Blue Owl Capital Inc. (OWL) is a global alternative asset manager that has carved out a distinct position in the industry through its innovative approach and strategic vision. With a focus on credit, GP Strategic Capital, and real estate, Blue Owl has solidified its place as a leading player in the alternative investment space.

Company Background

Established in 2016 by experienced alternative asset managers Doug Ostrover, Marc Lipschultz, and others, Blue Owl initially focused on private credit solutions, offering diversified lending, technology lending, first lien lending, and opportunistic lending strategies. In 2021, the company underwent a transformative merger through the Business Combination with Altimar Acquisition Corporation, which included the acquisition of the Dyal Capital Partners business. This strategic move significantly expanded Blue Owl's platform, adding GP Strategic Capital and Real Estate strategies to complement its existing Credit business.

Growth and Performance

Since its inception, Blue Owl has demonstrated remarkable growth and diversification. In the span of just three and a half years, the company has achieved an impressive feat, with management fees compounding at an astounding 37% annually, fee-related earnings (FRE) growing at 34%, and distributable earnings (DE) increasing by 32%. Notably, the company's dividend has also grown by nearly 30% over the same period.

Blue Owl's success can be attributed to its strategic focus on high-growth segments of the alternative asset management industry, as well as its commitment to building a diversified, durable, and fee-driven business model. The company's portfolio of investment strategies has positioned it at the forefront of the industry's transformational shifts.

Key Business Segments

One of the key drivers of Blue Owl's growth has been its exceptional performance in the credit space. The company has originated over $100 billion in loans, with a remarkably low loss rate of just 7 basis points. This track record of robust credit underwriting and disciplined risk management has contributed to the strong and consistent performance of its credit strategies.

The Credit segment offers private credit solutions to middle-market companies through several investment strategies, including diversified lending, technology lending, first lien lending, and opportunistic lending. This segment also includes the liquid credit strategy, which focuses on the management of collateralized loan obligations (CLOs) and other investment strategies. As of June 30, 2024, the Credit segment had $95.10 billion in assets under management (AUM) and $63.74 billion in fee-paying AUM (FPAUM).

The key products within the Credit segment include: - Diversified Lending: Commenced in 2016, this strategy had $56.40 billion in AUM and $35.00 billion in FPAUM as of June 30, 2024. - Technology Lending: Commenced in 2018, this strategy had $22.40 billion in AUM and $16.20 billion in FPAUM. - First Lien Lending: Commenced in 2018, this strategy had $4.60 billion in AUM and $1.90 billion in FPAUM. - Opportunistic Lending: Commenced in 2020, this strategy had $2.50 billion in AUM and $1.50 billion in FPAUM. - Liquid Credit: Commenced in 2022, this strategy had $7.80 billion in AUM and FPAUM.

Moreover, Blue Owl's GP Strategic Capital platform has enabled the company to capitalize on the growing trend of alternative asset managers seeking external capital and liquidity solutions. With over $2.1 trillion in assets under management by its partner managers, Blue Owl has established itself as a trusted and valuable partner to some of the largest and most successful alternative asset managers in the industry.

The GP Strategic Capital segment primarily focuses on acquiring equity stakes in and providing debt financing to large, multi-product private equity and private credit firms. This segment includes two main strategies: GP minority stakes and GP debt financing. As of June 30, 2024, the GP Strategic Capital segment had $57.80 billion in AUM and $32.80 billion in FPAUM.

The key products within the GP Strategic Capital segment include: - GP Minority Stakes: Commenced in 2010, this strategy had $55.50 billion in AUM and $31.40 billion in FPAUM. - GP Debt Financing: Commenced in 2019, this strategy had $1.60 billion in AUM and $1.10 billion in FPAUM. - Professional Sports Minority Stakes: Commenced in 2021, this strategy had $0.80 billion in AUM and $0.30 billion in FPAUM.

In the real estate arena, Blue Owl's net lease strategy has been a standout performer, delivering impressive returns and attracting significant investor interest. The company's focus on essential real estate sectors, such as digital infrastructure, onshoring, healthcare, and retail, has positioned it well to capitalize on the evolving dynamics in the commercial real estate market.

The Real Estate segment primarily focuses on acquiring triple net lease real estate occupied by investment-grade and creditworthy tenants, as well as real estate debt finance. This segment includes two main strategies: net lease and real estate debt finance. As of June 30, 2024, the Real Estate segment had $39.20 billion in AUM and $25.00 billion in FPAUM.

The key products within the Real Estate segment include: - Net Lease: Commenced in 2009, this strategy had $28.40 billion in AUM and $15.60 billion in FPAUM. - Real Estate Finance: Commenced in 2024 with the acquisition of Prima Capital Advisors Holdings LLC, this strategy had $10.80 billion in AUM and $9.40 billion in FPAUM.

Strategic Acquisitions and Expansion

Blue Owl's success has not gone unnoticed, as the company has proactively pursued strategic acquisitions to further enhance its capabilities and expand its reach. In addition to the Dyal Capital Partners acquisition, Blue Owl acquired Oak Street Real Estate Capital in 2021, a leader in the net lease real estate sector. In 2022, the company further expanded its product offerings by acquiring Wellfleet Credit Partners, a manager of collateralized loan obligations (CLOs). More recently, the acquisitions of Kuvare Asset Management, Adelaide Investments, Atalaya Capital Management, and IPI Partners have broadened Blue Owl's product offerings and strengthened its position in key growth areas, such as alternative credit and digital infrastructure.

These acquisitions, coupled with Blue Owl's organic growth, have resulted in the company's assets under management (AUM) reaching a staggering $250 billion, pro forma for the IPI transaction. Importantly, the company has a significant amount of AUM, approximately $22 billion, that is not yet paying fees, representing a sizable opportunity for future revenue growth as these assets are deployed.

Financials

Blue Owl's financial performance has been equally impressive, with the company reporting fee-related earnings of $0.22 per share and distributable earnings of $0.20 per share in the third quarter of 2024. Over the last 12 months, Blue Owl has grown management fees by 26%, FRE by 27%, and DE by 22% compared to the prior year period. In the last 3.5 years, the company has grown management fees by nearly 200% and FRE by over 150%, representing 14 consecutive quarters of growth in these metrics.

For the most recent fiscal year (2023), Blue Owl reported revenue of $1.73 billion, net income of $220.78 million, operating cash flow of $949.14 million, and free cash flow of $881.24 million. In the most recent quarter (Q3 2024), the company saw strong revenue growth, with revenue reaching $600.88 million, up 19% year-over-year. Net income for the quarter was $29.81 million, while operating cash flow and free cash flow were $302.29 million and $269.40 million, respectively.

Looking ahead, Blue Owl has provided positive guidance for continued strong growth. For 2024, the company expects mid-20% FRE growth. This growth trajectory is expected to continue into 2025, with the company also projecting mid-20% FRE growth for that year. The company's FRE margin is expected to be in the 57-58% range for 2025, gross of non-controlling interests (NCI).

Liquidity

The company's strong liquidity position, with $437 million in cash and cash equivalents and $1.5 billion available under its revolving credit facility, provides ample resources to support its ongoing growth initiatives. Blue Owl's financial health is further evidenced by its debt-to-equity ratio of 0.33, current ratio of 1.44, and quick ratio of 1.44.

Challenges and Outlook

However, Blue Owl is not without its challenges. The company, like many others in the industry, is navigating the complexities of the current macroeconomic environment, which has been characterized by volatility in interest rates and capital markets. The company has proactively addressed these challenges, adopting a conservative approach to its dividend policy and retaining additional capital flexibility to invest in strategic growth opportunities.

Despite these headwinds, Blue Owl remains confident in its ability to continue delivering industry-leading growth and shareholder value. The company's recent acquisitions, expanded product offerings, and diversified distribution platforms have positioned it to capitalize on the growing demand for alternative investment solutions across institutional and private wealth channels.

Blue Owl has declared a dividend of $0.18 per share for Q3 2024, payable on November 22nd. For 2025, the company currently expects the dividend to be around $0.90 per share, which would reflect a near 30% annual dividend growth rate since going public and around 25% year-over-year.

The company's growth potential is further underscored by its $21.7 billion in AUM not yet paying fees, corresponding to over $260 million of incremental annual management fees once deployed. This represents a significant opportunity for future revenue growth as these assets are put to work.

Conclusion

In conclusion, Blue Owl Capital Inc. (OWL) has emerged as a formidable player in the alternative asset management industry, driven by its strategic vision, innovative product offerings, and disciplined execution. With a proven track record of growth, a diversified and durable business model, and a strong pipeline of strategic initiatives, Blue Owl is well-positioned to continue its trajectory of success and solidify its position as a leading alternative asset manager. The company's ability to consistently exceed past guidance and provide positive forward guidance for continued strong growth in management fees, FRE, and dividends, despite the interest rate volatility and market conditions, demonstrates its resilience and potential for long-term value creation.