Q1 2022 Blue Owl Capital Inc Earnings Call
And F R E.
The 6% on a year over year basis.
Pro forma for the wealth fleet acquisition, which closed on April one.
AUM would've been approximately $109 billion.
Our business continued to run on all cylinders with direct lending gross originations for the quarter more than doubled versus a year ago and private wealth fund raising reaching $2 2 billion.
And with permanent capital driving 95% of our management fees and an earnings stream consisting of stable and growing fee related earnings.
Blue <unk> financial profile stood in Stark contrast to a volatile public equity and debt market backdrop during the first quarter.
Our strategies focused on income generation and downside protection continued to perform well.
Investment pipelines across the platform have been robust.
And fundraising for the quarter was strong but more importantly, as we look ahead. There are some meaningful fundraising initiatives starting to bear fruit, which I will highlight in more detail in a few minutes.
First let me start with some commentary on the broader market environment, which has been top of mind for shareholders over.
Over the past quarter, we are witness volatility and dispersion in the public markets, resulting from high and persistent inflation are shifting interest rate environment.
Oh political events and ongoing impact from Covid globally.
These factors unsurprisingly created some near term headwinds to industry wide M&A and capital markets activity as investors pause to react to updated information market expectations and a changing investment landscape.
Given our scale and patient permanent capital Blue Al has been a beneficiary of this market volatility as an increasing number of sponsors and private companies have looked to direct lending for flexible and dependable financing.
We are having dialogues on larger deals than we've ever seen and in particular.
This has been a very robust environment for our tech lending strategy and the increasing number of public to private transactions have driven incremental market share towards direct lenders, who can offer certainty of execution through what can be a lengthy process.
For our <unk> solutions business the pipeline for investment has only strengthened as alternative asset managers evaluate the options they have for liquidity and growth capital in today's market.
And the opportunity for alternative asset managers to put dry powder to work has improved.
Going forward deployment activity and setting firms up for the next round of fundraising.
The real estate rising corporate borrowing costs should drive incremental demand for our net lease solutions.
In aggregate.
We're seeing positive impacts to the investment landscape across Blue IL as a result of the current market environment.
And with regards to the rising interest rate environment as we discussed last quarter.
We anticipate a net positive impact across the platform.
We expect direct lending to be a beneficiary of rising rates as investor demand increases for senior secured floating rate assets focused on downside protection and over time the effect of rising rates would be positive for the net interest income of our loan portfolio.
<unk>, which Allen will touch on shortly.
<unk> solutions market volatility should drive demand for products managed by large diversified managers benefiting the types of firms style has typically taken stakes in.
With respect to our real estate business. We believe there will continue to be strong demand for our real estate strategies with a long term contractual income that are positively correlated to inflation and backed by investment grade tenants.
Moving onto our first quarter results, we continue to demonstrate steady robust growth hallmarks of the Blue <unk> business model as a result of our permanent capital and FRE centric earnings.
Since we don't have the volatility of carried interest running through our revenue.
We just continue to add to the layer cake of earnings through new capital raised and deployed.
Fund raising for the quarter was well diversified with nearly $4 billion of equity capital raise primarily from our diversified lending technology lending and GP minority Stakes strategies, bringing our last 12 month equity capital raise to <unk>.
11 $3 billion.
And for the second quarter to date, we're off to a great start raising.
Raising $2 8 billion across the platform.
Indirect lending we have raised an additional $2 2 billion subsequent to quarter end across institutional and wealth channel as we have spoken about in prior quarters.
Anticipate that tech lending will be one of the fastest growing parts of our business over the next few years as our strong performance and exceptional credit quality in that strategy resonates with a wide spectrum of investors.
As it relates to our growing private wealth distribution.
Which we've also spoken about frequently as an important focus for blue al.
We continue to make very good progress in expanding our platform across products and geographies.
$2 2 billion of the capital we raised in the first quarter or over half of the total which driven by private wealth.
This is over four times the amount we raised through well.
In the second quarter of 2021 less than a year ago.
We are generating over 9% annualized organic growth just from our current private wealth flows which are permanent capital and which we think we can grow meaningfully over time.
This doesn't take into account any institutional fund raising new products that we plan to introduce to the market or.
<unk> expansion of our wealth distribution platform globally.
As of May 2nd we raised a further $2 1 billion from private wealth across direct lending GP solutions and real estate in the second quarter.
As you've heard from us before and we will continue to here going forward. We are very excited about the opportunity ahead, and private well and look forward to sharing more developments at Investor day on May 20th.
Looking forward as I think about the key elements of our growth over the next few years I truly believe that each of our businesses has significant growth ahead.
We see meaningful runway to raise capital across institutional and wealth channels as investors look for income inflation hedge solutions and downside protection in an uncertain market environment.
Each of our businesses has generated scale and offers real competitive advantages that translate into differentiated investment performance and the returns have resonated with our investors.
Today, we have multiple products raising capital on various platforms globally and private wealth.
Five fund raising continues and we are well on our way to fully deploying that fund and being back in the market for funds. Six we also have and we will have a number of funds raising capital from institutional investors across direct lending and real estate over the course of the year.
Year.
Later this month at our Investor Day, we plan to lay out some key growth goals and get into greater detail on the investment and fund raising landscape that we see for each of our businesses.
We hope to see all of you there in person or on the webcast and look forward to spending some time, highlighting our strategic vision and the substantial growth we see ahead.
With that I'd like to turn the call over to Mark to give you an update on our direct lending and real estate businesses Mark Thanks, Doug.
You can see on slide 16, we continue to expand our direct lending business with gross originations of $4 9 billion more than double what we originated in the first quarter of 2021.
Industry wide the first quarter was a seasonally lighter quarter for M&A was also affected by market volatility.
As Doug alluded to in his remarks, we continue to expand our market share driven by the predictability privacy of partnership that we offer to borrowers.
We're also seeing larger deals come to the direct lending space, which we are very well positioned to address given the scale of blue our platform and capital base for.
For context last year, we evaluated over 40 investments with facility sizes in excess of $1 billion and signed or closed on roughly half of them.
Just in the first quarter of 2022, we source over 20 investments with facility sizes in excess of $1 billion and committed to roughly half of them.
And of those greater than 20 opportunities five add facility sizes in excess of $2 5 billion.
We expect some of these to close during the second quarter for.
For the last 12 months gross originations of direct lending have been $26 4 billion or.
Or three times, what we originated in the prior 12 month period.
And we continue to see an extremely active pipeline setting ourselves up for a robust quarter in <unk>.
Performance remained strong with gross and net appreciation of the direct London products of approximately 1% and 2% for the first quarter, respectively, and 14, 1% to nine 7% respectively for the last 12 months.
And we've continued to focus on downside protection with a weighted average loan to value in the low forties across direct lending portfolios.
Quality remains very robust with annualized net realized losses of approximately five basis points since inception.
We raised $1 9 billion and direct lending strategies during the first quarter of which retail constituted $1 4 billion, primarily for our core income fund one of our diversified lending bdcs.
Also contributing to the fundraising during the first quarter were closes in London as.
As of May 2nd we raised a further $2 $2 billion across direct lending in the second quarter so far.
Also on April one we announced the closing of our Wellfleet acquisition, which will add almost $7 billion of AUO.
To our second quarter numbers.
Our direct lending business continues to broaden its size scope and we remain optimistic about the growth opportunities. We see ahead supported by robust demand from both retail and institutional investors.
Now moving on to our real estate business, we continue to see a robust opportunity set with roughly $2 billion of transaction volume under letter of intent or contract to close in the near term pipeline of more than $20 billion of potential volume.
As of today, we've invested over half of the equity in our fifth closed end fund, bringing us closer to launching our real estate fund six.
As Doug mentioned in his remarks, our real estate strategy should benefit from investor demand for inflation protected cash flows backed by investment grade and credit worthy tenants and our investment opportunity set continues to improve as corporate borrowing cost increase.
Contractual rent escalations are structured it to all of our triple net leases and 100% of all operating expenses, including cost increases are borne by the tenant which further limits the strategies from any adverse effects of inflation.
Since inception, we have never had a tenant rent payments go bankrupt or default on a lease and we generated a net IRR of 26% on average across our fully realized closed end funds.
Gross and net appreciation across our real estate portfolio of five 7% and 5% respectively for the first quarter.
36% and 32, 1% respectively for the last 12 months.
These are remarkable risk adjusted returns for the underlying credit profile of these portfolios.
As we look ahead, we expect to launch our sixth real estate closed end fund in the latter half of the year and continue to accept capital into our open end fund net lease property fund.
We're also in the process of working on new products that we will look to discuss in greater detail at Investor day.
That let me turn it to Michael to discuss GP solutions. Thank you Mark our GP capital solutions business has continued to benefit from the secular tailwind across the alternative asset manager space as more firms enter our investable opportunity set and as these managers needs for capital continues to expand across our partner managers.
We continue to see robust fundraising and deployment, particularly as the market selloff created new and interesting investment opportunities as of today, we have invested committed or have an agreement in principle to commit approximately two thirds of what we expect to raise for dial fund five and the pipeline remains strong.
Performance remains similarly, strong with a gross and net IRR of 32% and 24%, respectively for fund III and 127% and 81% respectively for fund four in addition to the $1 billion raised for fund five during the first quarter. We have closed on a subsequent $400 million of capital in April .
<unk>, bringing us to $7 2 billion raised for the fund we remain confident in our prior capital raising expectations for this strategy.
We look forward to launching a follow on vehicles sometime in 2023 as we become more fully committed in this current fund.
As we look ahead, we're very optimistic about what the next year holds for the GP capital solutions business, given the constructive trends for growth and the demand we're experiencing for our strategies market volatility and shifts to the status quo will continuing to create interesting fund raising and investment opportunities and we will benefit from that environment.
As the Premier capital solutions provider to these managers 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 this quarter and then I'll touch on a few other items I want to cover today I'll be making references the pages in our earnings presentation as Ann mentioned, so please feel free to have that available to follow along.
Okay, let's start off by covering our quarterly results. We closed our acquisition of <unk> on April one so you won't see those numbers in our results until the second quarter.
Our first quarter was another quarter of strong growth for our business management fees are up $41 1 million or 19% from last quarter and up over 50% from the first quarter a year ago. When you adjust out catch up fees for dial fund five broken down by divisions direct lending management fees are up $12 8 million or 11%.
From last quarter and up 41% from the first quarter a year ago GP.
<unk> capital solutions management fees are up $11 1 million or 12% from last quarter and up 42% from the first quarter a year ago again, when you adjust out catch up fees and dialed fund five and real estate management fees, which began contributing to our results on Jan one of this year were $17 2 million FRE.
FRE is up 4% from last quarter and up 56% from the first quarter a year ago FRE margins are up a little from last quarter as well.
Our ratio of compensation as a percentage of revenue came down a little this quarter to 27, 5% I expect for 2022, we will be in the lower half of the range that we've previously guided to which was 25% to 30%.
And we announced the dividend of <unk> <unk> per share for the first quarter.
All of this is in line with our expectations and what I noted on our earnings call last quarter, we have started off the year and making good progress towards reaching $1 3 billion of revenues for 2022, which would be a 45% growth rate year over year, and then FRE margin of 60% for 2022.
As it relates to our AUM metrics on slide 13, we reported AUM of $102 billion fee paying AUM of $65 6 billion and total permanent capital of $85 6 billion.
AUM not yet paying fees was $7 7 billion as of March 31.
Doug mentioned inclusive of the World Fleet acquisition, our AUM would be approximately $109 billion.
AUM grew seven 5 billion to 102 billion, an 8% increase from last quarter and a 76% increase from the first quarter a year ago, driven primarily by deployment of capital and debt raise and direct lending. The addition of our real estate division and capital raising across the firm.
Fee paying AUM grew $4 1 billion to $65 6 billion, a 7% increase from last quarter and a 64% increase from the first quarter a year ago, driven primarily by deployment in direct lending. The addition of our real estate division and capital raising across the firm.
Permanent capital grew $6 8 billion to $85 6 billion, a 9% increase from last quarter and a 61% increase from the first quarter a year ago, driven primarily by deployment of direct lending. The addition of our real estate division and capital raising across the firm.
AUM not yet paying fees were $7 7 billion, including $5 4 billion in direct lending zero point $7 billion, and GP capital solutions and $1 6 billion in real estate.
AUM corresponds to an expected increase in annual management fees totaling approximately $105 million.
Primarily upon deployment for direct lending and real estate as.
As I've mentioned in the past with our tech BDC where to go public.
We expect that could be another incremental $65 million of annual management fees due to the fee step ups with the launch of our new Tech lending BDC <unk> and combined with our <unk> III upon the lifting of all three of these bdcs, we expect that could be a total incremental $185 million.
Annual management fees.
Plans to get into this more on Investor day. So please stay tuned for that.
As Mark highlighted earlier, we had another strong quarter of deployment in direct lending with gross originations of $4 9 billion and net funded appointment of $3 4 billion. This brings our gross originations for the last 12 months to $26 4 billion with $14 7 billion of net funded deployment so as it relates to the five.
$4 billion of AUM, not yet paying fees and direct lending it would take us less than two quarters to fully deploy that based on our average net funded deployment pace over the last 12 months.
Turning to our balance sheet, we continue to be in a strong capital position as you can see on slide 23, we currently have almost $1 billion of liquidity with a very long dated capital structure on another note as mark touched on we have raised a significant amount of equity in our direct lending business year to date in particular since quarter end. There are two items here I wanted to.
For everyone on this point.
The first item as we continue to fund raise there will be varying levels of distribution replacement costs associated with different raises for our various bdcs. So to provide more clarity here using the example of raising $1 billion and assuming we pay out $25 million to $30 million in one time upfront distribution replacement fee expenses.
On certain equity dollars raised this will generate over time, approximately $50 million of management fees, including part one fees per year every year, it's permanent capital. So just making the point here that for our second quarter of 2022 based on what we're seeing so far we expect to show a potentially large nonrecurring expense.
Our G&A line related to these fundraisers and a much smaller amount of incremental management fees for that quarter due to this timing mismatch I'll be sure to call. This out in my prepared remarks, when and as this happens so it's visible and transparent to everyone.
The second item more specifically as it relates to our <unk> IC products.
A reminder, here that we have a fee waiver in place for this product through October 31 of this year. So we're not earning management fees on those products for almost all of this year.
<unk> startup on November one.
These items were part of the 2022 outlook that I discussed on our last earnings call in February .
So to wrap up here before getting to Q&A. There is a few last items I want to cover.
First at our Investor day coming up on May 20th we'll be talking about a number of different ways in which we believe we can drive shareholder value one of the areas. We identified with the potential to be included in the Russell indices.
On April 11, we announced the change to the voting power of our class a shares which represents our public float when we initially looked into this we believe we have satisfied all of the other required criteria to be included in the Russell indices with this one exception.
We did this to open up potential to be included in the newly reconstituted Russell indices at the end of next month.
Next our stock buyback program during the first quarter <unk> bought back 2 million shares of stock at an average cost of $12 nine per share.
Pulling the lens back a little on this topic starting this year, we generally expect to buy back stock that we issue in connection with stock compensation.
And not trying to get this exactly right on a quarterly basis or even annually, but over the course of time, we expect to buy back shares to offset dilution from stock compensation.
Finally, Doug touched on inflation and rising rates in his remarks, but I wanted to hit this with everyone.
Our business is very well positioned for a rising rate environment. If you look at slide 17 of our earnings presentation, you will see that our <unk> annualized FRE revenue could increase by two to four plus percent if rates increase by two to 300 basis points. This would all be incremental to anything we have previously discussed we did.
Didn't include potential rate changes in our forecast, but not included in the 2022 revenue target given in February of $1 3 billion.
Summing it all up we are very pleased with our results for the quarter were hitting in all of our key metrics and we continue to have very exciting growth plans ahead of us, which we feel we are well positioned to execute on we look forward to seeing everyone. Later this month at our Investor day event.
Thank you again to everyone, who has joined US on the call today with that operator can we please open the line for questions.
At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Craig Siegenthaler.
Your line is open.
Hey, Good morning, everyone. This is Craig Siegenthaler from Bank of America Hope, you're all doing well.
Doing great Hey, Craig.
So Doug I was actually hoping that you could elaborate on your bullishness on the tech lending backdrop, because I'm, just thinking if economic conditions moderate and Theres a period of slower underlying profit growth from the portfolio companies and less investment activity from the private equity industry, which you lend too I was just curious behind.
Your confidence in the robust growth trajectory intact.
Hey, Craig it's Marc I'll take that one so I think it's both our expectations, but it's also the reality the activity levels right now.
I have never seen more large and high quality opportunities and they are almost entirely in the software space and we are the market leader in terms of capabilities in that space.
Both.
Sitting here now and just to give you a statistic to go with US again, the preponderance of this being driven by software. If you look at last year. There was a total of 40 private financings that we saw a $1 billion of greater again very heavily driven by software.
Is this.
This first quarter alone we've seen over 20 that are $1 billion of greater and now new category as enter $2 5 billion or greater and the reason that matters is not just the size I mean does speak to deployment opportunity, but these are incredibly large market, leading global companies. So I couldnt and we're not trying to comment on whether their growth rates.
Exactly what the sponsor think better worse, 20%, 15% 25.
What what matter of sausage, the durability and attractiveness of the long term franchise in our portfolio and our tactical owl rock back one we lend on average in the low 30% level. So if one just took an abstract 5 billion dollar buyout, which is no longer large in the tech sector that would be a $1 billion of debt.
With a $3 $5 billion equity check so our bullishness comes from both the current activity level, which is quite exceptional.
Our outlook, which is with all the dry powder two trillion dollars of dry powder in the hands of private equity again with a particular concentration heavily.
Towards software and tech.
It needs to be and will be deployed many of the sponsor received this disruption in the market as a moment of opportunity, but time will tell.
That's true or not but thats clearly the action that's been undertaken.
And definitely into some of the best things, we've seen frankly, and I guess I just have one more remember we also have the structured capability intact. This is our yield enhanced capability.
That was really built for this exact environment, which is companies that are great private tech companies that maybe got ahead of themselves on valuation. So it doesn't mean they are deeply valuable as these are some of our most exciting lowest risk opportunities, where we also get equity upside so.
I'm not trying to overstate it we feel like now is exactly kind of the pinnacle moment for the tech opportunity, yes, and I'll just chime in for 30 seconds.
And Mark really hit on all the high points, but I think it's important to remember when we talk about technology.
Mostly about enterprise software.
Don't do startups, we look for things that have high recurring revenue very little churn high predictability of cash flow.
And so as we look out across the lending landscape. We actually think these businesses are some may be the best things, we can lend to so we're excited about it and we're excited about our position in the market.
And I apologize if it closes whatnot small comment on that point, which is in our tech lending platform.
Iraq Tech won we have since inception still never had a default we've never had a loan in arrears. So the durability again isn't really a case of theory, it's been the most durable sector in our portfolio and broader than that but.
I think theres a lot to like right now.
Yes.
Thank you for that and Mark if we broaden that conversation out to include the whole credit business all of our rock and.
It's nice to know there was never default in the tech business.
Also I think you said earlier that realized losses are pretty much are very low, but if we move earlier into this the credit quality stage. So early stage credit quality like delinquencies non accruals, what youre seeing with covenants how does the portfolio look today versus six months ago, just because economic conditions have moderated a little bit.
Yes, a couple of a couple of things. It's a great question of course, so first let me take one step back in as they blew out all matter.
Thing is really important for the shareholders remember blew out as a firm we are essentially 100%.
Fee driven revenue management fee driven revenue and so we care deeply about the performance of our products, but actually the question you raise it doesn't affect the earnings while we don't have carry so that question is going to be very salient for firms that are carry centric and have a variety of products that can go up and down with the answer to a question like that or.
Equity valuation changes.
We get paid fees, so all shareholders on this call.
Fortunately to answers questions like what happens if credit quality issues up tick up or what happens with inflation. The answer is it doesn't matter to people on this call know it matters to also have asked all of US when we think about growth in products. So let me answer your question because of course, we care a lot about it as a firm and for our Lps. So credit quality has remained.
Very strong very robust we continue to run at extremely low.
<unk> rates default rates any measure you want to use.
Continue to feel extremely good the portfolios in robust shape across our platform in total we're running at loan to values in the low <unk>.
<unk> for tax.
It's in the low <unk> across the whole firm.
Once we go into this most of our borrowers in very strong shape remember, we've always built at owl rock wallet particular, very defensive strategy that we've always erred on the side of low risk, which just hoping you could say hasn't mattered over the last several years will now is going to matter and we have built into our franchise on look we want the best companies.
With low loan to values and you can give us 50 extra basis points to get us to take impairment risk. That's just not how we operate and those differences are going to start to shallow amongst managers.
So.
Here again, let's go with the statistics we originated.
<unk> $56 billion of loans and we're running at a five basis point.
Loss rate and the losses in total associate with $300 million of original notional loans. So of course, a more rocky environment of course that should kick in I don't think any of us invest planning for what amounts to asymptotically zero losses, but portfolio is looking very strong and final statistic because we go into this across.
The broader portfolio.
EBITDA to interest coverage, we're heading in with an average of two seven times. So there's a lot of room in that statistic for both declines in EBITDA, even though these are generally pretty robust businesses that we invest in as well as rising rates off a low floor side again, we're not dismissive of it were thinking real hard about the volatile environment.
But we're feeling quite good.
Thank you Mark Thank you Mark sure.
Okay.
Okay.
Thank you Craig.
Your next question comes from the line of Alex Bluestein. Your line is open.
Hey, guys good morning.
Okay.
Joe I wanted to start maybe with the question around real estate Theres a couple of stats I think Mark you mentioned in your prepared remarks, I just wanted to understand them a little better I think one of the things you mentioned was around $20 billion runway you see I want to say it was one deployment, but it wasn't 100% clear. So can you maybe contextualize that a little bit more and maybe taking a step back.
How are you guys thinking about prospects for real estate platform over the next 12 to 18 months given your comments around the new fund raise and the opportunity seen in retail.
Sure.
Very happy to Alex. Thank you. So first off the $20 billion really referred to sort of pipeline. So it really speaks.
The flow through of course like in every investment business. We ended up doing a very small portion of the things we look at and consider but really the point of the statistic because it remains a very very robust opportunity set much much larger than our target deployment levels. So.
Book to Bill so to speak quite book with the opportunity set.
Is very robust as we sit here. So that was really the purpose of that statistic remains very strong compared to historical standards.
As to the outlook for your very good point. So so theres a few forces at work by and large this environment is quite appealing for our real estate business, it's appealing because as cost of capital within the corporate structure rises then of course, our triple net lease solutions may in many cases look more competitive.
I guess, we might have thought of before as low maybe kind of oddly low borrowing costs for strong corporate borrowers back last year or last quarter for that matter. So as those costs come up I think our solutions actually with more competitive number one number two in a more volatile permit people, obviously look for other ways too.
Financed outside of what might be just the obvious okay, well I'll just go issue a bond I'll discuss borrow from a bank and so we offer these structured solutions that for those who have real estate assets. They can tap into so we look at the backdrop is quite positive from the point of view of deployment.
And from the point of view of what that means and also the quality of the assets and the performance.
Here's the beauty of it first off since inception of Oak Street.
We're very excited about our credit performance of five basis points realized loss and Oak Street, we've never had a single payment best single rent payment missed let alone a default.
That durability is.
I would say pretty extraordinary and so what we like about this composition is more people looking for creative solutions cost of capital or upside gives more room for us to put our solutions in place and then the durability of having both the asset and the corporate counterparty on a 15 to 20 year net lease.
<unk> and.
In a volatile environment, but true flight to safety.
Okay.
Got it great. Thanks.
The other question that I had probably for you just wanted to dig in a little bit more into the kind of each placement fee structures and really just kind of trying to understand if we're going to be in this pretty robust retail fund raising environment. These.
Placement fee is going to be fairly than recurring and sizable for the next sort of several quarters or is it more of a function of once you get onto certain platform.
There is a larger upfront cost that you pay and then it kind of goes down a bit but help me just kind of understand the distribution and placement fee cost that I guess, you guys are going to start calling out in future quarters.
Sure. Thanks, Alex.
The lump the olympias ones are the larger upfront ones are really on our private to public BDC raises.
And we've had this a couple of times in the past over the last seven years.
And it could it could continue from time to time.
I expect you'll see that in <unk> I don't know that Youll see it again for the rest of this year on a private to public.
And then some of our <unk>.
Permanent privates.
We will have some wire house costs, they won't be the big lumpy upfronts like you'll see in the private to public, but we will have that on an ongoing basis as well that again is not as lumpy as the privates or publics yes.
Thanks.
Good day chat with you.
Look.
When you take a step back I don't think there'll be recurring per se, but.
For the near term, we're kind of hoping for large numbers because that means we have raised quite a bit of capital and the payback is relatively quick.
Obviously, we do our best to drive that cost as low as possible but.
The competitive market out there.
We're not paying any more than any of our peers, but we're.
We're hopeful in the near term to have big.
Big numbers, and then I think it will slow.
Slow down over time, the biggest numbers as Alan was alluding to or not really from our recurring funds. Our core income funds. It's when we're doing a specific BDC and its more of an episodic fundraise. So youll see those less frequent.
Smaller number for that.
The funds that are perpetually offering.
I'm expecting the biggest number Alex.
We'll see how the year plays out, but I would expect the biggest number this year comes into Q and that could bring a 15% to 20 plus percent G&A number as a ratio to revenues.
And then I would expect it ticks down significantly from there in <unk> and then again in <unk>.
Got it alright that makes sense just one other clean up for me.
Little nuance here, but on the equity based comp if we look at the back of the deck I think it's running quite a bit higher than what we're used to seeing I think it's like $96 million for the quarter.
Can you just want to add one more time, what the equity based comp run rate should be on a go forward basis and why it was somewhat elevated this quarter.
Yes, youre going to start to see now and this is this is all GAAP numbers, obviously, Alex youre going to start to see amortization of some of our earn outs for both Oak Street.
Coming up well fleet.
But that piece Youre seeing is largely Oak Street.
Okay, but thats run rates, so like 90 plus million dollars a quarter.
It should be run rate yes.
We closed that at the very end of December So you have a full quarter in for <unk>.
Alright, thanks very much.
Okay.
Thanks, Alex.
Okay.
Your next question comes from the line of Robert Lee.
Your line is open.
Great. Thanks for taking my questions.
Good morning, everyone hope everyone's doing well.
Thanks.
Maybe Doug.
Probably missed some of it but could you maybe unpack a little bit some of the quarter to date fund raising.
I think I've, probably missed some of the numbers, but if you could just step through it was the $2 eight total so far the right total I kind of missed some of it.
I'm going to let Alan do it because I'll make mistake.
Yeah.
Hey, Robert how are you.
Yes.
So we've got.
Year to date is about $6 7 billion.
The quarter to date in <unk> is $2 8 billion.
That's a obviously through a couple of days ago, we have some products that closed on the first of the month like a core income product.
Some products that closed mid month like <unk> five so.
It's a little bit of a mixed bag, whether that's one month or two months in our quarter to date numbers, but of the $2 8 billion, you've got $2 2 billion of that that was raised indirect lending about $500 million of that in <unk>.
Capital solutions.
And then a very small contribution from real estate.
Great. Thank you and then maybe on the GP solutions business.
Mike.
Can you maybe.
It's down a little bit, but maybe to drill a little bit deeper how this environment and I don't know if it affects that at all but how maybe the performance of the public managers.
Impacts.
Deployment or pricing as you see in the private markets and then maybe.
As you think about fund six.
Starting up in 2023.
Is there any reason to expect.
A different side targeted fundraise versus fund five I guess call. It the $9 billion, how should we think of that as.
As we look ahead to next year.
Okay. Thanks, Rob good to speak with you.
Sorry to give you a boring answer but the GP solution business. These partnerships come together after years and years of relationship building a lot of deep thought on the on the side of these these GPS that are the biggest and most important leaders in this space. So the the <unk>.
Wheels get set in motion not just quarters ago, but years ago and so there is very little.
Market very little that the market volatility, we will do to impact the long term strategic planning of these relationships. So our deployment is very consistent when you look at it over multiple quarters or years, we're not seeing any slowdown in fact, if anything deal activity is quite robust.
There is.
Seasonality in these conversations we typically have since 2015, we've only deployed about 10% of our capital in the first quarter and close to 65% to 70% of it builds as we move past the summer so we.
We see that happening now and and why we're pretty confident that we'll be on to fund six in 2023. So.
As you know size will be TBD.
As we've talked about are our goals for five and $5 9 billion and we'll see exactly where we land that plane certainly confident in that number.
And we will see if we go above but that will that will then take us to our views on the size of fund six as we get into 'twenty three.
And maybe dig into the tiny bit.
Maybe how is this environment.
Impacting your pace of fund raising I mean, I think there's been just generic.
Some concern out there not specific to the industry, obviously about the pace of fundraising given the volatility and I think given the nature of your LP base maybe.
You can find this is a kind of extending it to little more than normally would or how should we think of that.
Yes, Robert.
Look at the performance of the funds they are quite exceptional we believe and so the the demand is there we've heard other peers talk about the denominator effect in how total commitments might be down we don't see that we don't see that at all across Blue al as you you've heard a big focus on retail and as we folks.
On institutional fund raising we're not seeing.
A slow we're not seeing a lower total commitment from large institutional investors. What we're seeing is a crowded market where bandwidth is is the key constraint across the institutional set as an example.
We're working with a large institution, that's going to make a commitment.
Did all their work in January and February and they've just been trying to get us a slot on their investment committee calendar, knowing that others in the market are having closes before ours so were.
For our product line up we don't see any real denominator effect and we're raising capital ahead of the need for it from a deployment perspective, and we're able to think about a sooner raised for fund six than we had anticipated when you look back a couple of years.
Great. Thank you for taking my questions.
Thank you Robert.
Your next question comes from the line of Glenn Schorr. Your line is open.
Thanks very much.
So when I look at <unk>.
<unk> 16 on the direct lending originations you see it down sharply for the last couple of quarters, and then a little bit year on year, but I heard your comments about the.
The big pipeline in second quarter. It looks good so I wonder if we could talk about.
What produces that type of volatility.
And.
If you could talk about whether it be second quarter or the rest of 'twenty two in relation to some of the better quarters that you've had thanks so much.
Sure well first let me, let me just kind of level of SaaS.
And then call on sort of.
And kind of where it goes from here the accident quarter remember there is definitely a seasonality to it.
The private equity business and therefore, the London business the fourth quarter, we will almost always be the strongest market conditions. Obviously considered in terms of people closing before year end and that restarted new transactions into the beginning of the year or so so so let's just take them.
What kind of a step back and compare numbers year over year, our originations were double last year and our net originations were the second highest we've ever experienced as a firm so.
I just wanted to clarify and probably reframe interpretation of slide 16. This is actually if you look this would be for four corners running if I do the comparison year over year. So added one more bar the origination this quarter actually double and the $3 four as I said is the highest second highest that we've ever had so.
Starting point part two as I noted how busy we have been and it's been extraordinarily productively busy I guess not just busy.
Tales, though to close things.
As always it takes some amount of time between Hey, we started something at the beginning of the year.
Yes kind of a war breakout in February obviously.
And importantly, and this is actually part of the strength of our model a lot of these deals are really large ones are now take privates as you know.
And take private by their nature of course take longer from sign to close that's quite fine by us.
Plan Accordingly in terms of deployment of the capital what's one of the great advantages of private capital over the syndicated market in a volatile environment like this someone who doesn't actually want to own the risk is trying to make two points.
We are making clear the trade out to somebody else, having to do that for 456 months.
Seems very appealing for us we're trying to own the paper now whether we have to wait a few months three months, one or six months in the context of our five to seven year loan is always quite quite fine. So with all that said I think we expect you to be Q2 to be a very robust quarter and into Q3, frankly, given the tail on some of these things.
The forward pipeline and <unk> pipeline.
Signed but not yet closed is extremely strong.
And that very robust can we take that as similar year on year growth ish.
Yes.
I can't give you.
Guidance on exactly because of the timing of each of these deals and some are quite large I just don't know but.
But I think you can take it as a.
Definitely a strong indication that we're heading into Q2 Q3 with a typically large amount of paper already committed but not yet closed I think it's important to remember.
We are primarily funding new buyouts.
And with over two trillion dollars of dry powder sitting in the market.
We expect M&A to remain robust and we are really at the epicenter of all of that.
So I think as you think about direct lending I would.
Focus a lot on PE fund raising and as long as that stays strong we expect.
Over time to continue to have record originations as Mark said.
Timing it quarter to quarter is nearly impossible, but I can tell you when we look at the amount of activity out there and the amount of dry powder.
We expect the pipeline for financing in the pipeline for capital to or the capital needs to remain really robust.
I would also add Glenn that as you saw transaction fees come down and <unk> commiserate with gross originations no Mark is talking about atypical levels in <unk> and <unk> you could generally expect transaction fees will follow that.
I definitely appreciate all that color. Thanks.
Thank you Glenn.
Okay.
Your next question comes from the line of Patrick Davitt.
Your line is open.
Good morning, guys. Most of my questions have been answered.
Maybe just one on the tech lending side, so you've got tech or tier two in the market right.
GIC launched in.
The hope that or TF, one could go public.
So as we look through the IPO or one in particular, how do we think about the potential for that to actually happen given the amount of fundraising youre doing for <unk> I think the latter has lower fees than <unk> would have once it goes public could you kind of unpacked all those dynamics.
Does it push out I guess, the view to two or to your point going public.
Thanks.
Thanks, Patrick.
And good question.
We can't comment publicly on the exact timing of an IPO, obviously or catheter SEC registrant.
Pulling the lens back that on that for a moment, though obviously right now the markets arent the right type of markets to try and do an IPO that portfolio is fully invested its fully levered.
Our shareholders are enjoying.
Low fee structure. So we're not in a rush to get out and IPO that we wanted to make sure we have the right markets to do that.
And separate trend we're done fundraising there was unplanned raising we're done with deployment, we're just replacing pay downs at this point, so again fully invested fully levered portfolio and we're obviously fundraising now for our TF too. So exact timing TBD, we'll have to see what the markets hold in the back half of this year, but obviously right now as is.
Not the right time to take it out.
Maybe just add a comment stitching it together.
It is certainly true that the market volatility has implications for the exact timing of when we listed some list really is post IPO because once listed as when the fee step up.
And that can be done obviously quite different environments from potential NGL, but we're not going to try to do anything that doesn't make good sense.
Everyone for all the investors and so with that said I mean.
Could it vary by quarter as to when that step up which then lasse.
Permanently comes in.
So within a quarter as Doug keep saying, we don't try to think about our business quarter to quarter that way, but we know where the destination is with that one.
That same volatility is what's creating so much opportunity for investment in the tech space, but we already talked about so I won't rehash it but the enormous amount of activity to purchase software companies and then but we think we'll be in a significant need for private businesses intact for structured capital Youll have volatility is quite fresh.
And for what we think will be the <unk>.
Strong well results, we can deliver in our tech to in <unk>, and yes, and just one quick thing.
I think on the 20th at Investor Day.
We will give everyone a lot more color about our expectation fund raising and all of those products.
I would add Patrick when I gave my guidance on our February call about $1 three of revenues that we would expect to post for 2022.
I've talked separately about the $65 million fee step up there is very little of that $65 million in my <unk> III.
Got it.
Thank you.
Thank you Patrick.
Yes.
Again, if you'd like to ask a question press Star then the number one on your telephone keypad.
Our next question comes from the line of Adam Beatty.
Your line is open.
Hi, Good morning, Thank you for taking my question.
I am probably just one for me today.
Sure.
About well fleet and just wanted to understand obviously solid business. A good addition to the franchise one understand how youre thinking about.
Synergies on the product side, and maybe the distribution side as well we've been talking a lot about retail and other product development, how does <unk> fit into that kind of bigger picture. Thank you.
Okay.
Well thanks for the question.
Well fleet. There is just a tremendous amount of synergies with our direct lending business, especially in our core income product, where we provide some liquidity. So we really needed the public market expertise.
And we were debating do we build internally or do we go out and acquire it and to have a group that has a dedicated track record.
Great track record by the way.
Pays for themself, and we think we can grow that business significantly so.
They just joined recently I think it was April one.
Hi.
It's been a seamless transaction, we're really excited about having that team on.
And it's a relatively small business six and change billion.
Assets.
I think we can create a tremendous amount of value there.
And I think we can make.
Multiples of a return on our investment.
But it was a relatively small investment so I don't think its going to have a material impact on our earnings but I think it will be highly accretive and again on Investor day, we will spend some time going through that and a lot more detail.
Okay that sounds great I appreciate the thoughts on build versus buy.
Thank you Adam Thanks, Adam.
There are no further questions at this time.
Doug Australia, I turn the call back over to you.
Well, we appreciate everybody on <unk>.
Spending.
About an hour with us.
We're grateful for everybody listening in and as always our goal is to try to exceed expectations.
I really encourage all of you if you can make it to investor day on the 20-F, I think you'd find it worthwhile youll be able to watch it over zoom as well.
We're excited too.
Really share the vision of what we think we can build here. So we'll look forward to following up again in a few weeks. Thanks again everyone.
Yes.
This concludes today's conference call you may now disconnect.
Okay.
Yeah.
Sure.