software companies when the markets actually judge the net up, and again, it's not a model then. We do a lot of software that, and very consciously, they're not simple application layer. We're doing things that are business process oriented and data modes and work in high, low risk, low error tolerance environments. And that's why, in fact, in the fourth quarter, currently, the companies are actually performing mid-teens growth still. So, I can't really answer in the mathematical way because the numbers would be so silly to try to create anything more than, of course, there'll be losses. I want to be clear. We're in a lending business. We have 400 companies. And of course, there's losses. Every quarter, we're going to have companies that go and get in trouble and companies that get out of trouble. And even trouble doesn't mean we've lost anything. It means they might be struggling. We may have to own them. But that's already built into the calculation. And that's what, with all that said, we've been running at eight basis points net. So the real answer, you are correct, is there's an awful lot of noise about what is the equity of a software company worth. Again, we're not a software company, so I'm not here to really answer that question. But I can tell you that when you have a portfolio of 100 loans to software companies that are on average growing significantly, generating a lot of cash, have a three-year tenor on average or so left, and are currently in very healthy positions to get from that to all the value has been destroyed and you have a credit loss is a journey that just doesn't make sense. And that's the way this broad paintbrush is being used today. They are big companies that are deeply embedded. Our software companies have hundreds of millions of dollars of average EBITDA that are deeply embedded in Fortune 500 work processes. And for those, we've got to pause and think. There's not just a matter of technology. There's the adoption of behavior. And for those on the call that are thinking Fortune 500 companies are going to take all their software and just rip it out and just say, I'll just ask Chad GPT, that's simply not the way it works. Don't take my word for it again. We're not technologists. Take Jensen Wong's word for it.

I can answer one part of that mathematically, which is the total exposure of, Software loans across our AUM is 8%. Great.

Thank you, and I appreciate the answers. Thank you.

The next question comes from Benjamin Budish with Barclays Capital. Your line is open.

Hi. Good morning, and thanks for taking my question. Alan, I was wondering if you could talk a little bit more about the FRE margin outlook for the year. I know in Q4, actually, if you could unpack that a little bit as well, it looked like your FRE comp expense line steps down quite significantly. So I'm curious if there's anything going on there to call out. And then just as you think through next year, what are the key pieces? of the operating leverage. Is it more cost controls? And I'm curious how you see or how you would sensitize that to the potential paths for especially the non-traded BDCs where we've seen a couple months of slower flows, elevated redemptions. It's not quite clear how things are going to shake out. So I know there's a couple things in there, but just curious to get your thoughts. Thank you.

Sure. Ben, I appreciate the question. In 2025, we brought down expenses. We see the full year that comes together in 4Q when we make our year-end compensation decisions. And we're very focused as a management team on showing progress on the FRE margin. Again, we guided 57 to 58. We wanted to make sure we came in a little above that. We came in at 58.3. And as we think about 2026, you're of course right. There is uncertainty today. Good news. we have seen a general stability in the daily flows of our wealth products. So that's all the data we have through the first, I don't know, month, a little more than a month, but it's encouraging that we've seen a general stabilization there. And the answer for 2026 is simple. We need to have revenue growth outpace expense growth. So we have some levers on the revenue side and we have some levers on the expense side. And we will use those levers accordingly to guide to that 58.5% FRE margin increase from 2025. All right.

Appreciate it. Thank you.

Of course. Thanks, Ben.

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

Good morning, everyone. Obviously, a lot of direct lending noise, kind of unknowable where that's going at this point. But it seems like the ABF business did quite well. Could you give us a little bit more color on what percentage of your total credit AUM is now not direct lending, and then maybe help frame what you're thinking about or modeling for growth in that side of the business this year? And then specifically, I think you said LCX is at $1.8 billion. So does that mean it has taken in $550 million in one cue, or is there something else in the bridge from $1.25 billion in the deck? Thank you.

Thanks, Patrick. There's a little debt on that. So I think we've raised about 1.3 billion in inflows with a little debt that takes us to about a billion eight. We're about 30% of our credit businesses away from direct lending. So we've diversified quite a bit from just a year or a year and a half ago, let's say. You know, alternative credit, I have some interesting stats that I think are worth running through. Alternative credit is definitely a large growth area for us. We've talked about both alternative credit and digital infrastructure. You know, we view those as having at least the same opportunity in terms of future growth. And when I say future growth, I'm talking three- to five-year growth, as what we saw with our Oak Street acquisitions. So a couple very quick data points. Let's look. We're now one year in on our two acquisitions for Adelia and for IPI. Let's flash back very quickly to our net lease business, which, as of today – has grown almost four times revenue growth and almost four times AUM. And so that's extraordinary growth. I know everyone has seen that. We've talked about that. So one year into our net lease business, we acquired Oak Street. We were at $15.5 billion of AUM. The following year, we raised $3.5 billion. So that's a low 20% growth rate. That's one year in. And remember, the first year is usually the hardest. You have integration. You have streamlining everything. You have a lot of work to do. Now let's flash forward digital infrastructure. We are now one year in. So what's the head-to-head comparison? We closed at $14 billion. We raised about $3 billion in 2025 in our digital infrastructure business. That is also the same low 20% growth rate. So we have already accomplished at least what we've done in digital infrastructure as what we did in net lease one year in. Now let's look at alternative credit. I'm glad you asked specifically about that. Alternative credit we closed a little more than a year ago. We closed at $10.5 billion. We've raised nearly $4 billion since then. So that's a high 30% growth off of where we closed our Adelia acquisition. We're really proud of what we accomplished here. We see a lot of growth ahead, in particular for alternative credit and digital infrastructure. We have, obviously, Mark mentioned Fund 4 in the back half of this year coming out. We have both wealth products for digital infrastructure and alternative credit. Wrapping up, ASOF 9 coming out with more fundraising alternative credit in 2026. And what we're really excited about is now, flash forward one or two or three more years, what is that arc of trajectory and how does that compare to our Oak Street acquisition? And we still feel as much as ever the conviction that these acquisitions will be the same or more than what we were able to do with the Oak Street acquisition.

And I'll add one point and then we'll move on. You know, we're also building organic products, you know, not to be lost in all of this. we mentioned this, I mentioned this in my comments, our Bose product, all strategic equity GP-led secondaries, which we stood up at a time when people said, I don't even understand what this business is, which now, as you are well aware probably, has grown to become a huge share of the overall secondary market of LP and GP and a meaningful contributor to the liquidity environment for PE. That's now a $2.5 billion product that we started from scratch And that's a product that we see enormous potential for over time. We think that's a way, for example, both the institutions and individual investors to truly participate in the very best of private equity from the very best firms in this multi-trillion dollar industry. So, you know, there's another example of just the growth legs that lie outside of direct lending. We still think direct lending is going to prove to be an outstanding business. Facts matter. The results are and we expect continue to be very, very strong. But, yes, we're delighted with the performance of asset-backed, and we're delighted with the growth in those businesses. We're delighted with digital infrastructure and with our real estate businesses that are growing dramatically. And we're continuing to turn in great performance in our GP states business. And, you know, those are all things that count and will drive that future growth.

The next question comes from Wilma Burtis with Raymond James. Your line is open.

Hey, good morning. Could you build a little bit on your earlier comments on fundraising momentum so far in 1Q26 and just give us a little bit more color on what you're seeing on both the retail and institutional side? Thanks.

Sure. Thank you, Wilma. So we included a slide in our earnings presentation where we show kind of the step functions that we've been talking about throughout 2025. And we're really proud of what we've been able to accomplish. You can see meaningful increases here on slide six for each of the last two years. We raised $42 billion in 2025, a lot of momentum on the institutional side, record year for institutional, and a record year for wealth. As we think about 2026, and I commented on the daily flow, so that's as much data as we have right now in the wealth kind of how do we think about 2026. So we're encouraged by a general stabilization there in the daily flows. Overall, if I were to pull the lens back here, you know, we have wrapping up NetLease 7, wrapping up GP6, back half of this year, Digital Infrastructure 4. As we've talked about, we have our two newly launched wealth products plus our three original wealth products, if you will, CIC, TIC, and O-Rent. So, when you put all that together, we can certainly see another year where we put up a similar level in 25 as we did in 26.

Thank you. Thanks, Wilma. The next question comes from Mike Brown of UBS. Your line is open.

Okay, great. Thanks for taking my question. I appreciate all the color on the software side this morning. I guess I'll ask a different question. I wanted to ask on the capital allocation side. So you declared a dividend of 92 cents for 2026. So a modest bump year over year. How are you thinking about the dividend growth from here along with the payout ratios and maybe just overall capital flexibility going forward?

Thanks, Mike. Appreciate the question. A lot of the same. So modest dividend growth. We're bringing our payout ratio down. You know, we are at 107, 108% payout ratio for 25. We're bringing that down. It's going to take a couple steps, as we've talked about in the past, to bring that payout ratio back to, and this isn't hardwired, but a general ballpark of 85%. We wanted to show some level of modest growth. And we expect to continue to do that as we bring that payout ratio back down to that 85% level. Okay. Thanks, Alan. Yeah, of course. And as I said, over the course of the next few years. Thanks, Mike.

The next question comes from Brennan Hawkin of BMO. Your line is open.

Good morning. Thanks for taking my question. You spoke to the flexibility and ability to provide liquidity by raising the threshold for OTIC, which I would agree was certainly encouraging. That product was sort of heavily distributed throughout Asia. What I'm curious about is I know you've got distribution across the world. What does the wealth management AUM look like by geography? Like, you know, what portion is U.S. versus Asia versus Europe?

So the bulk of our assets and our products is U.S.-based in the wealth products. So just to cut to the chase, OTIC is really, in our world, the exception, not the rule, and there's history that we don't need to get into and have the time to get into now. But the timing of that launch led to less wide distribution, which led to concentration in Asia. We actually really don't have meaningful exposure in Asia in any of the other products. Really, they're very domestic, and the behavior patterns are very different between those markets. Very little. So very little outside the U.S. and our other products. So OTIC is kind of an exception corner case of its own. I wouldn't read much into OTIC across to other products of ours.

Okay, well, appreciate that. Is it possible to get a number, maybe ex-OTIC, where that stands? You know, because very little is sort of subjective.

We'll try to get back to the number. It's a very, very small part. I appreciate that. It's subjective. We'll get back to you with a number. Perfect. Thank you. Thanks, Brendan.

The next question comes from Kenneth Worthington with JP Morgan. Your line is open.

Hi, this is Alex Bernstein on for Ken. Thanks so much for taking our questions and congrats on the strong metrics that we're seeing in triple net lease in particular really showing differentiation. Touching upon direct lending and originations in particular, we saw that both gross and net moved up this quarter for the second quarter in a row. Similarly, the gross and net conversion ratio improved a little bit. I'm getting into the high 20s percentages. As we zoom out and look at a full year over full year comparison, still seeing that gross net and conversion are all still lower. Wanted to think through those metrics, how they're evolving relative to historic levels. I think especially on a gross net, which I understand historically is a bit higher competition with the banks, how that looks. And then maybe how you're thinking about deployment potentially being impacted or not by some of the sentiment in the market, especially if we're seeing slower subscription, at least on a net basis, growth for the BDCs. Thank you.

Sure. You observe the patterns. I won't repeat all the facts. We continue to see a very strong pipeline of activity. We are certainly participating in what we think are a lot of great new originations and credits. We're certainly getting at least our fair share. Business is good. I think we continue to build ever deeper relationships with the users of our capital. So right now, it's really more about overall PE activity within direct lending. Obviously, as we just talked about, enormous activity in things like the real estate business and in alternative credit away from PE activity. But it's really about the PE cycle and how much transaction is occurring there. We certainly have seen upticks, and we're seeing an uptick, therefore, in our inbounds, our demand for capital. And I guess the only silver lining of all of this kind of misinformation about credit and misinformation about software and the like, usually that environment ends up leading to better spreads, and a rotation of more product back to the private market because the public markets get deeply disrupted. So all the indicators would point favorably as far as we can see, but it will all depend really at the end of the day on just how much activity is there in PE world in a given quarter. Thank you, Moshe.

And the only thing I'll follow up with is about 7%, 6% to 7% of non-US dollars in our other wealth products. So as Mark said, it's a very small number.

This concludes the question and answer session. I'll turn the call to Mark Lipschultz for closing remarks.

Great. Thank you very much. We appreciate it. We know that the hour is up, and so we will release you to the next activity, except to say at the end of the day, this was a great quarter. We continue to see very healthy portfolios. At the end of the day, performance is the ultimate measure, not anecdote, and performance is top tick in all of the products that we talked about. So we have a very favorable view for 2026 and look forward to updates.

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