Q2 2022 Blue Owl Capital Inc Earnings Call
Erase the subsequent 200 million to take the fun to approximately $10 billion, we anticipate wrapping up fund raising later this year, which we expect will bring the fund to over $10 5 billion and in real estate, we expect the second half of the year to be very.
Three active as we've come to market with new products and next vintages of existing clients.
We hear often from our investors is that the defensive nature of our strategies and they're focused on income generation and principal preservation are highly desirable during good markets, but they stand out even more during challenging environments.
And we've been active in deployment across all of our strategies moving us closer to the next Big fund raise for each of those strategies.
Looking ahead, the key messages that we've highlighted over the past year and most recently at Investor Day should continue to resound in today's market we.
We see meaningful runway to raise capital across institutional and wealth channels and in our view we have.
The right strategies, the right people and deep investment expertise in place to invest that capital well permanent.
Capital remains the cornerstone of our business, creating competitive advantages and supporting growth and with each successive dollar of new assets raised we will continue to add new layers to blue ILS earnings power.
With that I'd like to turn the call over to Mark to give you an update on our direct lending and real estate businesses Mark.
Great. Thanks, so much John .
I can pick up where Don left off in his earlier comments about the terrific opportunities, we're seeing in our direct lending business, we've been able to generate strong growth in that business very constructive market environments. In these choppy markets are even more advantageous for us to deploy capital, especially with our direct lending strategies Sean.
As a scaled player in direct lending with patient permanent capital, we are well positioned to provide much needed capital solutions at a time when liquidity is scarce and our market leading position to tack London has served US well we continue to lead a number of large financings for large software firms at attractive spreads are low.
Loan to values.
Our continued capital formation puts us in a position to lead the biggest deals happening in the market today, such as Zen desk dynamically.
So to use a recent example, we were recently named the admin agents on our senior credit facilities for Hellman <unk> Friedman from euros acquisition of Zen desk, a scaled and fast growing market leader in the customer support service market.
<unk> and enterprise customers and thus revenue is highly recurring with attractive retention metrics driven by a strong value proposition and expansion within its existing customer base precisely the type of characteristics. We look for when we've been asked a software company.
So for the first half of the year, we looked at nearly 30 deals with facility sizes in excess of $1 billion.
Exceeding the over 40 investments of that high as we evaluated all of 2021 for the full year our.
Our pipeline remains very robust as sponsor sent on meaningful dry powder and continue to find attractive opportunities. We're also having conversations with various non sponsored private companies looking for financing solutions.
This is an excellent market with favorable supply demand characteristics for us.
For the second quarter as you can see on slide 13 of the earnings release gross originations of $7 6 billion were up nearly 50% year over year and over 55% quarter over quarter.
Over the last 12 months gross originations and direct lending has been $28 9 billion.
But more than double what we originated in the prior 12 month period.
Although we expect capital markets activity will likely remain under pressure in the near term, we're cautiously optimistic that the back half of this year will remain quite active for our direct lending strategy.
Credit quality across our direct lending portfolio remained very strong and we are proud to say, we have not had a simple new non accrual or defaults in the quarter.
Our annualized net realized losses have remained at approximately five basis points since inception.
And we've continued to focus on downside protection with a weighted average loan to value and the low forties across our direct lending portfolio in the low thirties across our tech portfolio.
The interest coverage ratio across direct lending is roughly three three times and we expect that even with a further 200 basis point rate.
First coverage will remain about two five times. So our portfolio is very helpful.
So far we've seen great resiliency and the ability for our portfolio of companies refinance fast costs along to their own customers protecting their businesses for margin compression.
Now turning to performance from 12 months to direct lending portfolio appreciated 8% in the second quarter, while marks were negative due to spread widening and how we value our existing loans as a result, our portfolio continued to fundamentally perform very well.
Let me take a second and talk about how we think about mark to market.
We say this before but it does bear repeating.
We care very deeply about the performance of our products and are very much matters us and the investors in our funds for this particular audience performance and in particular unrealized mark to market is not really impactful to our shareholders. As you saw during the quarter. There was a de minimus impact on our management fees as a result of marks.
As evidenced by the management fee growth and direct lending during a period with public credit markets traded off significantly.
Said another way when we ultimately care about is good credit quality and then we get paid back on our investments and everything in between is simply noise unrealized marks from changes in spreads do not impact the overall performance of our investments or our dividends to our investors.
Moving on to fund raising we raised $3 billion in direct lending strategies during the second quarter of which wells constituted $1 9 billion.
<unk> incorporates $500 million close of our new Tech income fund and ongoing closes of our core income.
Furthermore, we've experienced very limited tenders in our core income funds during the second quarter investors' requests of tenders for a de minimis $28 million.
This compares to <unk> 10 billion of AUM in those.
Funds.
Subsequent to the end of the second quarter, we closed an additional $2 billion across direct lending and more broadly we continue to expand the distribution for all of our direct lending products flow.
Now moving on to our real estate business as we spoke about on Investor Day. We believe we are in an attractive investment environment and continued to see tailwind for net lease as corporate borrowing costs continue to increase as we stand here today, we have roughly $1 $5 billion of transaction volume under letter of intent or contra.
To close in the near term pipeline of more than $25 billion of potential volumes.
As of today, we've invested over 55% of the equity in our fifth closed end funds.
US on track to launch our real estate fund six later this year.
The pipeline for sale leaseback is very robust and the volatility of the markets continues to create opportunities.
We've recently picked up approximately $900 million of broken deal flow at an average cap rate that is meaningfully better than that of the prior potential but.
We expect to continue capitalizing on similar opportunities in a challenging financing market.
In addition, we launched our latest open ended product net lease trust. We're currently in one large wire house with this product today with an expectation to have a first close in the third quarter and we will continue expanding the synergies.
We're very excited about was net lease strategy generally and believe we have a very differentiated approach investors in this strategy, we'll be able to access the advantages of the net lease structure.
Which targets an attractive 7% plus yield primarily investment grade counterparties with beneficial tax attributes and we think this compares favorably to other strategies currently out.
You've heard US say this multiple times now, but I think it bears repeating income generation inflation mitigation and downside protection or what investors are looking for in markets such as these and our net lease strategy provides just that.
Since our real estate strategies inception, we have never had a tenant missed a single rent payments go bankrupt or default on a weeks and we generated a net IRR of 26% on average across our fully realized closed end funds and gross appreciation across our real estate portfolio.
Of six 7% for the second quarter alone and 34% for the last 12 months.
These are strong risk adjusted returns for the underlying credit profile of these portfolios. As you can tell we are quite excited about our track record and strategy given the large opportunities that we see.
So with that let me turn it to Michael to discuss GSV capital solutions.
Thank you Mark we continue to see a very constructive fundraising and investing environment, where our GP capital solutions business, particularly given our positioning as an attractive and scaled source of capital for growing private managers.
<unk> growth across the alternative asset manager space, not only drives our investable opportunity set as more firm seat growth equity, but it also drives cash flow from our partner managers as they continue to raise and deploy capital.
As Doug mentioned earlier during the second quarter, we closed on roughly $3 billion of new commitments for dial fund, bringing total commitments to $9 8 billion.
So far in the third quarter, we raised an additional $200 million, taking the fund to $10 billion.
We are excited about the strong momentum and anticipating wrapping up fund raising later this year, which we expect will bring the fund to over $10 5 billion exceeding the $9 billion, we had on the cover.
At $10 5 billion the size of fund five will be a record in the GP Stakes industry and nearly twice as large as the next competitor.
This puts us in a position to continue deploying capital into large firms with leading track record as we've highlighted at our Investor day, our market share of deals above $600 million in check size has been approximately 88%.
We remained active on the capital deployment front as well, adding to positions in leading firms that are new partner managers as well as three commitments to firms we have funded previously.
As you can see on slide 16 of the earnings presentation. This brings total commitments were dial five to $7 4 billion.
Having already surpassed one five target size by $1 billion as of August one and with additional capital expected to close this year, we anticipate the launch of funds six towards the end of 2023 with fees turning on in 2024.
Performance across the dial phones remained strong with gross IRR of 31% for fund III and 112% for fund four.
Looking ahead, we're very optimistic about what the next 12 months holds for the GP capital solutions business.
Not only is dialed well positioned within a very small set of firms that have scale and capability to provide growth capital to fund. These managers, but we continue to partner with managers, who are the greatest beneficiaries of flows to alternatives and GP consolidation overall, we see ample opportunity to take advantage of this dislocation.
And the current market environment.
With that I will turn things over to Alan to discuss our financial results.
Thank you Michael good morning, everyone.
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 to pages in our earnings presentation as Ed 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 Wellfleet on April one.
So you will see those numbers included in our results today.
Second quarter was another quarter of strong growth for our business FRE.
<unk> revenues are up $45 2 million or 17% from last quarter and up 51% from the second quarter a year ago.
Management fees are up $36 7 million or 14% from last quarter and up 63% from the second quarter a year ago.
Broken down by divisions direct lending management fees are up $12 million or 9% from last quarter and 39% from the second quarter a year ago.
<unk> capital solutions management fees are up $22 6 million or 21% from last quarter and up 70% from the second quarter a year ago. When you adjust for catch up fees and dialed fund five were up $12 8 million.
And real estate management fees are up $2 1 billion or 12% from last quarter.
FRE is up $25 7 million or 15% from last quarter and up 52% from the second quarter a year ago.
FRE margins are roughly flat from last quarter at approximately 62%.
We expect this will tick down for the second half of this year due largely to distribution costs, we expect to book in the remainder of the year.
Our ratio of compensation as a percentage of revenue is roughly flat to last quarter at 27% and.
And we announced the dividend of <unk> 11 per share for the second quarter up from 10 per share last quarter.
All of this is in line with our expectations and what I noted on our earnings call last quarter and in February we continue to be on track with reaching our 2022 goals of $1 3 billion of revenues and an FRE margin of 60%.
I wanted to spend a moment on our fundraising efforts as we've put up very large numbers over the past four months in the second quarter, we raised $7 2 billion and since quarter end, we have raised an additional $2 2 billion.
So in total we have raised $9 4 billion of equity commitments from April one through today.
I'm going to break down these fund raising numbers across our products. So everyone has more transparency here and there.
Direct lending, we raised $5 billion.
$1 8 billion was raised for our core income BDC or CIC, which is now over $4 5 billion of equity.
One 7 billion was rates for <unk>, II, which is now over $3 billion of equity surpassing the size of <unk>.
As a reminder, we earned fees on total assets for these two products, which including <unk>. We have now raised approximately $7 billion of equity with a turn of leverage that's approaching 15 billion of total assets for our tech dedicated products.
$700 million in our TICC, our technology wealth platform products and $500 million in CLO.
J P capital solutions, we raised $4 $2 billion three.
$3 2 billion was raised for dial fund five and an additional almost $1 billion of co invest which was featured.
In real estate, we raised $200 million.
And are in the process of launching two new products as you heard in more detail for Mark a few minutes ago.
As it relates to our AUM metrics on slide 11, we reported AUM of $119 1 billion fee paying AUM of 77, 5 billion and total permanent capital of $95 5 billion.
AUM not yet paying fees was $8 8 billion as of June 30.
AUM grew $17 1 billion to $119 1 billion, an increase of 17% from last quarter and a 91% increase from the second quarter a year ago.
Fee paying AUM grew $11 9 billion to 77 5 billion, an 18% increase from last quarter and an 81% increase from the second quarter a year ago.
Both metrics driven primarily by deployment of capital in direct lending capital raised and dialed fund five and we're looking at the growth from a year ago. The addition of our real estate and CLO businesses.
Permanent capital grew $9 9 billion to $95 5 billion, an 11% increase from last quarter and a 68% increase from the second quarter, a year ago, driven primarily by deployment in direct lending capital raised and dialed fund five as well as the addition of our real estate business when compared to a year ago.
AUM not yet paying fees was $8 8 billion, including $6 4 billion in direct lending <unk> 8 billion in GP capital solutions, and $1 6 billion in real estate AUM corresponds to an expected increase in annual management fees totaling over $105 million.
As Mark highlighted earlier, we had another strong quarter of deployment in direct lending with gross originations of $7 6 billion and net funded deployment of $4 6 billion.
This brings our gross originations for the last 12 months to $28 9 billion with $16 billion of net funded deployment.
So as it relates to the $6 4 billion of AUM, not yet paying fees indirect lending it would take us less than two quarters to fully deploy this 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 22, we currently have over $1 billion of liquidity with an average 14 year maturity and low two 9% fixed cost.
So to wrap up here before getting to Q&A. There is a few last items I want to cover on.
In distribution costs last quarter, I talked about a large one time upfront distribution or placement fee expense on certain equity dollars rates. Some of that we closed during <unk> and <unk>. The majority of what I was referring to last quarter were closed in the second half of the year.
During the second quarter, we had distribution costs elevated by upper single digit millions versus the first quarter and the majority of what we expect it will now be booked in the second half of the year.
On our Investor Day, we held in May we put out some financial milestones. We wanted to achieve these milestones included achieving $1 3 billion of revenues this year and a 60% FRE margin as well as milestones for 2023, which included doubling our 2021 revenues to $1 8 billion hitting.
Hitting $1 billion of after tax distributable earnings and raising 50 billion of fee paying AUM during 2022 and 2023 combined.
As I noted earlier, although we're all facing a pretty choppy market environment with strong headwinds we are on track with our 2022 goals and I'll note. Here. We are also on track with our 2023 goals, including our $50 billion fundraising goal of the $50 billion. We have raised $10 5 billion through June 30, and an additional.
$2 2 billion through today.
At the end of June we were added to the Russell 1003 thousand and that was a process. We have been very focused on being a part of and we're glad to be included in these indices.
Both on last quarter's earnings call as well as at Investor Day, I commented on the rising rate environment, we're in and the potential impact that could have on our business. I've included here again on slide 14, the impact of rising rates to our direct lending business. We are expecting to see a lift in our management fee line in the third quarter due to rising rates.
As well as another possible lift in the fourth quarter. If the fed continues to raise rates. We would expect continued increases to our management fee line due to an increase in part one fees across our BDC business.
So summing it all up we are very pleased with our results again, this quarter delivering double digit growth quarter over quarter in all of our key metrics.
AUM fee paying AUM FRE revenues FRE and de.
We are hitting in all of our key metrics and we continue to have very exciting growth plans ahead of us as outlined during our Investor day, which we feel we continue to be well positioned to execute on.
Thank you again to everyone, who has joined US on the call today with that operator can we please open the line for questions.
Yes.
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.
Your first question comes from the line of Alex <unk>.
Your line is open.
Hey, good morning, everybody. Thank you for the question. So maybe we could start with just more details around the retail channel obviously, it's a huge growth opportunity and a focus for you guys in that nice to see traction there.
Environment has changed pretty materially, but it doesn't seem like there's been a lot of negative. It back then you guys just based on some of the redemption comments that you had earlier in the prepared remarks. So I was hoping to get a better sense in terms of how much of the net flows are coming from sort of existing platforms versus maybe some of the newer ones that you've added just to get a better sense.
On a same store sale dynamics and then.
You mentioned a lot of numbers. So I was hoping to unpack this a little bit but the $2 billion that you raised so far in direct lending in the third quarter.
Wanted to double check that that's effectively through early August and maybe you can give us a sense of sort of the open ended product versus kind of continued run rate towards the uptick.
Good morning, Alex Good morning, I have Alan start on the $2 billion direct lending piece and then I can address retail.
Thanks, Thanks, Doug Good morning, Alex Yes, the answer is yes.
Effectively today. So it includes the August 1st close as well as the July 1st close for our wealth distributed products.
And then let me.
Let me just start by saying and fund raising this quarter. We're really pleased that was a great quarter. We raised $7 2 billion I think as Alan mentioned $3 6 billion of that came from wealth and that's versus $2 2 billion in the first quarter.
And I think I have this number right. It's about $1 $3 billion has been raised from wealth.
Quarter to date, so continue to do well definitely seeing a little bit of weakness.
We are reiterating our $50 billion of fund raising goal for for the next for 'twenty, two and 'twenty. Three we mentioned that our tenders have been de Minimis, just $28 million in the second quarter out of $10 billion and so over the intermediate and longer term our views haven't.
<unk>.
Confidence in our ability to continue to raise capital from wealth and I think our the products we're offering in the channel have attributes that really resonate.
Lots of income generation downside protection positive leverage to rising rates, especially in direct lending.
I think at our last call, we talked about the wealth channel and how allocations to all to remain very low in Investor day.
Youll remember, we put up a number that we thought the wealth channel would control 220 trillion dollars by 2025.
And that an incremental 20% of that could move into the alternative market.
That's 40 to 50 trillion dollars.
So when we talk about well our enthusiasm hasnt waned at all in fact, we're more excited than ever we have spent a lot of time building our brand our distribution now is truly global as good as anyone in the market you know we've been at this since the day we.
Launched approximately seven years. So I think we're in a really unique position to not only continue to maintain market share but to grow market share in that channel for the next number of years. So we just to reiterate super excited about it and.
Hopefully Mark mentioned this youll start to see that as we rollout our non traded REIT.
Great. Thanks for all that color.
My second question is probably for Alan.
Around the G&A commentary at the distribution cost understanding that that could be pretty lumpy, obviously based on.
This quarter results and sounds like that number is coming up next quarter, but.
I guess, maybe you could just kind of help us clean up what you actually expect G&A dollars to be for Q3 Q4, just to get some of the noise out of the way but.
But more importantly, as you guys are expanding onto more distribution platforms can you just kind of help us think about the framework of how holistically distribution cost work for you guys, whether it's a.
Basis points on retail AUM or some framework around that would be helpful.
And of course, Alex.
Thanks for the question.
So look when I think about placement cost for the rest of this year for <unk>, we could expect 20% to $25 million incremental from our <unk> level and for <unk>, we could potentially expect and look this is subject to obviously to where we ended up actually fund raising and where fund raise.
<unk> levels end up in <unk>, but.
But an additional 15% to $25 million incremental from <unk>.
Please don't extrapolate the amount of fundraising that we did in <unk> relative to the placement costs and extrapolate fund raising for <unk> and <unk>.
Costs vary and I'll talk I'll answer your second question in a second the cost vary quite a bit across different wealth and wire house platforms.
And just to pull the lens back for a minute. Although these some of these numbers are big numbers for our G&A line I would pay these costs every day of the week right.
<unk> talked about last quarter, if we raise let's say $1 billion as an example, and we pay let's assume $20 million to $25 million and placement costs for that and that's blended across again different wire house and wealth platform costs that would overtime equate to roughly 30% or $40 million of <unk>.
Annual management.
So it effectively it does pay itself off in one year.
So to answer your second question. There are some platforms that charge everything upfront. There are some platforms that charge, a small amount upfront and annual trail over time generally speaking, we could pay 2% to 4% either upfront or over time, depending on that platform.
Got it but just to I guess close this topic.
The elevated distribution costs that you guys can see from placing these products in the back half of the year is that largely a 2022 dynamic because you are getting when you platforms being obviously helpful. Arty up to in a couple of other large kind of launches or do you think the distribution expense run rate could ultimately be.
Higher in 'twenty three as well.
I think we're going to continue to ramp up what we're doing across the retail and wealth platform channels and it certainly could be something that youll see for the foreseeable short and intermediate term.
And look that with that said keep in mind in my prepared remarks, I commented on where we think we're going to be in 2022, our guidance continues to be spot on with where we expect to end the year right. The $1 three of revenue, 60%, FRE margins, which equates to $780 million of FRE in 2000.
'twenty three goals that we put out there the milestones, they're both Doug and I commented on on the call and our prepared remarks, we continue to feel very good about those milestones and we continue to feel that we will achieve those milestones everything we just talked about for placement costs is already embedded in our expectations for 'twenty, two and 'twenty three.
So theres nothing Theres, no new incremental distribution costs here that we see today or in the foreseeable future that would change the guidance we've already given.
Okay.
Thanks, so much.
Of course, thank you. Thank you very much Alex.
Your next question comes from the line of Glenn Schorr.
Your line is open.
Hello, Thanks very much.
On the direct lending side I think I got the numbers right. You mentioned 50 deals in the first half over $1 billion versus 40 of all of last year that you've looked at.
So the question I have is if you could help peel back the onion.
What is it that's driving this higher activity level, because it's not just you. It seems like that marketplace is expanding you happen to be great in it but is it the deal structures that you can provide the relationships.
Do with rates may be lower capital ratios that banks, just curious on how you're sourcing them and the big picture drivers there. Thanks.
Great. Thanks, Glenn.
First of all it doesn't want to Echo your comment I think we're great at it.
Yeah.
So here's what's happening we're seeing a continued market share evolution.
At the end of the day, there is a very big marketplace out there for capital solutions and the direct lending is a minority portion of it and will be a minority portion of it probably for a very long time that said theres two trillion dollars of dry powder in the hands of private equity firms and just assuming one turn of leverage that's two trillion dollars of.
Rental demand for financings philosophy, how to refinance the trillions of dollars of financing Thats already in place in the market. So from the point of view of where <unk> sits it's nearly limitless sort of white space, so to speak and what's happening for us in particular and as you know it's not us alone in the market in total for direct lending.
Has been growing and it's been growing for I think a few reasons.
One of course has been the expansion of the depth of pools of capital we have to offer so our relevance to the ever larger financing opportunities has changed over the last five years and that you can see in those same calculations that 50 deals over $1 billion that we looked at if you go back to say 2000.
16, there were zero that scale that we're relevant to that have been done in direct lending. So it is an evolution of the depths of capital pools. It's also very importantly, I think most importantly that we've been able to prove that the model for direct lending, but we started blue all we really had a view that.
We wanted to take was a direct lending business could legacy had been lender of last resort for the companies that couldn't get financed elsewhere and turn it into the lender of first choice for the best companies in the best sponsors and that meant creating the value proposition and today, what we call. The <unk> is right predictability privacy and partnership people.
I think you've called them in many cases, the very best firms. The best companies to say look I understand we pay more spread I understand it's a tougher document, but I really appreciate the value proposition that comes with it.
And so today this year think about this we have blue I'll have led Anna plan $10 billion plus take private it was announced that.
<unk>, leading Zen desk, another $10 billion plus take private yesterday, you may have seen that Thoma Bravo announced Peng.
We're the lead and financing the Ping take private so I think you've just seen this model and its value proposition to these world class companies World class sponsor to prove out.
Okay.
I appreciate all that.
Whoever wants to take this one I'm just curious on.
What factors, we should be looking at or what you are looking at that might indicate closer towards lifting of the bdcs. Thanks.
Sure of course, we obviously can't comment on the timing of an IPO with.
And FCC registrant.
I would comment that the <unk> portfolio is fully invested fully deployed fully levered.
Are.
Enjoying a great.
Cash on cash return dividends IRR.
The RCC three portfolio is fully invested fully deploy fully levered.
And our TF, we're just now continuing to ramp we have now exceeded the size of our TF as I mentioned on the call.
But we have a long way to go in terms of deploying that capital.
So maybe I'll leave it there if that's okay.
Yes.
Sure.
If youre not able to comment on just the factors that lead to it not the timing.
In other words, what what market conditions might make it more.
Reasonable.
Sure. So the factors I just mentioned certainly is a large contributor towards the timing. So <unk> three is a more recently raised product, but over a TF.
We raised in 2018 our cc.
Did about a little less than three and a half years from the initial close to the IPO or <unk> in 2018, So that's been about four years.
Factors like I said fully invested fully deployed fully levered or certainly a contributing factor.
And now we're just looking for a good market environment, which just isn't there right now yes.
Make one quick comment.
<unk>.
At the end of the day, we want to give our investors liquidity. They want it we want to give it to them, but we're all in agreement that we want to do it at a time, where we feel really good that.
When we listed it will trade well.
And we're certainly not in that environment today, there is theres virtually no ipos. So as you think about the right environment think about an environment, where it's a fairly robust environment to get Ipos done and I think we will be one of the firms that less and get a good reception because it is as Alan mentioned, it's a mature.
Doing well.
And I think when the time is right.
I think our marketplace will find it interesting.
Another factor just to add maybe one more component as you want a really good portfolio to take to market really interesting from a credit perspective.
You really couldnt ask for more with our T. F. We've had no defaults knowing in arrears portfolio has been performing in an incredible way since inception. So that is certainly another factor when you think about taking taking something to the market.
Certainly a material component of how we think about it.
Thank you for all that.
Yes.
Your next question comes from the line of Patrick David.
Your line is open.
Okay.
Sure.
Hey, good morning, everyone.
First question is on kind of the tenor of transaction fees. It looks like Youre deployment and funding was more like <unk> 21.
But the transaction fee was meaning below the $39 million for them. So could you flesh out the dynamics around those kind of disconnects between deployment and the actual transaction fees that get reported as we think about how it looks going forward.
Sure.
Happy to do Patrick So I've commented on prior calls.
Sometimes youll see originations up transaction fees can be flat or slightly up they are not going to move in total lockstep, its really going to depend on which deals we lead which deals we participate in so theres a number of factors that go into that.
You certainly can see transaction fees up strongly versus <unk> <unk> tends to be a slower quarter seasonally from a transaction fee perspective, but.
But we certainly.
Transaction fees are or where we would have generally expected in this quarter.
Okay. Thanks, and then I do want to go back to the distribution discussion again.
You guided to $25 million to $30 million and mid <unk> placement fees, which I would assume would be a timing that you would have good visibility on that number. So what were the dynamics that made it so much lower than you were expecting and should.
Does that mean that the guidance you just gave for <unk> and <unk> is pretty fluid.
So the.
When I spoke last quarter. It really was driven by the timing of when we closed the capital and so the timing of when we closed the capital as opposed to part of that coming in <unk> part of that slip to <unk>.
And so what Youre seeing is the <unk> guidance I gave.
I feel very good about the <unk> guidance is anticipating a certain level of fundraising that we just we can't predict sitting here today.
But the <unk> numbers I feel very comfortable providing.
Okay.
Thank you.
Yes.
Thank you Patrick.
Yes.
Your next question comes from the line.
C Ganther.
Your line is open.
Hey, good morning, everyone hope, you're all doing well.
Thanks, Craig Great.
So my question is on the World Fleet acquisition, which closed on April one.
Do you guys have handy, what the management fee and FRE contribution was in the second quarter and as our forecasting into <unk> and <unk> is this a good run rate to build off of for <unk>.
So we don't take we don't take divisions down to the FRE level, Craig, but I can certainly tell you that the revenue contribution to the direct lending business from well fleet was in the mid to upper single digit millions.
And yes that that you can anticipate as a run rate going forward.
We will we will grow that business. So certainly we will look to add to that over the coming quarters as we continue to launch.
Close, but that's a good base to start with.
Great. Thank you Allen and just as my follow up I know you hit on retail flows overall.
Earlier in the call, but how have our CICS flows trended since June 30.
So we had a we've done on July one and August one close those numbers have trended down a little bit not.
Not dramatically, but they have trended down a little bit which would be in line with our expectations and maybe I would argue better than what we've been seeing in the industry.
Great. Thank you Allen take care everyone.
Well, thank you Craig.
Okay.
Your next question comes from the line Brian Mckenna.
Your line is open.
Great. Thanks, So just a follow up on direct lending there is clearly a significant amount of deployment opportunities across the market and this is just going to steadily increase over time for a number of reasons that you already touched down but how are you thinking about the size of your investment team in place today to continue to successfully underwrite deals and what's the expectation for <unk>.
<unk> head count growth in the business longer term.
Thanks for the question and you hit on a really important point, which is to do this business well. It is a very people intensive business that is to say, it's a very intensive work exercise right. We have to do a tremendous amount of investing in origination to find the thousands and thousands of opportunities that.
We look at to do the very small number we ultimately do deep due diligence extensive work on credit agreements, which we've said before though they sound arcanes a really important part of what we do in terms of protecting capital.
So this is a business we've had to invest very heavily in building. The team now we have done that we have one of the largest dedicated teams in the world to do this we have coming up on a 100 people professionals doing direct lending and Thats really what we live and breathe. So I think we're very very well staff to support the level of activities, we have will always be.
<unk> to look to build our team and make sure we have the best team on the field and they were always being proactive in finding the best opportunities, but we will look back to our activity levels in <unk> last year look at this quarter. We're in very good shape to support the kind of level of activity that we're talking about and seen.
Got it helpful and then.
Broadly.
You've done a couple of strategic transactions recently, but I'm curious just given that backdrop more broadly today, our conversations picking up at all for additional M&A and then what are the some of the more interesting areas you would potentially look to expand into inorganically.
So the pace of activity in those conversations has picked up as you've said now pace of activity mean, the pace of available opportunities and conversations available to have.
We're going to continue to be extremely selective remember.
<unk> Street, what we had was at half is just a market leader extraordinary risk return results great team great leader at <unk>. So.
A great cultural fit as a result, and we wont need all of that to to make an acquisition well similarly, not as large of course in a strategic but again, a fantastic team great cultural fit and a great complement to our core business. So.
The picks and shovels business, where in the capital solutions business and so you Shouldnt I think continue to think about US looking for places where we can adopt other solutions that are adjacent where we can be another go to source of capital, particularly for this private markets ecosystem. So we have a foothold in real estate today very strong.
One is that it's obviously a very large space that we can continue to explore we are very U S centric business collectively today, obviously, we were we could explore things outside the U S. So I think youll continue to see us be very engaged.
World, where the IPO was malts managers is no longer, particularly practical idea for most today.
I think we will continue to see people Hussain I see an opportunity to grow I'd like the benefits of being part of a larger platform and we're going to continue to engage with those folks and selectively hopefully add to the platform.
Thanks Mark.
Thank you Brian .
Yes.
Your next question comes from the line of Adam Beatty.
Your line is open.
Alright, Thank you very much.
Wanted to ask about the vastly kind of increased pipeline indirect lending that you are seeing it's a multiyear theme you called out at the Investor Day.
Banks kind of pulling back from some of that I imagine given the current environment.
That stepped up a bit and you also mentioned kind of non sponsor activity being a little bit more prominent. So my question is how sustainable is that particularly on the non sponsor side would you expect a little bit of reversion or is the pie is growing.
From here in the future. Thanks.
Yeah.
Hi.
I think obviously time will tell I think the pie will continue to grow because there is a great value proposition.
Really at the end of the day again, we're clear we.
I think our particular position in the market for <unk>, specifically, because that's really our strike zone. So the best companies best sponsors.
That's really our strike zone, that's particularly strong place to be.
Really important point to note for this audience as well, we all care tremendously about the performance of our portfolio and in Brazil.
Presumably I think shell is our since assumption for sort of five basis points annualized loss rates remember for the shareholders people on this call. It doesn't matter really at all that is to say we aren't entirely fee based business at 100% of our revenues are fee based so unlike anybody else in the marketplace, where there is.
Cary heavily embedded in there all structures, we don't have that carry component where fee based so we care a lot about credit quality and.
They are saying one of the best at it but for you all as shareholders to be clear it actually doesn't affect the results.
Okay, perfect and I apologize if I missed this.
What were the catch up fees this quarter.
Catch up fees were $12 $8 million.
Okay awesome. Thank you very much.
Thank you Ken.
Sure.
Yeah.
Yes.
If you would like to ask a question press star and the number one on your telephone keypad.
Your next question comes from Chris Kotowski, you are wrong.
<unk> is open.
Yes, good morning, and thanks.
I Wonder if you can just give us a bit more color on the handoff from dial five to dial six I think we're all kind of used to the typical private equity structure, where you have razor.
X billion dollar fund and then it gets invested over 345 years.
Whereas the dialtone seem to be more on a.
Payers.
Just in time kind of fund raising basis is that what you anticipate for dial six.
Any any idea of when you start fund raising for it and then how much of year comes in does it come in a couple of billion dollars a year over four years or how does it how is it going to work.
Yes. Thanks for the question as we look at the business for GP solutions.
Q2 and into Q3 is really highlighting the strategic position.
<unk>.
Our our business and the dial funds.
We are seeing increased demand from investors. So our fund size, we were able to increase we're also seeing a really strong and building pipeline of continued deals with the biggest in what we believe to be the best players in the space. So we are at the same time raising a larger fund.
But we are deploying it in real time, so it means that we will be back out on the road.
In calendar 2023.
We'll have plenty of dry powder to get us into the beginning of 2023, but we will we'll want to make sure that fund six that handoff is ready at some point and that calendar year and we expect.
The fees to turn it on towards the end of the year or very beginning of the following but it's it's important for us to have ample capital, but our investors like to see some of the portfolio names and the strength of it as we go which is why having this market leading position we believe we have.
Have partners like CVC, and Veritas, and HIV and Dragon ear and many many others like it is such a strong position to market from so hope.
Hope that answered your question, but really proud of the.
Quarter, it and the way.
We were able to put the fund five finishing touches on and then start setting our sights on fund six and Chris I want you to know all of US in the room are really grateful that you asked the question about the GP solutions business, because as Michael said I think there was some skepticism in the market of us hitting.
Our target we've exceeded it handily.
And that fund is doing really well the investors are thrilled and as you alluded to I think its setting us up for a really successful fund six sometime in the not too distant future.
Great. That's it for me thanks. Thank.
Thank you thank you Chris.
Okay.
There are no further questions at this time CEO , Doug Australia, I turn the call back over to you.
Well I want to thank everyone for joining us today.
Hopefully you got a sense that our business continues to have really good momentum.
Just to reiterate one thing we talked about at Investor Day, we put up a slide at the end with three words stability predictability and growth.
And I think what this quarter demonstrated is that we have a unique model.
We have more permanent capital than any of our peers with best in class growth.
So we're excited for what lies ahead, we're grateful for everyone's support and I hope everyone enjoys the rest of the summer and hopefully well have a chance to see all of you soon thanks again.
Yes.
This concludes today's conference call you may now disconnect.
Okay.
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