Q4 2023 Blue Owl Capital Inc Earnings Call
Operator: Good morning and welcome to the Blue Owl Q4 2023 conference call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise.
Good morning, and welcome to the Blue Our Q4 2023 conference call. Please note that today's call is being recorded all.
All lines have been placed on mute to prevent any background noise.
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Operator: I will now turn the call over to Anne Dye, Head of Investor Relations. You may begin your conference. Thanks, operator. And good morning, everyone.
I will now turn the call over to Ann Dai <unk> head of Investor Relations you May begin your conference.
Thanks, operator, and good morning, everyone joining.
Anne Dye: Joining me today are Mark Lipschultz, Co-Chief Executive Officer, and Alan Hirshenbaum, our Chief Financial Officer. I'd like to remind our listeners that remarks made during the call may contain forward-looking statements which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forebooking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital's filings with the Securities and, The company assumes no obligation to update any forward-looking... We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings, available on the investor resources section of our website at blueowl.com.
Joining me today are Mark, let Joseph co Chief Executive Officer, and Alan Kirshenbaum, Our Chief Financial Officer.
I'd like to remind our listeners that remarks made during the call may contain forward looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control.
Actual results may differ materially from those in forward looking statements as a result of a number of factors, including those described from time to time, well capital filings with the Securities and Exchange Commission.
The company assumes no obligation to update any forward looking statements.
We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Investor resources section of our website at <unk> Dot com.
Anne Dye: Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any UL. This morning, we issued our financial results for the fourth quarter and full year of 2023, reporting fee-related earnings, or FRE, of $0.20 per share for the fourth quarter and $0.70 per share for the year, and Distributable Earnings, or DE, of $0.18 per share for the fourth quarter and $0.65 per share for the year. We declared a dividend of $0.14 per share for the fourth quarter, payable on March 5th to holders of record as of February 23rd, and also announced an annual fixed dividend of $0.72 for 2024, or $0.18 per quarter, starting with our 2024 first quarter earnings. During the call today, we'll be referring to the earnings presentation, which we posted to our website this morning. So please have that on hand to follow along. With that, I'd like to turn the call over to you. Great, thank you, Anne.
Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any <unk>.
This morning, we issued our financial results for the fourth quarter and full year of 2023 reporting fee related earnings or FRE of <unk> 20 per share for the fourth quarter and 77 per share for the year and distributable earnings or D of <unk> 10 per share for the fourth quarter and 65 per share for the year.
We declared a dividend of <unk> 14 per share for the fourth quarter payable on March 5th to holders of record as of February 23rd and also announcing annual fixed dividend of <unk> 72 for 2024 or <unk> 18 per quarter, starting with our 2024 first quarter earnings.
During the call today, we will be referring to the earnings presentation, which we posted to our website. This morning. So please have that on hand follow along.
With that I'd like to turn the call over to Mark.
Great. Thank you Ann we finished 2023 on a strong note with another consecutive quarter management fee and FRE growth 11 for 11 since we've been a public company against a market backdrop that has been exceptionally volatile and uncertain.
Mark Lipschultz: We finished 2023 on a strong note with another consecutive quarter of management fee and FRE growth, 11 for 11, since we've been a public company. Against a market backdrop that has been exceptionally volatile and uncertain. We're confident that our steady, strong, and resilient growth continues to differentiate Blue Owl and highlight the benefits of our business model. Over the past year, we've operated in an environment where the ongoing impact of higher interest rates and future rate uncertainty have constrained capital market activity and capital deployment. And exiting this year, the short-term path of interest rates, geopolitical risk levels, and economic growth trends remain heavily debated.
We're confident that our steady and strong and resilient growth continues to differentiate blew out and highlight the benefits of our business model.
Over the past year was operated in an environment, where the ongoing impact of higher interest rates and future rate uncertainty have constrained capital market activity and capital deployment.
And exiting this year the short term path of interest rates geopolitical risk levels and economic growth trends remain heavily debated.
Mark Lipschultz: By design, Blue Owl's growth has been distinctly more predictable, which has been our thesis from the beginning. Our assets are generally permanent capital, and our earnings don't include more volatile revenues, such as carry and substantial capital markets fees. We strive to be market leaders in the segments in which we operate, and our growth has been supported by structural demand for our strategies and secular tailwinds for those markets. We strive to generate strong growth in periods where market conditions are favorable, like in 2021. But importantly, to be able to offer strong and differentiated growth in much tougher environments like 2022 and 2023. I think we have certainly done that; we grew FRE and DE by 25% this past year, following over 40% growth in both metrics in 2022.
By design blew our growth has been distinctly more predictable, which has been our thesis from the beginning.
Our assets are generally permanent capital and our earnings don't include more volatile revenues, such as Carey and substantial capital markets fees.
We strive to be market leaders in the segments in which we operate and our growth has been supported by structural demand for our strategies and secular tailwind for those markets.
We strive to generate strong growth in periods, where market conditions are favorable like in 2021, but importantly to be able to offer strong and differentiated growth and much tougher environments like 2022, and 2023 I think we have certainly done that we grew FRE and the 25% this past year.
Following over 40% growth in both metrics in 2022 and.
Mark Lipschultz: In the last two years, AUM has increased by over 75%, and the over $50 billion we've added in equity and fee-eligible debt over that period represents over 80% of our starting fee-paying AUM. This robust growth has allowed us to return significant capital to our shareholders. And today, we announced our annual fixed dividend for 2024 of $0.72, or $0.18 per quarter. This dividend represents a 29% step up from 2023, which follows a 22% dividend increase from 2022.
In the last two years <unk> has increased by over 75% and the over $50 billion. We've added an equity and fee eligible debt over that period represents over 80% of our starting fee paying AUM.
This robust growth has allowed us to return significant capital to our shareholders and today, we announced our annual fixed dividend for 2024 of 72, SaaS or <unk> 18 per quarter.
This dividend represents a 29% step up from 2023, which follows a 22% dividend increase from 2022.
Mark Lipschultz: Since our listing in May of 2021, total return for our shareholders has been over 60%. These are impressive results in any market environment, and much more so given the conditions that we've observed. Well, there are a multitude of successes across the business that I'd love to highlight. I'll call out just a few that I think represent the advances we are making at Blue Ops.
Since our listing in May of 2021 total return for our shareholders has been over 60%.
These are impressive results in any market environment and much more so given the conditions that we've observed.
Well there are a multitude of success across the business, but I'd love to highlight or call out just a few that I think represent the advances we are making a blow out.
Mark Lipschultz: In spite of the very difficult backdrop for real estate fundraising, our latest triple net lease fund was the single largest US real estate fund raised in 2023. We expect to exceed our hard cap of $5 billion, more than doubling the size of the predecessor price. Furthermore, our overall real estate platform performed admirably on both a relative and absolute basis, returning 9% for the year. In GP stakes, we saw robust investor demand and a deployment pipeline, resulting in an initial close of over $2 billion for our six GP minority equity stakes, earlier than originally anticipated and despite having just held our final close for Fund 5 at the end of 2022. In addition, we announced a joint venture with Luneth, an Abu Dhabi-based global alternative investment manager, to provide growth capital to leading mid-sized private equity GPs.
Despite of the very difficult backdrop for real estate fund raising our latest Triple net lease fund was the single largest U S. Real estate fund raised in 2023 weeks.
We expect to exceed our hard cap of $5 billion.
More than doubling the size of the brightest astrophile.
Furthermore, our overall real estate platform performed admirably on both a relative and absolute basis, returning 9% for the year.
And GP Stakes, we saw robust investor demand and deployment pipeline, resulting in an initial close of over $2 billion.
For our six GP minority equity Stakes.
Earlier than originally anticipated and despite having just held our final close for one five at the end of 2022.
In addition, we announced a joint venture with Luna App in Abu Dhabi based global alternative investment manager to provide growth capital to lead in midsized private capital GPS. This will supplement our dominant position as a capital provider to large GPS.
Mark Lipschultz: This will supplement our dominant position as a capital provider to large companies, and we feel this partnership will create a powerful and differentiated proposition for mid-market managers. In private wealth, the resources we've invested in scaling the business continue to pay dividends, with Blue Owl remaining a top fundraiser in both the non-traded BDC and rechannel. Growth flows from our perpetually offered products were $1.9 billion during the fourth quarter, 65% higher than the first, and inflows have been six times greater than redemption requests both in the quarter and for the last 12 months. And we think we are just getting started as far as what's possible in Waltham. Finally, a couple of weeks ago, Pluol Capital Corporation III, or OBDE, successfully went public on the New York Stock Exchange, delivering liquidity to those investors as promised.
We feel this partnership will create a powerful and differentiated proposition for mid market managers.
In private wealth the resources, we've invested into scaling the business continued to pay dividends with while remaining a top fundraiser in both the non traded BDC and re channels gross flows from our perpetually offered products were $1 $9 billion during the fourth quarter, 65% higher than the first quarter.
Inflows have been six times greater than redemption requests both in the quarter and for the last 12 months and we think we are just getting started as far as what's possible at wealth over time.
Finally, a couple of weeks ago <unk> Capital Corporation three R. O B E successfully listed on the New York stock exchange delivering liquidity to those investors as promised.
Mark Lipschultz: OBDE is the second of our BDCs to become a publicly traded company, and this listing follows the remarkable 2023 results of our first publicly traded BDC, OBDC, which returned 40% in 2020. Our focus remains on providing our direct lending investors flexibility and optionality through product structure while retaining the excellent credit quality, attractive income, downside protection, and scale benefits that Blal is known for. Moving on to business performance, in credit, we again saw booming trends in deployment in the fourth quarter, and with a constructive environment so far in 2024, repayments were somewhat elevated, providing additional opportunities to redeploy capital. As Alan will detail, direct lending metrics remain strong, with no notable changes to the health of our portfolio.
<unk> is the second of our BDC is to become a publicly traded company.
And this listing follows the remarkable 2023 results of our first publicly traded BDC <unk>.
C, which returned 40% in 2023.
Our focus remains on providing our direct blended investors flexibility and optionality through product structure, while retaining the excellent credit quality attractive income downside protection and scale benefits the ball is known.
Moving on to business performance.
In credit, we again saw improving trends in deployment in the fourth quarter with a constructive environment. So far in 2024 repaint.
Prepayments were somewhat elevated providing additional opportunities to redeploy capital.
Alan will detail direct lending metrics remained strong with no notable changes to the health of our portfolio companies.
Mark Lipschultz: We remain at six basis points of annualized real-life loss since inception, which has been more than offset by realized gains, and the underlying revenue and EBITDA growth of the portfolio are robust, with low double digits on average. We are well positioned to benefit from incremental sponsor-driven activity and growing market share. In our GP stakes business, we continue to witness the resilience of larger cap GPs, with the market share gains of these managers accelerating during more challenging fundraising environments. This phenomenon has been consistent across acid blasts.
We remain at six basis points of annualized realized loss since inception, which has been more than offset by realized gains and the underlying revenue and EBITDA growth of the portfolio are robust at low double digits on average.
We are well positioned to benefit from incremental sponsor driven activity and growing market share.
In our GP Stakes business, we continue to witness the resilience of larger cap GPS with the market share gains of these managers accelerated during more challenging fundraising environments.
This phenomenon has been consistent across asset classes and combined with <unk> is continuing to allocate more to alternatives broadly translates to the impressive growth. We are seeing in our partner managers. In addition, we are witnessing a rising pace of consolidation across alternatives further substantiated in the value of scale in this industry and <unk>.
Mark Lipschultz: And combined with LPs, continuing to allocate more to alternatives broadly translates to the impressive growth we have seen in our partner managers. In addition, we are witnessing a rising pace of consolidation across alternative strategies, further substantiating the value of scale in this industry and creating incremental tailwinds for the investments in our fund. In real estate, we continue to actively deploy capital at attractive cap rates close to 8% and have consistently monetized a meaningful spread story. The scale benefits of our triple net lease strategy allow us to offer attractive risk return for essentially investment grade secure credit. And this has resonated well with our investors looking for steady income enhanced by appreciation; more recent real estate funds have invested heavily in the demand created by the on-shoring movement. With geopolitical tensions and supply chain issues continuing to dominate headlines, companies have elevated onshoring to the top of their priority list.
Incremental tailwind for the investments in our funds.
In real estate, we continue to actively deploy capital at attractive cap rates post <unk>, 8% and a consistently monetize a meaningful spread store entry points.
<unk> benefits from our Triple net lease strategy allow us to offer attractive risk return for essentially investment grade secured credit and this has resonated well with our investors looking for steady income enhanced by appreciation potential.
Our more recent real estate funds have invested heavily into the demand created by the onshoring movement with geopolitical tensions and supply chain issues continuing to dominate headlines companies have elevated onshoring to the top of their priority list.
Mark Lipschultz: This trillion-dollar opportunity represents, in our view, not a moment in time but a transformational manufacturing renaissance in the U.S. The capital needs driven by this, combined with more constrained capital availability writ large, have created a very strong pipeline into which we continue to deploy capital. We're very pleased with the outcomes we've achieved across the law in 2023.
This trillion dollar opportunity represents in our view not a moment in time, but a transformational manufacturing Renaissance in the U S. The capital needs driven by this team combined with more constrained capital availability writ large have created a very strong pipeline into which we continue to deploy capital.
We're very pleased with the outcomes that we've achieved across the wall in 2023.
Mark Lipschultz: Looking ahead, there are a number of growth avenues we are pursuing to supplement the expansion of our existing platform. We intend to launch a strategy focused on triple net lease in Europe, driven by deal flow we already see today. Our strategic equity strategy held the purse closed and committed to its first investment during the fourth quarter.
Looking ahead, there are number of growth avenues, we are pursuing to supplement the expansion of our existing platforms.
We intend to launch a strategy focused on triple net lease in Europe, driven by deal flow, we already see today.
Our strategic equity strategy held at first closed and committed to its first investment during the fourth quarter and.
Alan Hirshenbaum: And we expect that we'll continue to expand our alternative credit strategy. And in addition to further expanding our institutional and wealth distribution, we continue to evaluate ways to partner with other large, long-duration pools of capital, such as, Generally, we intend to grow organically where we have institutional expertise and the conviction to grow into a market leader, and we will look to acquire where we can benefit from immediate scale and strategic position, speak to the entire team, and say we are very excited about what lies ahead for the business. And there's a lot to look forward to. With that, let me please turn it over to Alan to discuss our financial results. Thank you, Mark. Good morning, everyone.
And we expect that we will continue to expand our alternative credit strategy.
And in addition to further expanding our institutional and wealth distribution, we continue to evaluate ways to partner with other large long duration pools of capital such as insurance.
Generally we intend to grow organically, where we have institutional expertise and the conviction to grow into market leadership, and we will look to acquire where we can benefit from a media scale and strategic positioning.
I speak for the entire team in saying we are very excited about what lies ahead for the business.
And Theres a lot to look forward to.
With that let me please turn it to Alan to discuss our financial results.
Thank you Mark good morning, everyone. Thank you for joining us today to start off we are pleased with our fourth quarter and full year 2023 results Mark mentioned this but I'd like to reiterate that this is our 11th consecutive quarter of both management fee and FRE sequential growth. The only alternative asset manager that has demonstrated this or.
Alan Hirshenbaum: Thank you for joining us. To start off, we are pleased with our fourth quarter and full year 2023. Mark mentioned this, but I'd like to reiterate that this is our 11th consecutive quarter of both management fee and FRE sequential growth, the only alternative asset manager that has demonstrated this over this decade. And along with that, as we show on slide five, we've been able to grow our dividends 57% over the past, driven solely by recurring and growing. Let's go through some of the key highlights of our 2023 results on a full year comparison basis. Management fees are up 26%. And 92% of these management fees are from permanent capital. F.R.E. is up 25, and our FRE margin is right on top of our 60% target, which we continue to expect to be the target for the next. The DE is at 25, so double click on this a little bit.
This period and along with that as we show on slide five we've been able to grow our dividend, 57% over the past two years driven solely by recurring and growing management fees.
Let's go through some of the key highlights of our 2023 results on a full year comparative basis management fees are up 26% and 92% of these management fees are from permanent capital vehicles.
FRE is up 25% and our FRE margin is right on top of our 60% target, which we continue to expect to be the target for the next few years and <unk> is up 25%.
Double click on that a little bit as Mark mentioned earlier, we built our business with the intention of driving strong growth not only during favorable market conditions, but more importantly in tougher environments like we've seen over the past year or so and we believe the fact that we were able to generate 25 plus percent growth across these key metrics when peers on average.
Alan Hirshenbaum: As Mark mentioned earlier, we built our business with the intention of driving strong growth, not only during favorable but, more importantly, in tougher environments like we've seen in the past. And we believe in the fact that we are able to generate 25 plus percent growth across these key metrics, while peers on average generated low teens management fee growth and DE declines over the past year. This is a testament to how we are proving out our, Now I'd like to spend a moment on our fundraising. As you can see on slide 12, we raised $6.2 billion in the fourth quarter and $15.8 billion for the full year. Inclusive of debt capital, we raised $25 billion.
<unk> generated low teens management fee growth and the declines over the past year is a testament to how we are proving out our model now.
Now I'd like to spend a moment on our fundraising efforts as you can see on slide 12, we raised $6 2 billion in the fourth quarter and $15 8 billion for the full year inclusive of debt capital, we raised $25 billion in 2023.
Alan Hirshenbaum: I'll break down the fourth quarter numbers across our strategies, and, credit, we raised over $2.5 billion. This includes $1.9 billion raised in our diversified and first lien lending strategy, with $1.2 billion raised in our non-traded BDC OCI, up 30% quarter over. The remainder was raised across software lending and our newly launched strategic acquisition. We had an initial close of $2.1 billion for our sixth Minority Equity Stakes Committee meeting, as well as over $400 million in a co-investment fund for this. In real estate, we raised approximately $1.1 billion, with over $650 million. Sixth Vintage Drawdown Fund, which brings that fund to $4.7 billion and over $350 million in our non-traded REITs, O-RENs, up roughly 20% quarter over quarter.
Break down the fourth quarter numbers across our strategies and products and.
In credit we raised over $2 5 billion.
This includes $1 9 billion raised in our diversified and first lien lending strategies with $1 2 billion raised in our non traded BDC or CIC up 30% quarter over quarter.
The remainder was raised across software lending and our newly launched strategic equity strategies and.
And GP strategic capital, we had an initial close of $2 1 billion for our sixth minority equity Stakes fund as well as over $400 million in a co investment fund for this strategy.
In real estate, we raised approximately $1 1 billion.
With over $650 million for the sixth vintage drawdown funds, which brings that fund to $4 7 billion and.
And over $350 million, and our non traded REIT or ramp up roughly 20% quarter over quarter. We are starting to see early signs of production coming from the distribution platforms that added or rent in late 2023, and look forward to expanding our presence further on each while also adding incremental platforms in 2024.
Alan Hirshenbaum: We're starting to see early signs of production coming from the distribution platforms that added O-Rent in late 2023 and look forward to expanding our presence further on each while also adding incremental platforms in 2021. As Mark alluded to earlier, the over $50 billion of fee-paying AUM we have added since Jan 1, 2022 represents over 80% growth in our fee-paying AUM since the end of 2020. While that number is notable in and of itself, I have to emphasize that this is also AUM that is largely permanent capital. These assets will stay in our system and be the next layer in our life. During the quarter, we raised $4.6 for every dollar that was paid out as a result of distributions or, For context, last quarter, our peers on average raised $1.7 for every dollar they spent. In addition to the staying power of existing AUM and the benefit of ongoing fundraisers, we have substantial embedded earnings that we will unlock. AUM not yet paying fees was $14.5 billion at December 31, corresponding to roughly $200 million of incremental annual management fees.
As Mark alluded to earlier the over $50 billion of fee paying AUM. We have added since Jan one 2022 represents over 80% growth in our fee paying AUM since the end of 2021.
While that number is notable in and of itself I have to emphasize that this is also AUM that is largely permanent capital to these assets will stay in our system and be the next layer and our layer cake.
During the quarter, we raised $4 $6 for every dollar that was paid out as a result of distributions of redemptions for context last quarter, our peers on average raised $1 $7 for every dollar that was paid out.
And in addition to the staying power of existing AUM and the benefit of ongoing fundraising we have substantial embedded earnings that we will unlock over time.
AUM not yet paying fees was $14 5 billion at December 31, a corresponding to roughly $200 million of incremental annual management fees once deployed.
Separately. We had also previously talked about another 200 plus million dollars of incremental management fees that will turn on upon the listing of our private bdcs overtime and as many of you know one of those Bdcs did in fact list recently <unk> listing translates to approximately $80 million of that 200 plus million.
Alan Hirshenbaum: Separately, we had also previously talked about another 200 plus million dollars of incremental earnings that would turn on upon the listing of our private BDCs. And as many of you know, one of those BDCs did, in fact... OBDE's listing translates to approximately $80 million of that $200-plus million of additional annual management fees. Moving on to our credit platform, we had gross originations of $8.1 billion for the quarter, and net funded deployment of $3.2 billion. This brings our gross originations for 2023 to $17.6 billion, with $8.2 billion of net funding. Our credit portfolio returned 4% in the fourth quarter and almost 18% in 2020; weighted average LTVs remain in the low 40s across direct lending and in the low 30s specifically in our software lending platform; our GP strategic capital platform; total invested commitments for our fifth GP stakes fund, including agreements in principle, are over $11 billion of capital with line of sight into over $2 billion of which, if all signs, would bring us through the remaining 43% for Fund 4 and 17% for Fund 5, compare favorably to the median returns for private equity funds.
Of additional annual management fees to blew out.
Moving on to our credit platform, we had gross originations of $8 1 billion for the quarter and net funded deployment of $3 2 billion. This brings our gross originations for 2023 to $17 6 billion with $8 2 billion of net funded deployment.
Our credit portfolio returned 4% in the fourth quarter and almost 18% in 2023 weighted average ltvs remained in the low 40 is across direct lending and in the low thirty's specifically in our software lending portfolio.
For our GP strategic capital platform total investment commitments for our fifth GP Stakes fund, including agreements in principle are over $11 billion of capital with line of sight into over $2 billion of opportunities, which if all signs would bring us through the remaining capital available in fund five.
Performance across these funds remained strong with a net IRR of 24% for fund, 343% for final four and 17% for fund five which compare favorably to the median returns for private equity funds of the same vintages.
And in our real estate platform deployment activity remains robust with over $600 million deployed during the quarter and our pipeline of opportunities remains strong with nearly $6 billion of transaction volume under letter of intent or contract to close.
Alan Hirshenbaum: And on our real estate platform, deployment activity remains robust, with over $600 million deployed during the year. And our pipeline of opportunities remains strong, with nearly $6 billion in transaction volume under letter of intent or contract. With regard to performance, we achieved gross returns across our real estate portfolio of 9% in 2020, comparing very favorably to the broader real estate market as a result of our distinctive net lease strategy and timing of capital. The Net Lease Structure insulates our returns from the expense inflation that many are experiencing, while the long-duration and contractual rent escalators on our lease shield our portfolio from the declining rent growth trends that others across the industry are experiencing. Okay On taxes, the headline here is we expect our effective tax rate to be lower for longer. We saw the impact of various tax benefits keeping our effective tax rate for 2023 at a low... For 2024, we are currently expecting that rate to be in the mid single digits, say 5. And for 2025, we expect a high single-digit rate.
With regards to performance, we achieved gross returns across our real estate portfolio of 9% in 2023, comparing very favorably to the broader real estate market as a result of our distinctive net lease strategy and the timing of capital deployment.
Net lease structure Insulates, our returns from the expense inflation that many are experiencing while the long duration and contractual rent escalators on our leases shield our portfolio from the declining rent growth trends that others across the industry are seeing and most of our recent funds were raised and are being deployed into our capital scarce environment.
Which presents attractive risk adjusted opportunities.
Okay I'd like to end with a couple of comments on tax rates and FRE margins to set the stage for 2024 and beyond.
On taxes. The headline here is we expect our effective tax rate to be lower for longer we saw the impact of various tax benefits keeping our effective tax rate for 2023 at a low 2%.
For 2024, we are currently expecting that rate to be in the mid single digits say, 5% and for 2025, we expect a high single digit effective tax rate.
We will be making our first cash TRA payment in the first quarter of 2024, which should result in an elevated rate in the mid teens say, 15% for that quarter alone before stepping down in the subsequent three quarters to approximately 2% averaging for 2020 for the roughly 5% I just noted.
And on FRE margins I've spoken frequently about our 60% FRE margin, which we feel very comfortable operating the business for the next few years and is among the best in the industry.
Alan Hirshenbaum: We will be making our first cash TRA payment in the first quarter of 2024, which should result in an elevated rate in the mid-teens, say 15%, for that quarter alone, before stepping down in the subsequent three quarters to approximately average for 2024, the roughly 5% And on FRE margins, I've spoken frequently about our 60% FRE margin, which we feel very comfortable operating the business for the next. And it's among the best in the U.S. Let's talk a bit more about why this is the right level. We're putting very valuable R&D dollars back into the business, investing in them so that we can continue to lead the industry in revenue. So for every follow-on product launch that helps us scale our business, like our six real estate funds or GP state, we have a new product we're launching, like strategic equity or European. We're also putting those valuable R&D dollars into continuing to grow and expand our wealth and institutional fundraising. All the while, we're not sacrificing growth for FRE margin. Our revenue and dividend growth is among the best. With that, I'd like to thank everyone who has joined us on the call today. Operator, can we please open the line?
Let's talk a bit more about why this is the right level for us, we're putting very valuable R&D dollars back into the business investing in the future. So that we can continue to lead the industry in revenue growth. So for every follow on product launch that helps us scale, our business like our 6% real estate funds or GP Stakes fund, we have a new product we're launching like.
<unk> equity or European net lease we're also putting those valuable R&D dollars into continuing to grow and expand our wealth and institutional fund raising efforts all the while we're not sacrificing growth for FRE margin, our revenue and dividend growth is among the best in the industry.
With that I'd like to thank everyone, who has joined US on the call today operator can we please open the line for questions.
Certainly at this time I would like to remind everyone in order to ask a question. Please press star one.
Your first question comes from Glenn Schorr with Evercore. Please go ahead.
Hello there.
Hi, there good morning.
Good morning.
So I love all of the growth at love the outlook stuff Youre doing everything that you said you were going to do I know, we've talked about this before but I like hearing it continue.
Your confidence in our defending its big fee premium.
You do get paid well for what you do you are putting up good returns, but your fees are towards the high side of the peer group. So can we just talk through that a little bit. Thank you.
Operator: certain At this time, I would like to remind everyone, in order to ask a question, please press star. Your first question comes from Glenn Schorr with Evercore. Please go ahead. Hello there. Hi there. Good morning, good morning.
Sure.
Well without it sounding snarky at all I mean look to a degree I would property you do get what you pay for I mean, we are offering an exceptional result, with they still exceptional performance.
Glenn Paul Schorr: So, I love all the growth, and I love the outlook, in doing everything that you said you were going to do. I know we've talked about this before, but I like hearing it continue, your confidence in OWL defending its big fee premium. You do get paid well for what you do. You are putting up good returns, but your fees are on the high side of the peer group. So can we just talk through that a little bit?
And we have very importantly, when you look at the average fee rate and you know this we have always been focused on the quality of our.
The quality of what we take on and so as we've talked about before we really don't focus on gathering AUM.
That is exactly how you drive your average fee rates out.
Debate, whether thats, good bad or otherwise, but the reality is that we focus on where we can generate really high value added returns for investors and therefore high value high high fee income for blew out so at the end of the day you can grow a lot of AUR.
Mark Lipschultz: Sure. Well, without it sounding snarky at all, I mean, look, to a degree, I would suggest you do get what you pay for. I mean, we are offering an exceptional result with exceptional performance. And, very importantly, when you look at the average fee rate, and you know this, we have always been focused on the quality of our AUM, the quality of what we take on. And so, as we've talked about before, we really don't focus on gathering AUM because that is exactly how you drive your average fee rate down. You can debate whether that's good, bad, or otherwise.
At ever lower fee is or you can say look what I'm going to do is I'm going to take lesser AUR relatively speaking and I'm going to deliver really high value results on that and get paid for it.
So I think we also look at the end of the day, our pioneering different strategies, where we can add that value and again people are willing to pay.
Pay for that appropriately sell take Tac rate. We were we were really very very early with the idea of focusing on software lending than I can remember a clearer today and the number of people said well why would you do that and sitting here today.
Mark Lipschultz: But the reality is that we focus on where we can generate really high value-added returns for investors and, therefore, high value, high fee income for blue out. So, you know, at the end of the day, you can grow a lot of AUM at ever lower fees, or you can say, look, what I'm going to do is I'm going to take a smaller AUM, relatively speaking, and I'm going to deliver a really high value result on that and get paid for it. So, I think we also, you know, look, at the end of the day, are out pioneering different strategies where we can add that value. And again, people are willing to pay for that appropriately. So, take tech, right? We were really very, very early with the idea of focusing on software lending. And I can remember clearly as day the number of people that said, well, why would you do that?
Don't say that with any with any arrogance or anything but I think at the end of the day today.
Core software loans, or where you want to be when we started that six years ago and a pioneer in that space.
I think that's really the way we do it by having distinctive strategy is having really a direct angle on triple net lease when everybody else is real estate products are suffering this year well, we have a thriving real estate products with a differentiated strategy. So that's really the heart and soul of it but at the end of the day, we got to keep delivering value for our investors and delivering great results.
We know that and we plan to.
And can you update us on timing on on healthcare given talent in this conversation.
I would think that health care product is right in line with this combo.
Well the healthcare product certainly is in line and we're putting all the way let me contextualize the Cowen acquisition healthcare has been another very active sector for us.
Mark Lipschultz: And sitting here today, you know, again, I don't say that with any arrogance or anything, but I think at the end of the day today, I was like, well, of course, software loans are where you want to be. Well, we started that six years ago and have pioneered that space. And so, I think that's really the way we do it by having distinctive strategies, having a really direct angle on triple net lease. Where everybody else's real estate products are suffering this year, we have a thriving real estate product because it's a differentiated strategy. So, that's really the heart and soul of it.
And we have done I think about $11 billion actually of loans and investments in healthcare, including an ever expanding level of activity in royalties, which again you saw this year.
Adding cowen brings us yet another set of adjacent capabilities extremely deep on the better the earlier part of that cycle and in particular more of the pharma side. The science side, we have a whole series of Phds that are part of that team that really understand the science on drug development and Thats adder.
To where we've been more on health care services.
Mark Lipschultz: But at the end of the day, we have to keep delivering value for our investors, delivering great results. We know that, and we plan to. And can you update us on the timing of health care, given Cowan and this conversation?
And then things like structured solutions for as I said in royalties and the like and so.
Now we have a full suite full lifecycle capabilities and by the way as you've seen the Cowen team has outstanding results and they're really in a very very interesting and innovative area, where they have dramatically outperformed their peers. So we now have all of those pieces together.
Mark Lipschultz: I would think that the healthcare product certainly is in line with this, or put it another way. Let me contextualize the Cowan acquisition. Healthcare has been another very active sector for us, and we have done, I think, about $11 billion in loans and investments in healthcare, including an ever-expanding level of activity in royalties, which, again, you saw this year. And adding Cowan brings us yet another set of adjacent capabilities extremely deep in the earlier part of that cycle, and in particular, more of the pharma side, the science side.
See two big areas for growth health care is absolutely one of them, we've been starting to talk to investors.
Again, we have to make sure we can come up with exactly the right structure exactly the right products to your good first question, we have to do it in a way that's distinctive in a way that really adds value. We think we've got the pieces of that puzzle now we've got to finish assembling that so health care certainly has a meaningful analog to that tech story of six years ago.
Mark Lipschultz: We have a series of PhDs that are part of that team that really understand the science of drug development, and that's additive to where we've been more in healthcare services and in things like structured solutions for, as I said, royalties and the like. Now we have a full suite, full life cycle of capabilities. And by the way, as you've seen, the Cowan team has outstanding results.
And then alternative credits the other area, which I just Jason while we're talking about it this area outside of the traditional sponsor credit we've really been developing a lot of capabilities in house on things like ABL.
<unk> airplane leasing and so thats another rich area that we're focused on when we think about credit opportunities, so healthcare and alternative credit.
Mark Lipschultz: And they're really in a very, very interesting, innovative area where they've dramatically outperformed their peers. So we now have all those pieces together. We see two big areas for growth. Healthcare is absolutely one of them.
Yes.
Okay. Thanks for all that Mark.
Thank you.
Your next question comes from Brian Mckenna with JMP Securities. Please go ahead.
Thanks, Good morning, everyone. So the real estate business has had some terrific growth growth since you acquired Oak Street at the end of 2021 with AUM up about 80% in just two years and then the outlook is pretty bright as well mark and the team have done a terrific job here, but one thing that stands out to me is their ability to source transactions and just the absolute.
Mark Lipschultz: We've been starting to talk to investors. Again, we have to make sure we can come up with exactly the right structure, exactly the right product to your good first question. We have to do it in a way that's distinctive, in a way that really adds value. We think we've got the pieces of that puzzle; now we've gotta finish assembling it. So healthcare certainly has a meaningful analog to that tech story of six years ago. And then alternative credits, the other area, which I just mentioned while we're talking about it. You know, this area outside of the traditional sponsor credit, we've really been developing a lot of capabilities in-house on things like ABL and airplane leasing, and that's another rich area that we're focused on when we think about credit opportunities, so healthcare and alternative credit. Thanks for all that, Mark. Thank you. Your next question comes from Brian McKenna with JMP Securities. Please go ahead. Thanks. Good morning, everyone.
Level of deal flow. So can you talk about the size of the investment team today, what's their capacity from an origination perspective, and ultimately how much AUM can the business support over time.
Yeah.
<unk> has done a spectacular job so if I could thank you for that.
Join you in commending our partner there really is architected, a unique business model, which is durability and attributes of course shine through this year.
Business as you know with our new fund.
Now raised $5 billion.
Twice the size of the last one the largest fund real estate fund in the U S. This entire year.
Brian McKenna: So the real estate business has had some terrific growth since you acquired Oak Street at the end of 2021. AUM is up about 80% in just two years, and then the outlook is pretty bright as well. You know, Mark and the team have done a terrific job here.
And I will tell you that deployment is already off to a strong start we already have hundreds of millions of dollars in LOI and over $1 billion I'm, sorry transactions and over $1 billion in LOI is.
So right at this moment I would say, we're probably pacing ahead of the ordinary pace of our of our product and the demand is high because its an alternative solution to capital needs for large corporate users and much like private credit there is this element.
Mark Lipschultz: But one thing that stands out to me is their ability to source transactions and just the absolute level of deal flow. So can you talk about the size of the investment team today? What's their capacity from an origination perspective?
Mark Lipschultz: And ultimately, how much AUM can the business support? Well, Mark Zarr has done a spectacular job, so if I could thank you for that, and I'll join you in commending our partner there, really has architected a unique business model, which its durability and attributes, of course, shine through this year. The business, as you know, with our new fund, we've now raised $5 billion. That's twice the size of the last fund, the largest real estate fund in the U.S. this entire year, and I will tell you that deployment is already off to a strong start. We already have hundreds of millions of dollars in transactions and over a billion dollars in LOIs, so right at this moment, I would say we're probably pacing ahead of the ordinary pace of our product, and the demand is high because it's an alternative solution to capital needs, for large corporate users, and much like private credit, there's this element of adaptation, people finding the product and ultimately using it, and in more disrupted markets, like people have experienced over the last year, you get more people thinking about innovative ways to finance.
Of adaptation people finding the product ultimately using it and then more disrupted markets like people have experienced over the last year, you get more people thinking about innovative ways to finance.
And so we have right at this point our overall backlogs are really running at record highs in terms of all the things in our pipeline over $10 billion.
So we have plenty to focus on and of course also as we continue to extend that reach into Europe. So.
I don't want to say there is no constraints.
If you think about the massive amount of critical real estate owned by investment grade institutions around the world I mean that is a very very large and it's mostly a white space is just not an area of this transacted so not suggesting that every company is going to do it with every asset or even close but if you.
Kind of take a step back and contextualize what amounts to of course, the biggest fund in this market ours versus that marketplace. We're up we're up.
<unk> I don't think addressable market is in any manner are constrained.
Mark Lipschultz: And so, right at this point, our overall backlogs are really running at record highs in terms of all the things in our pipeline, over $10 billion. So we have plenty to focus on, and, of course, also as we continue to extend that reach into Europe. So I don't want to say there's no constraint, but I mean, if you think about the massive amount of critical real estate owned by investment-grade institutions around the world, I mean, that is a very, very large area, and it's mostly white space. It's just not an area that's transacted.
We've got to keep going out there and finding the best product and developing the partnerships and proving that that is a really innovative and effective way for these companies to finance.
Clearly people like Amazon have made that choice and Theres plenty others.
We have worked with that are likewise doing it and last point I guess I'd add is.
This new onshoring move onshoring trend, which of course everyone's well aware of is going to be a potentially huge driver for this asset class the amount of money. That's being spent just right now on developing semiconductor production in the U S. These are gigantic fab plants for example.
And the capital intensity I think I was just reading that Sam Altman wants to raise some number of trillions of dollars.
Mark Lipschultz: So I'm not suggesting that every company is going to do it with every asset or even close to it. But if you kind of take a step back and contextualize what amounts to, of course, the biggest fund in this market, ours, versus that marketplace, we're a fragment. So I don't think the addressable market is, in any manner, a constraint. But you know, we've got to keep going out there and finding the best product and developing the partnerships and proving that that's a really innovative and effective way for these companies to raise finance. But, you know, clearly, people like Amazon have made that choice, and there are plenty others that we have worked with that are likewise doing it. The last point I guess I'd add is...
Chip capacity every one of those things as a giant new facility and in a world that can be so easy to find trillions of dollars of capital, Yes, certainly don't have to own the real estate. So we've been very active in dialogues with chip companies for example, and what a great asset for us a core institutional asset thats going to run.
For a very long time big dollars with many many wonderful credit counterparties So I.
We appreciate every day, we have to work hard to find the best investments Bryan addressable market is sizable pipeline is very active right now and then.
As I mentioned I would add Europe as a whole another rich vein that we're continuing and working on how to mine best because the companies we work with our global and they have real estate in Europe, and they ask us about their real estate in Europe. So that's another leg of growth from our point of view.
Mark Lipschultz: This new on-shoring move, this on-shoring trend, which, you know, of course, everyone's well aware of, is going to be a potentially huge driver for this asset class. You know, the amount of money that's being spent just right now on developing semiconductor production in the U.S. These are gigantic fab plants, for example. And the capital intensity, I think I was just reading that Sam Altman wants to raise some number of trillions of dollars to develop chip capacity. Every one of those things is a giant new facility, and in a world where it is not so easy to find trillions of dollars of capital, you certainly don't have to own the real estate.
Super helpful. Thanks, Mark and congrats on another great quarter.
Thank you very much.
Your next question comes from Alex Blaustein with Goldman Sachs. Please go ahead.
Hey, good morning, everybody.
Wanted to maybe zooming out a little bit I, just wanted to talk about fund raising a little bit more broadly.
<unk> had a really nice momentum exiting the year.
Mark Lipschultz: So we've been very active in dialogues with chip companies, for example, and what a great asset for us, a core institutional asset that's going to run for a very long time, big dollars, with many, many wonderful credit counterparties. So we appreciate every day we have to work hard to find the best investments, but the addressable market is sizable, and the pipeline is very active right now. And then, as I mentioned, Europe is a whole other rich vein that we're, you know, continuing and working on how to mine best because the companies we work with are global, and they have real estate in Europe, and they ask us about their real estate in Europe, so that's another leg of growth from our point of view. Super helpful. Thanks, Mark, and congratulations. Thank you very much.
And it's important to note I think that the flows are becoming a little bit more balanced between both channels and products. So as you're looking out into 2024, what is sort of the aspirations for fundraising for the firm as a whole and more importantly, how should we think about the breadth of the flows that youre expecting to see next year.
Thanks, Alex and.
And the <unk>.
Insightful phrasing of your question and observation I just want to start with which is fourth quarter did indeed reflect I think something important about the continuing evolution of the business both in having several adjacent legs and having several adjacent strategies staying very much in our north bound.
So to be clear, we have a strategy that is not all things all people back to the beginning of this conversation, but we do have more arrows in that quiver and so what we saw well sat in the fourth quarter was all of that starting to kind of show up.
Mark Lipschultz: Your next question comes from Alex Blostein with Goldman Sachs. Go ahead. Hey, good morning, everybody.
Alex Blostein: I wanted to maybe zoom out a little bit, I just want to talk about fundraising a little bit more broadly. You guys had really nice momentum going into the year. And it's important to note that the flows are becoming a little bit more balanced between both channels and products. So as you're looking out into 2024, what are the sort of aspirations for fundraising for the firm as a whole? And more importantly, how should we think about the breadth of the flows that you expect? Thanks, Alex, and you know what? The decisive phrasing of your question is an observation.
Yes.
In one period I'm very cautious about folks in a quarter, we don't manage our business quarter to quarter fund raising as you. Obviously know is very episodic quarter to quarter, just based on mandates and flagships and exact timing of product launches, so trying to manage that way or sort.
Sort of guess that way, but what you did see in the fourth quarter, which I think we will see repeat itself more is this breadth between products, we have significant fundraise and in credit we have significant fund raising and real estate and we have significant fundraise in GP stake and we will continue to we expect.
Mark Lipschultz: I just want to start with which is Fourth quarter did indeed reflect. I think something important about the continuing evolution of the business Both in having to be several adjacent legs and having several adjacent strategies Staying very much in our northbound highway So to be clear we have a strategy that is not all things all people back to the beginning of this conversation But we do have more arrows in that quiver and so what we saw Well said in the fourth quarter was all of that starting to kind of show up in You know in in one period now, I'm very cautious about folks in a quarter. We don't manage our business quarter-to-quarter Fundraising as you obviously know is very episodic quarter-to-quarter just based on Mandates and flagships and exact timing of product launches So, you know try to manage that way or you know sort of guess that way But what you did see in the fourth quarter, which I think we will see repeat itself more is this breath between Products we had significant fundraising in credit We had significant fundraising in real estate and we had significant Fundraising in GP stakes and we will continue to we expect to see that in 2024 and again, we now have more multiple product points of access and multiple products And then between wealth and institutional likewise, we've got both very much Developing plenty of room to run, you know, there's our real estate continuously offer product Which is the only net inflow real estate product in the marketplace Is still only on a very few number of platforms and we're just have and are launching on many new Platforms this year to offer that product.
<unk> see that in 2024, because again, we now are more multiple product point, so access and multiple products.
And then between wealth and institutional Likewise, we've got falls very much developing plenty of room to run there.
Our real estate continuous software product, which is the only net inflow real estate product in the marketplace.
Is still only on a very few number of platforms and we're just have in all our launch and on new platforms. This year to offer that product. So I think that composition is exactly kind of the building block into 2024 again, there is always going to be the ebbs and flows.
One a new flagship comes in or when we launch on a new platform, but I think we do feel like we're in a good place heading into 2024.
The balance between products and between channels and wealth continues to be strong for us and institutional.
Engines to be strong we've seen some of those SMA as we've long talked about start to actually convert in credit and those are big chunky numbers as well.
Great. Thank you and then one strategic question for you guys.
Actually a bit of a two part of it but I promise, they're sort of related.
On the balance sheet. So you mentioned insurance than you guys are looking to Florida insurance like securities for the firm.
How do you think about structuring that how do you think about minority ownership majority of majority entrepreneur company that was kind of part one and again sort of related to the balance sheet. I saw you guys launched the JV.
Mark Lipschultz: So I think that composition is kind of the building block into 2024 again. There's always going to be the ebbs and flows, you know, when a new flagship comes in or when we launch on a new platform. But I think we do feel like we're in a good place heading into 2024. The balance between products and between channels and wealth continues to be strong for us, and institutional, you know, continues to be strong. We've seen some of those SMAs we've long talked about start to actually convert into credit, and those are big, chunky numbers as well. Great, thank you.
Taking minority Stakes.
An asset manager in Abu Dhabi, maybe a little counterintuitive just given the fact that that's what sort of dose obviously at a bigger scale, but why not do the strategy out of GB solutions, what's the what's the strategy behind partnering and doing a JV. Thanks.
Sure.
And appreciate both questions so far.
First with regard to insurance look it's an area that we have been for years spending time on trying to develop a blue all appropriate strategy. So let's start with this we have two terrific channels of capital access so we talked about today wealth and.
Alex Blostein: And then one strategic question for you guys, actually a bit of a two-parter, but I promise they're sort of related. On the balance sheet, you mentioned insurance, and you guys are looking to explore insurance opportunities for the firm. How do you think about structuring that? How do you think about minority ownership, and majority ownership insurance companies? That's kind of part one.
<unk> traditional institutional.
The one we don't have that obviously some of our peers have done so well with his insurance.
Aware of that we've been working on that pretty thoughtfully.
We may or may not be able to develop the right solution, but it's something we're focused on adding to bring that third key leg in that again, most others have developed from our point of view, we're going to stay true to our strategy look we are in the asset management business, we our balance sheet light both of those will remain our.
Mark Lipschultz: And again, sort of related to the balance sheet, I saw you guys launch a JV, taking minority stakes with an asset manager and Abu Dhabi. Maybe a little counterintuitive, just given the fact that that's what Dial-A-Sir does, obviously on a bigger scale, but you know, why not do the strategy out of GP Solutions? What's the strategy behind partnering and doing a JV? Sure. And I appreciate both questions.
<unk> focus we do not aspire to own an insurance company, well and aspire to be common insurance company.
People have different strategies. So we're not opining on anybody elses strategy been enormously successful for other people that's not our strategy. So our strategy is much more about how do we access asset management.
Mark Lipschultz: So first, with regard to insurance, look, it's an area that we have spent years spending time on trying to develop a Blue Owl-appropriate strategy. So let's start with this. We have two terrific channels of capital access that we talked about today, wealth and institutional, traditional institutional. The one we don't have that, obviously, some of our peers have done so well with is insurance. We're aware of that.
The insurance channel in a balance sheet light way, so that's really where our focus is in.
It will continue to be an intense focus.
And ever more intense focus as we head into 2024 and as we've now really gotten our other acquisitions integrated and you can see kind of the cylinders firing in the fourth quarter.
Mark Lipschultz: We've been working on that pretty thoughtfully. We may or may not be able to develop the right solution, but it's something we're focused on adding to bring that third key leg in that, again, most others have developed. From our point of view, we're going to stay true to our strategy.
Yes.
With regard to sorry, what was your second question.
Oh, yes, the <unk> JV, yes, so just to be clear on the architecture. This is part of our GP solutions product and Baxter has pointed out having adjacencies that are highly strategic and additive where we can add value for our investors in a distinct way. So today as you know we really.
Mark Lipschultz: Look, we are in the asset management business. We are balance sheet light. Both of those will remain our focus. We do not aspire to own an insurance company.
Mark Lipschultz: We don't aspire to become an insurance company. People have different strategies, so we're not commenting on anybody else's strategy. We've been enormously successful for other people. That's not our strategy.
The market for large cap GP solutions and in fact that fund very much by design focuses on large cap managers.
Mark Lipschultz: So our strategy is much more about how do we access asset management, and the insurance channel, in a balance sheet light way. So that's really where our focus is. It'll continue to be an intense focus, maybe an ever more intense focus as we head into 2024 and as we've now really gotten our other acquisitions integrated and you can see kind of the cylinders firing in the fourth quarter, with regard to, sorry, what was your second question? Oh yeah, the Lunette JV.
CVC the Veritas is the silver lakes and so that's been an area. We have built and distinct network, we have our BSP RVO operational support resources.
And we love that space and of course, we're in with our flagship where we got off to a good start in the fourth quarter.
There is another arena that has not been our focus which are these more higher well it may not be higher growth actually results for recall quite.
Hey, Ashley, but younger firms or smaller firms that have a lot of ongoing potential.
Mark Lipschultz: Yeah, so just to be clear on the architecture, this is part of our GP Solutions product. And back to this point about having adjacencies that are highly strategic and additive, where we can add value for our investors in a distinct way. So today, as you know, we really are the market for large cap GP solutions. And in fact, that fund, very much by design, focuses on large cap managers, the CVCs, the Veritases, the Silver Lakes.
So called Middle market, so hence our advantage fund in combination with Loopnet is our way of coming with a value added solution to that market in all our markets again anchored back to what do we want to get paid for it when we get paid for delivering outstanding risk. Adjusted results you have to have a value proposition for that while we are now coming to the <unk>.
Market so to speak the growing marketplace, there and we're delivering two things with this partnership that are very distinctive where brewer with our capabilities and by far the largest investor in <unk> and the entire network that brings with it and the operational resources, which are certainly been valuable to many of our large.
Mark Lipschultz: And so that's been an area where we've built a distinct network. We have our BSP, our operational support resources, and we love that space.
Mark Lipschultz: And of course, we're in with our flagship where we got off to a good start in the fourth quarter. But there's another arena that has not been our focus, which is these higher-growth, well it may not be higher growth actually because those firms grow quite substantially, but younger firms or smaller firms that have a lot of ongoing potential, or the so-called middle market. So hence, our Advantage Fund in combination with Lunette is our way of coming up with a value-added solution for that market. In all our markets, again, I'll anchor it back to, what do we want to get paid for? Are we going to get paid for delivering outstanding risk-adjusted results? You have to have a value proposition for that.
<unk> GPS, but think about the value and impact of those resources to affirm they can't afford to hold all those themselves right. If you managed 50 $100 billion odds are you can have a whole lot of <unk>.
Operational capabilities in house Pony managed $5 billion in growing our ability to bring our BSP at all of that capability around how to kind of best practices and support growth. That's real value. That's something people should consider beyond price and Luna is a very big investor.
Mark Lipschultz: Well, we're now coming to the middle market, so to speak, the growing marketplace there, and we're delivering two things with this partnership that are very distinctive. We're delivering our capabilities as by far the largest investor in GPs and the entire network that brings with it, and the operational resources, which are certainly valuable to many of our large-cap GPs, but think about the value and impact of those resources to a firm that can't afford to hold all those themselves. If you manage $50, $100 billion, odds are, you can have a whole lot of operational capabilities in-house, but when you manage $5 billion and growing, our ability to bring our BSP and all that capability around to best practices and support growth is real value.
Tends to continue to be a big investor to the best of our understanding in private equity. So we also bring along someone who is going to have a very very strong and obviously a positive view of anybody who we partner with.
So they'll make their own decisions that goes with that but we bring along this deep capital partner pool. So I think that brings us into a position to add real value in this middle market space. So we don't patrol that below $10 billion of AUO.
So its complimentary it's not it's really just filling out the.
Mark Lipschultz: That's something people should consider beyond price, and Lunette is a very big investor and intends to continue to be a big investor, to the best of our understanding in private equity, so we also bring along someone who's going to have a very, very strong and obviously positive view of anybody we partner with. So they'll make their own decision that goes with that, but we bring along this deep capital partner pool, so I think that brings us into a position to add real value in this middle market space, so we don't have to patrol that below $10 billion of AUM. So it's complementary; it's really just filling out the pie, the puzzle, going all the way across the spectrum. Great All right. Thank you for all that, and to Matt Lauer. Thanks for watching! I'm Matt Schorr.
The pie the puzzle the.
Going all the way across the spectrum.
Great Alright, thanks for all that.
Thanks, Alex.
Your next question comes from Craig Siegenthaler with Bank of America. Please go ahead.
Good morning, Mark Allen Hope, you're both doing well.
Morning.
Cool.
Good morning, So we wanted to circle back on private wealth fund raising so we had oci's flows roughly doubling in the quarter, which is pretty impressive and <unk> flows improved two although a smaller amount just given softer investor sentiment and real estate, but I wanted to see if you could comment on the sales trajectory.
Of both products into early 2024 and would also be helpful. If you could provide an update on how many major platform shelves both products sit on today and if you expect any major wire house or PV platform launches over the near term.
Craig William Siegenthaler: I'll see you next time. Your next question comes from Craig Siegenthaler with the Bag of America. Go ahead. Good morning.
Great.
Mark Lipschultz: Thanks. Great. It's been a channel we've been after since day one, you know; we're coming up on a decade, eight years, I guess, and we started trying to build into that channel, and it's obviously great to be able to see the benefits of that investment. We have a lot of people focused on this. We've spent a lot of time building trusted partnerships. So, listen. We did have a very good fourth quarter, and that momentum continues.
It's been a channel we've been after since day one.
Coming up on a decade eight years I guess, when we started trying to build into that channel and it's it's.
It's obviously great to be able to see the benefits of that investment.
Lot of people focus on this we've spent a lot of time building trusted partnerships.
So listen we did have a very good fourth quarter and that momentum continues the wealth channel interest in these products in no small part I'll keep coming back to at the end of the day, it's about delivering performance.
Mark Lipschultz: The wealth channel's interest in these products, in no small part, I'll keep coming back to it. At the end of the day, it's about delivering performance. And if you look since inception at our TIC product, it's delivered just about a 12% return. You look at our CIC product, which delivers just about a 10% return, and our O-Rent product, which delivers, I mean, mammoth outperformance and stability with a 7% distribution rate that, you know, has tax advantages for many investors. So I always come back to that because that's the value add part people, you know, hopefully are drawn to. So we continue to see great interest and growth in our core income and tech income products. That's on a lot of platforms. Now, I don't have all the numbers of platforms in front of me, so I can't answer that numerically. That's on a lot of platforms.
And if you look since inception at our <unk> IC product. That's delivered just about a 12% return you look at our CIC product just about a 10% return and our Ole red product delivery.
Ma'am was outperformance on stability with a 7% distribution rate data.
It has tax advantages for many investors.
I always come back to that because that's the value add part people hopefully are drawn to.
So we continue to see great interest and growth in our.
Our core income and tech income products.
That's on a lot of platforms now and I don't have all the numbers of platforms in front of me. So I can't answer that numerically. That's on a lot of platforms. There continue to be places that we work to penetrate but I will say this we've looked recently with one of our partner platforms and you look the penetration is still very low the actual share of Fas who.
Mark Lipschultz: There are continuing to be places that we work to penetrate. But I will say this, we looked recently at one of our partner platforms and, you know, you look, the penetration is still very low. The actual share of FAs who utilize the product is low.
Utilize the product is low and frankly the number of <unk>.
Mark Lipschultz: And frankly, the number of so-called power users, the people that really use meaningful amounts of it, I mean, that's really low. And so I think that speaks not just to Bilal, but to the broader wealth channel. But I haven't looked at our stats.
Power users the people to really use meaningful amounts of it I mean, thats really low and so I think that speaks not just below Oh, that's the broader wealth channel, but I haven't looked at our stats. There is a lot to do inside of the existing platforms will say our core income our credit products, which are also the ones that are probably best understood.
Mark Lipschultz: There's a lot to do inside of the existing platforms with, say, our core income, our credit products, which are also the ones that are probably best understood today and most popular for their attributes. The O-Rent piece, as you note, we had, again, certainly very nice growth, which reflected just the continued organic interest and the addition... maybe we added a platform or so last year. But now we are adding, and have already added, a couple of new platforms. We expect several more during the course of this year.
Good today and most in favor for their their attributes.
The old rent piece as you note, we had again certainly very nice growth, which reflected just the continued organic interest and the addition.
We have added a platform or so last year, but now we are adding.
<unk> added a couple of new platforms, we expect several more during the course of this year.
Mark Lipschultz: And that is a kind of dual opportunity as people learn more about the product. And there is a certain virtuous circle in this area as you get adaptation of the product, and adoption of the product. And then here we have new platforms we're launching on as well.
And that is a kind of therefore dual opportunity as people learn more about the product and there is a certain virtuous circle in this area as you get adaptation of the product adoption of the product.
And then here, we have new platforms that were launched Sean as well. So we view real estate has been our fastest growing business as you know this last year in assets.
Mark Lipschultz: So we view real estate as our fastest growing business, as you know, this last year in assets. And we continue to look at real estate as having the potential to be our fastest growing business because of the distinctive model we have and the adjacencies. You know, we're still working into both channels of distribution, things like geography. I mentioned Europe.
Assets.
And we continue to look at real estate as having the potential to be our fastest growing business because of the distinctive model. We have in the Adjacencies, we're still working into both channels of distribution things like geography, I mentioned Europe. When we think ahead, we think about we're deepening credit we're deep in real estate.
Mark Lipschultz: You know, when we think ahead, we think about, you know, we're deep in credit. We're deep in real estate. We've talked about this before.
We've talked about this before real estate credit would be.
It really filling in is something we have enormous strength and so I think we're quite enthused about real estate and the opportunity, especially given the disruption last thing I'll say is you.
Mark Lipschultz: Real estate credit would be literally filling in something we have enormous strength in. So I think we're quite enthused about, you know, real estate and the opportunity, especially given the disruption. Last thing I'll say is you said this very, very wisely. There is, for good reason, a very negative sentiment about real estate. So we have to kind of sell through the oh, you said those two words, and then get down to double weight. You know, yes, it's a disruptive category.
You said, that's very very wisely. There is for good reason, a very negative sentiment about real estate. So we haven't got to sell through the Oh, you said those two words, and then get down to normal weight.
Yes, it's a disrupted category, but here is the way you succeed in it and Thats actually showing in this manner, we're getting great cap rate purchases today quite there's a bit of the baby bathwater, where people are saying Oh real estate, but that's great by our measure.
Mark Lipschultz: But here's the way you succeed in it. And that's actually showing in this manner. We're getting great cap rate purchases today, right? There's a bit of the baby bathwater where people are saying, oh, real estate. But that's great by our measure.
Triple net leased warehouse to investment grade clients, if we get the uplift just negative sentiment and therefore, a higher cap rates will take it mark if I can add to that on the institutional side, because we obviously have a very strong wealth platform. We also have a very strong institutional platform, we're expecting a very strong year on the.
Alan Hirshenbaum: You know, a triple net lease warehouse to an investment grade client. If we get the uplift of just negative sentiment, therefore higher cap rates, we'll take. Mark, if I can add to that, on the institutional side, because we obviously have a very strong wealth platform, we also have a very strong institutional platform, we're expecting a very strong year on the institutional side as well. We've got a number of products, and we saw 4Q, we saw very strong institutional numbers come in 4Q, we were already off to a strong start in 1Q this year already in institutional, and you think about the breadth of 2024 and what we have out there, we have multiple products in the credit business, we have our strategic equity product, we have diversified lending strategies, first lien fund strategies, we've obviously got GP Stakes Fund 6, we just did a very big initial close, but we have a long way to go here in 2024 and 2025, and we have some existing and new products in the real estate space that we think are going to be very interesting to institutional clients. Allen.
Institutional side as well, we've got a number of products and we saw <unk>. We saw a very strong institutional numbers come on in <unk>. We are already off to a strong start in <unk>. This year already in institutional and when you think about the breadth of 2024 and what we have out there we have multiple products in the credit business.
We have our strategic equity product, we have diversified lending strategy as first lien fund strategies. We've obviously got GP Stakes fund six we just did a very big initial close but we have a long way to go here in 2024, and 2025, and we have some existing and new products in the real estate space.
We think we're going to be very interesting to institutional clients.
Great. Thanks, Alan just for my follow up on dial five.
I recall the fundraising for this fund being very kind of barbell with some big raises in the beginning and some at the end a little hollowed out in the middle.
Do you expect the IL six as raises to be more consistent I know you just said about 2 billion in <unk>, but something like 2 billion every quarter or two until you get to that $13 billion target and then I know you launched a new middle markets fine.
Alan Hirshenbaum: You know, I recall the, For more information, visit www.casagrandeaz.gov. Sure, so happy to take that. On your last point, we did an initial close with Lunate so we just got a press release out in the last 24 or 36 hours. Yeah, I should have mentioned they're also making a large anchor commitment to the product when I was kind of listing the attributes here. It gets us right out of the gates, but I'm sorry. No, no, not at all.
Should there be a first close for that over the near term.
Sure So happy to take that on your last point, we did a initial close.
With lunate, so that we just got a press release out just in the last 24 to 36 hours I Should've mentioned that Theyre, making it also a large anchor commitment to the product what I was kind of lifting the attributes here gets us right out of the gates, but I'm sorry, no no no no.
At all and so so we've got we've got some some we've got our first close they're done.
Alan Hirshenbaum: And so we've got our first close there done, and we have a road ahead to continue to raise that product. We think there's going to be a lot of excitement and interest in that product, but it's going to take some time to raise the product, just like GP Stakes Fund 6. For Fund 6, we don't expect it to be barbelled like what we saw with Fund 5. That was right in the middle of when we did our listing for Blue Owl.
And we have a road ahead to continue to raise that product.
Think theres going to be a lot of excitement and interest over that product, it's going to take some time to raise our product just like GP Stakes fund six for fund six we don't expect it to be bar Belled like what we saw with fund five that was right in the middle of when we did our listing for blue owl, and so we think it'll be more of a straight line.
Alan Hirshenbaum: And so we think it'll be more of a straight line there. Look, it's going to ebb and flow a little between institutional and private wealth. And so you'll see one quarter a little stronger institutional, one quarter a little stronger wealth. It may take some time for us to get on all the wealth platforms that we'd like to. Don't forget, for Fund 5, we were really on one large platform. It was a big private bank.
Look, it's going to ebb and flow a little between institutional and wealth and so youll see one quarter, a little stronger institutional one quarter, a little stronger wealth. It may take some time for us to get on all the wealth platforms that we'd like to don't forget for fund five we were really on one large platform. It was a big private bank now we have the ability.
Alan Hirshenbaum: Now we have the ability to bring all the Blue Owl relationships to the table here and really get out on a lot more wealth platforms. So we're very excited about that. And on the institutional side, if you recall, when we brought all these businesses together, we had single-digit percent overlap amongst our investor bases across our three businesses. Now we have the opportunity to cross sell across all of those investors. And so we're very excited about that as well, Craig. But look, it still has all the alternative products, but certainly this one. It definitely has a bit of a front-end load and a back-end load, so it will not be $2 billion a quarter. It's nowhere near as linear.
To bring all of the blue our relationships to the table here and really get out on a lot more wealth platform. So we're very excited about that and on the institutional side. If you recall when when we brought all these businesses together, we had single digit percent overlap amongst our investor base is across our three businesses now we have the opportunity to cross sell across.
All of those investors and so we're very excited about that as well Craig.
It's still as alternative products, but certainly this one it definitely is a bit of a front end load in a backend load. So we don't want to it will not be $2 billion a quarter, it's nowhere near that linear.
Everyone, everyone listening knows the natural lumpiness of different timings of close so we did have a particular attribute in fund five with the.
Alan Hirshenbaum: Everyone listening to this knows the natural lumpiness of different timings of close. So we did have a particular attribute in Fund 5 with the acquisition at that time and then the IPO. So we don't have that. But I think you should still anticipate more, and get a first close done. There's some period of time before you then do another close, and then some period of time before you get to another close. So it will not be linear, but it will, and it shouldn't be quite as hollowed out.
The acquisition at that time, and then the IPO. So we.
We don't have that but I think you should still anticipate more first call is done.
There is some period of time before you then do another close and then some period of time before I get to another close so it will not be linear but it will.
It shouldnt be quite as hollowed out in the middle.
Yes.
Thank you Mark.
Mark Lipschultz: Your next question comes from Bill Katz with TD Cowan. Go ahead. Thank you very much for taking the questions. Just coming back to direct lending, it's been a theme that's been sort of coming up through the entire earnings season. I just wondered if you could comment a little bit on the volume as well as the pricing outlook for the direct lending platform to the extent that competition picks up. I appreciate that maybe there's more unit growth out there, but nonetheless, I'd be particularly curious to see the pricing side of things developing. Sure, it has certainly been and continues to be a very good environment for direct lending. As you say, a lot of people are talking about it. I'm not chuckling, but it's a little bit funny how much attention all of a sudden everyone wants to talk about private credit, whether that is, in fact, a large part of their strategies or not, but we're happy about it. We're happy to, you know, we're perfectly satisfied to have a day in the sun.
Your next question comes from Bill Katz with TD Cowen. Please go ahead.
Okay. Thank you very much for taking the questions just coming back to direct lending. It's been a theme that's been sort of coming up through the entire earnings season. Just wondering if you could comment a little bit on the volume as well as pricing outlook for the direct lending platform to the extent that competition picks up I appreciate that maybe there's more unit growth out there.
But nonetheless, it would be particularly curious on how you sort of see the pricing side of things.
<unk>. Thank you.
Sure.
It's certainly been and continues to be a very good environment for direct lending you've just got a lot of people are talking about it.
Kyle I'm not chuckling, but it's a little bit so that's probably how much attention all of a sudden everyone wants to talk about private credit.
That is in fact, a large part of <unk>.
Their strategies or not but we're happy about it rapidly.
Perfectly satisfied out of a day of a sudden we also get that everything gets it stay on the site and so look we've been at this for a long time and are going to be at it for a very long time delivering for our users a capital solution in scale and then tailored fashion.
Mark Lipschultz: We also get that everything gets its day in the sun. So look, we've been at this for a long time and are going to be at it for a very long time, delivering for our users a capital solution at scale and in a tailored fashion and doing that in a way that is reliable to them, and we don't compete with them in private equity. So I think we do have a distinct architecture here. And with all that said, look, it's a good environment today. I think to call it what it is. You know, the economy is sound.
And doing that in a way that is reliable to them and we don't compete with them in private equity so yes.
I think we can do you have a distinct architecture here.
And with all that said look it's a good environment today I think to call. It what it is.
The economy is sound, we can all have different views of course about where we'll be in six to 12 months I will tell you that if you look at the performance of our portfolio. This.
Mark Lipschultz: We can all have different views, of course, about where we'll be in six and 12 months. I will tell you that if you look at the performance of our portfolio, the lag with the last full quarter we have, you know, able to report from all our portfolio companies, our revenue and EBITDA growth were higher than the prior quarter. In point of fact, the EBITDA growth on average across the platform was 15%.
The lag with last full quarter, we have.
The report from all our portfolio companies.
Our revenue and EBITDA growth were higher than the prior quarter in point of fact, the EBITDA growth on average across the platform was 15%. So now we obviously focus on some very very attractive industry as attractive businesses.
Mark Lipschultz: So, you know, now, we obviously focus on some very, very attractive industries, attractive businesses, with the biggest backers. I don't measure that to suggest that's indicative of the economy or, you know, broadly all portfolios, but it does tell me we've got a very healthy portfolio and certainly not an unhealthy economy. And I think actually it'd be a good reason to think we have a pretty solid economy at this point, from the micro. We're not macro experts from the micro up here in the US. So that's good.
The biggest backers.
Suggesting that is indicative of the economy or broadly all portfolios, but it does tell me, we've got a very healthy portfolio and certainly not an unhealthy economy and I think actually be good reason to think we have a pretty solid economy at this point.
From the micro macro experts from the micro up here in the U S.
So that's good we continue to have strong demand.
Mark Lipschultz: We continue to have strong demand. And from what I understand, and again, you'll have better insights into this, but if you talk to the M&A community, they're seeing a lot of activity picking up here as we go into the first quarter. There's a natural cyclicality to all things that are M&A, you know, related, which is to say, the fourth quarter is obviously always a big quarter because people are finishing things, and then the first quarter, people have to restart these new processes. So setting aside the natural timing, you know, I think we feel like the sentiment is very strong.
And from what I understand and again Youll have better insights into this but if you talk to the M&A community Theyre seeing a lot of of activity picking up here as we go into the first quarter. There was a natural cyclicality to all things that are M&A related which is to say fourth quarter is obviously always a big quarter because people are finishing things.
The first quarter, but you also have a restart these new processes. So setting aside the natural timing I think we feel like the sentiment is very strong so the outlook to us feels very good in terms of likely activity. This year. There's two five trillion dollars of private equity dry powder.
And they obviously had a very tepid activity year last year. So I think we imagine that in a world that looks like this expect there'll be a lot more activity and more activity would be we asked me. The one thing I would've liked to have in direct lending would be just more aggregate market activity. We loved the credits we love what we're getting.
Mark Lipschultz: So the outlook to us feels very good in terms of likely activities here; there's $2.5 trillion of private equity dry powder, and they obviously had a very tepid activity year last year. So I think we imagine that in a world that looks like this, there'll be a lot more activity. And more activity would be, you know, if you asked me the one thing I would have liked to have in direct lending, it would be just more aggregate market activity. We love the credits, we love what we're getting done, we love our position in market share, but aggregate activity is still ultimately, you know, a boundary condition. So hopefully, and it seems reasonable to expect 2024 should be a more active year, and we'll gladly take that. We'll finally come on to your question about spread and competition. So it's true, of course, that more dollars have been raised through private credit, but no more in proportion than historically to private equity.
We love our position in market share, but aggregate activity is still ultimately a boundary condition. So hopefully and it seems reasonable to expect 2024 should be a more active year and we will gladly take back. So finally to come onto your question about spreads.
Competition.
It's true of course, then more dollars have been raised in private credit, but no more in proportion than historically to private equity and in fact private equity obviously has been accumulating assets here, then I'll have to get deployed.
And so I think we feel like the market remains generally imbalanced as looking out again anticipated more activity.
We can't meet the needs of all the capital markets, we need the liquid markets to return to have a fully functioning capital market environment.
Mark Lipschultz: And in fact, private equity obviously has been accumulating assets here that now have to get deployed. And so I think we feel like the market remains generally in balance and is looking out, again, anticipating more activity. We can't meet the needs of all the capital markets.
And so while 2022 of course, it's a wonderful time for credits and spreads.
There was no meaningful public market hopefully, what we'll have is more activity and a functioning public market, but overall that bigger pie will take spreads have come down from their peaks, we certainly saw them called back end problem.
Mark Lipschultz: We need liquid markets to return to have a fully functioning capital market environment. And so, well, 2022, of course, a wonderful time for credits and spreads, but there was no meaningful public market.
Particularly well wide levels and that's okay. Remember we operated in exactly that environment. Just a couple years ago, we're still getting paid really well.
Our measure look our since inception, we've done over 80 billion in loans and are running loss rate has been six basis points and in fact, that's been more than offset by realized gains.
Mark Lipschultz: Hopefully, what we'll have is more activity and a functioning public market. But overall, you know, that bigger pie will take time. Spreads have come down from their peaks. You know, we certainly saw them come back in from, particularly wide levels, and that's okay.
So for that kind of underlying credit performance, our ability to deliver double digit returns I mean of course, we will take a wider spread if we can have it but we have a very attractive risk return proposition as we originate today.
Mark Lipschultz: Remember, we operated in exactly that environment just a couple years ago, and we're still getting paid really well. By our measure, look, since inception, we've done over 80 billion in loans, and our running loss rate has been six basis points, and in fact, that's been more than offset by realized gains. So for that kind of underlying credit performance, our ability to deliver double-digit returns, I mean, of course, we'll take a wider spread if we can have it, but we have a very attractive risk-return proposition as we And in the large end of the market, the parting comment is, you know, a lot of the activity in the articles and, you know, of course, our new entrants, and to your point, it's like that trendy topic.
Okay and then the large end of the market Party comment is a lot of the activity in the articles and of course, our new entrance to your point, it's like that's trending topic.
But that's a different part of the market that we're in we're in this pyramid that Doug has talked about before at the top of the pyramid doing the largest companies, but the largest sponsors which we liked for credit reasons not some other reason really headlines and the like it's better credits in our view that remains the domain of a handful.
Of people many of whom have raised a lot of money. So the dollar or is it really just the dollar flows a lot of the dollars are in the hands of the same handful of people that have them before so the top of the pyramid isn't really changing meaningfully the bottom of the pyramid, there's definitely a lot of new people jockey and down there is not it's not.
Mark Lipschultz: But that's a different part of the market than we're in. You know, we're in this pyramid that Doug has talked about before. At the top of the pyramid, we have the largest companies with the largest sponsors, which we like for credit reasons, not, you know, some other reason, you know, reading headlines and the like. It's better credit, in our view.
Where we operate.
Okay. Thank you didn't mean to interrupt you. So my second question Alan for you one housekeeping item one bigger picture question within that.
Transaction line was particularly strong. This I was wondering if you could flesh out maybe what was going on behind that but the broader question is you mentioned, a 60% margin, which certainly is quite strong.
Mark Lipschultz: That remains the domain of a handful of people, many of whom have raised a lot of money. So the dollars, if you look at the dollar flows, a lot of the dollars are in the hands of the same handful of people that had them before. So the top of the pyramid isn't really changing meaningfully. At the bottom of the pyramid, there's definitely a lot of new people jockeying down there.
And you continue to reinvest back into the business a number of your peers, who have started much later.
And blew out in terms of trying to get particularly in the wealth management business have spent heavily in sort of signaling that they're on the other side of that investment spend cycle and just sort of wondering if you could just unpack a little bit what's behind these still elevated spending.
Mark Lipschultz: It's not where we operate. Okay, thank you. I didn't mean to interrupt you.
Patrick Davitt: So my second question, Alan, for you, one housekeeping item, one bigger picture question within that. The transaction line was particularly strong in this case. I wonder if you could flesh out, I mean, what was going behind that.
For for blew out and then how quickly do you think that that could ramp up production as it offset thank you.
Sure. Thanks, Bill so on the transaction fees, we've talked in the past about that generally follows the trends of gross originations.
Alan Hirshenbaum: But the broader question is, you mentioned the 60% margin, which certainly is quite strong, and you continue to reinvest back into the business. A number of your peers who have started much later than Blue Owl in terms of trying to get particularly into the wealth management business have spent heavily and are sort of signaling that they're on the other side of that investment spend cycle. I'm just sort of wondering if you could just unpack a little bit what's behind the still elevated spending for Blue Owl and then how quickly do you think that that could ramp up production as an offset? Sure, thanks, Bill.
They don't they don't follow a lockstep, so we could have a bigger quarter, one quarter and a little lower transaction fees in the next quarter.
<unk> was our second biggest ever gross origination quarter. So we had following that we had very strong transaction fee quarter.
On the 60% margin look we will we talk a lot about not being complacent in the industry and we're going to continue to put very valuable dollars back into fund raising.
And we're focused on both institutional and wealth in those regards and we have a very built out.
Alan Hirshenbaum: On transaction fees, we've talked in the past about that generally following the trends of gross originations. They don't follow lockstep, so we could have a bigger quarter one quarter and a little lower transaction fees the next quarter. 4Q was our second biggest ever gross origination quarter.
<unk> Aladdin wealth fund raising teams, we want to continue to grow that we want to continue to expand we want to expand both in the U S. We want to expand both around the world.
For institutional and for wealth. So we're going to continue to invest hours and that we're also launching new products and so when you think about each scale product I think I talked about in my remarks every big scale product that we raise like a real estate fund six or GP Stakes fund six we have other new products, we're launching that have much lower.
Alan Hirshenbaum: So following that, we had a very strong transaction fee quarter. On the 60% margin, look, we talk a lot about not being complacent in the industry, and we're going to continue to put very valuable dollars back into fundraising. And we're focused on both institutional and wealth in those regards. And we have very built out institutional and wealth fundraising teams.
And so everything blends back to that 60% that we see for the next few years.
Thank you.
Thank you Bill.
Your next question comes from Steven <unk> with Wolfe Research. Please go ahead.
Alan Hirshenbaum: We want to continue to grow that. We want to continue to expand. We want to grow both in the US.
Yeah.
Hi, I wanted to ask on the Cowen Health care acquisition, which you gave some great color in response to an earlier question just on the broader strategy.
Alan Hirshenbaum: We want to expand both around the world for institutional and for wealth, so we're going to continue to invest in that. We're also launching new products. And so when you think about each scale product that I think I talked about in my remarks, every big scale product that we raise, like a real estate fund six or GP stakes fund six, we have other new products we're launching that have much lower margins. And so everything blends back to that 60% that we see for the next few years. Thank you.
It gives you a great foothold in the health care life Sciences space forward I was hoping to get a better sense of is how quickly you could scale of this strategy should we think about it following a similar growth trajectory to some of your tech focused funds or could it be even faster just given greater brand recognition their distribution capabilities that you have today.
Well look we certainly see a meaningful opportunity these things take time to develop well and right and to be able to do well.
Alan Hirshenbaum: Thank you, Bill. Your next question comes from Steven Chubak with Wolf Research. Go ahead.
The value add and so.
Steven Chubak: Hi, I wanted to ask about the Cowan Healthcare Acquisition, which you gave some great color in response to an earlier question just on the broader strategy. It gives you a great foothold in the healthcare life sciences space, but what I was hoping to get a better sense of is how quickly you could scale this strategy. Should we think about it following a similar growth trajectory to some of your tech-focused funds? Or could it be even faster, just given greater brand recognition and better distribution capabilities that you have today?
Look tech has been extraordinary and I were lucky and we appreciate that we were able to create that opportunity.
I wish that was somehow the future of health care and maybe someday. It will I don't think that's the template we would have in mind I think this is about methodically building across the platform. It's already an area, we're very active and to be clear as I said, we've already done $11 billion of Av.
Investments in this arena.
So I think it's too early to really give you a lot of direction on scale.
Scale and timing, but it is safe to say, it's an area, we're very focused on developing our platform.
Mark Lipschultz: Well, look, we certainly see a meaningful opportunity. These things take time to develop well and right and to be able to develop the value add. And so, look, tech has been extraordinary, and we're lucky, and we appreciate that we were able to create that opportunity. I wish that was somehow the future of healthcare, and maybe someday it will. But I don't think that's the template we would have in mind.
TAC I think was a pretty pretty special case. It is true we have a much more developed infrastructure and much more developed.
That form in a much more.
More developed set of Lp's, but software is such a megatrend and we were so early with that.
I think that was pretty special but this is definitely an exciting opportunity im talking about another huge part of the economy and health care is certainly yet and we now have a complete set from life sciences to structured solutions to health care services capabilities. So we're going to work out and we will certainly keep you all posted as we develop.
Steven Chubak: I think this is about methodically building across the platform. It's already an area we're very active in, to be clear. As I said, we've already made $11 billion in investments in this arena. So I think it's too early to really give you a lot of direction on scale and timing, but it is safe to say it's an area we're very focused on developing our platform. You know, tech support, I think, was a pretty special case.
Great color. Thanks, so much for taking my questions.
And by the way I love, the nothing Blue about 72 and.
Flash note. Thank you for that.
Thank you very much.
Yes.
Your next question comes from Patrick Davitt with Autonomous Research. Please go ahead.
Mark Lipschultz: It is true, we have a much more developed infrastructure and a much more developed platform and a much more developed set of LPs. But software is such a mega trend and we were so early with that; I think that was pretty special. But this is definitely an exciting opportunity. You talk about another huge part of the economy; healthcare is certainly it, and we now have a complete set from life sciences to structured solutions to healthcare services capabilities.
Hey, good morning, everyone.
Good morning.
This view.
Out there that like middle market lending is less exposed to bank disintermediation and deal activity.
The larger market, where you play so in that vein where.
What are you guys seeing in terms of that given take between new deal volume and refinancing outflows.
Mark Lipschultz: So we're going to work on it, and we'll certainly keep you all posted as we progress. Thanks so much for taking my question. Oh, and by the way, I love the nothing blue about 72 in your flashnote.
From larger borrowers is the broadly syndicated and high yield market opens back up.
Okay.
So whether it's less susceptible to bank.
At the end of the day the flow lines have been away from the traditional syndicated market toward us not the other way back of course as you know.
Steven Chubak: Thank you for that. Thank you very much. Your next question comes from Patrick Davitt with Autonomous Research. Let's go ahead. Hey, good morning, everyone. Good morning.
It's certainly true youre not going to take small companies do syndicated loans, but that's kind of part of the problem with the nature of those credits have the scalability, we always get offered brought these smaller transactions and.
Patrick Davitt: There's a view out there that, like middle market lending, is less exposed to bank disintermediation and deal activity than the larger market where you play. So in that vein... What are you guys seeing in terms of that give and take between New Deal volume and refinancing outflows? from larger borrowers as the broadly syndicated and high-yield market opens back up. So, you know, whether it's less susceptible to banks, I mean.
Listen nothing not a one size fits all but I can tell you on average the credits are nowhere near as good and the terms are no better so.
I genuinely don't understand the argument for the smaller cap alone strategy to perfectly fine strategy, but somehow I don't know if you want to try to position it as Oh, here's an advantage over large cap there isn't an advantage that doesn't mean, it's not a perfectly good business.
Mark Lipschultz: At the end of the day, the flow lines have been away from the traditional syndicated market toward us, not the other way around, of course, as you know. It's certainly true that you're not going to take small companies and do syndicated loans. But that's kind of part of the problem with the nature of those credits and the scalability. We always get offered, and bring these smaller transactions. And listen, not one size fits all, but I can tell you, on average, the credits are nowhere near as good, and the terms are no better.
With regard to banks and the kind of the flows.
You make a really good point, there's sort of two forces at work and they'll show up in different ways at different times.
The return of some functioning liquid market and I think we are seeing the return of some function and liquid market.
Again with the kind of the abstracts on it I'll say, we're happy about that I mean, we need that to have a good functioning and vibrant marketplace. The.
The abstracts is of course, it's nice when the market is entirely entirely in the private hands. So theres, an asterix that statement, but that's not a bad dynamic in aggregate.
Mark Lipschultz: So I genuinely don't understand the argument for the smaller cap alone strategy, to perfectly find the optimal strategy. But somehow, I don't know why people want to try to position it as, oh, here's an advantage over the large cap. There isn't an advantage.
And then there's going to be this by directional point when those liquid markets return of course that means that's going to be an option for users when it wasn't an option.
Mark Lipschultz: That doesn't mean it's not a perfectly good business. With regard to banks and the kind of flows, you make a really good point. There's sort of two forces at work, and they'll show up in different ways at different times, which is the return of some functioning liquid market. And I think we are seeing the return of some functioning liquid market. Again, with the kind of asterisk on it, I'll say we're happy about that.
Remember that was a wide open option in 2021, when we were thriving and having some of our biggest origination periods, which kind of speaks to the point that activity meets our value proposition ends up often being the net positive even when there is other people bumping around or even very active in the market.
Mark Lipschultz: I mean, we need that to have a good functioning, vibrant marketplace. The asterisk is, of course, it's nice when the market is entirely in private hands, so there's an asterisk to that statement, but that's not a bad dynamic in aggregate. And then there's going to be this bidirectional point.
And what's happened over the last several years and we've talked about this I think on a lot of the calls.
Once people try using the private solution many not all decided thats absolutely what they want to do going forward the value proposition of the three PS predictability privacy partnership is something that has been now tested by many people and they said of course, it's true and by the way.
Mark Lipschultz: When those liquid markets return, of course, that means that it's going to be an option for users when it wasn't an option. But remember, that was a wide open option in 2021 when we were thriving and having some of our biggest origination periods, which kind of speaks to the point that activity meets our value proposition and ends up often being the net positive, even when there's other people bumping around or even very active in the market. And what's happened over the last several years, and we've talked about this, I think, on a lot of calls, once people try using the private solution, many, not all, decide that it's absolutely what they want to do going forward. The value proposition of the three Ps, predictability, privacy, and partnership, is something that has now been tested by many people. And they said, of course, that it's true.
I don't mean this to be again overly conclusive I don't have anything like the knowledge every private equity investor asked but I did do private equity for 20 years and I can say this there is no private equity transaction that will work or not work from a return point of view because you paid a little bit more and we do charge more for the loan.
And yet a stricter document look if you're performing well it won't matter. If you have a stricter document and get in trouble it will matter and Thats of course, how we protect ourselves.
And so at the end of the day a lot of people I think are realizing the ease of execution, having the predictability of terms, having a truly private capital structure. So I'm not dealing with quarterly reporting now to bondholders instead of stockholders and most importantly that phone call when times changed for better or worse that partnership.
Mark Lipschultz: And by the way, I don't mean this to be, you know, again, overly conclusive. I don't have anything like the knowledge every private equity investor has, but I did do private equity for 20 years. And I can say this, there is no private equity transaction that will or will not work from a return point of view because you paid a little bit more, and we do charge more for the loans. And you had a stricter document. Look, if you're performing well, it won't matter if you have a stricter document. If you get in trouble, it will matter.
Probably for better and we've had a lot of that people, calling up and saying Hey can I add on what an opportunity in 2022, no. One else can buy right now I want to buy can you provide any capital at our answer's, absolutely. So I think that will continue to thrive as an option and then last as you mentioned there will be less some things will go to the syndicated market, we are not suggesting that.
Otherwise, but something in the syndicated market are going to come to our market. As you have noted with your question we've already seen that.
We've done that with <unk>, we've done that with Pat that things that are coming out of that market.
Mark Lipschultz: And that's, of course, how we protect ourselves. And so, at the end of the day, a lot of people, I think, are realizing the ease of execution, having the predictability of terms, and having a truly private capital structure. So I'm not dealing with quarterly reporting now to bond holders instead of stockholders. And most importantly, that phone call when times change for better or worse, that partnership, preferably for better. And we've had a lot of that. People calling up and saying, "hey, can I add on?" What an opportunity in 2022. No one else can buy it right now.
I would suggest there's probably a lot more opportunity for flow that direction that people, who have had a great experience in the private market, saying, Oh, I'm really excited to be back in the market of having a 100 different <unk>.
Lenders, one I can otherwise deal with one or two so.
We take everybody seriously and there is great value propositions. The banks do a great job I think we do a great job at a healthy ecosystem as both of us doing our job.
Thank you helpful.
Quick follow up.
The 15% EBITDA growth in the portfolio, obviously, great, but I assume that excludes the recurring revenue loans. So could you update us on what percentage of the portfolio is recurring revenue and how those borrowers are boring.
Mark Lipschultz: I want to buy. Can you provide me with capital? And our answer is, absolutely. So I think that will continue to thrive as an option. And then last, as you mentioned, there will be lists.
Don't have the percentage in front of me.
Mark Lipschultz: Some things will go to the syndicated market. We are not suggesting otherwise. But some things in the syndicated market are going to come to our market, as you have noted with your question, and we've already seen that, right? We did that with Finastro. We did that with PetVet.
So I can't quite answer that but I can say is theyre doing very well that is to say that the software area continues to be extremely healthy we continue to be in a place where we have not yet had a loss on our software loan in fact, we've not had a default on a software alone.
And that continues to be true so the recurring revenue loans are those businesses.
Mark Lipschultz: Things that are coming out of that market, I would suggest there's probably a lot more opportunity for the flow of money in that direction than people who have had a great experience in the private market saying, oh, I'm really excited to be back in the market of having 100 different lenders when I can otherwise deal with one or two. So we take everybody seriously. And there are great value propositions. The banks do a great job. I think we do a great job, and a healthy ecosystem is both of us doing our job. Thank you, very helpful.
To do very well and when I think about the portfolio I would stand by what we concluded six years ago software on average are the best credits in the market, which is why we went there in the first place and why we can go there now so the recurring revenue loans are doing.
Are doing very well remember one other thing on recurring revenue loans because.
For me as I understand it gets a lot of attention in the sort of hey, that's all what people traditionally pictured, but recurring revenue alone in the context of a big SaaS company is.
As a company that has a lot of revenue a tremendous amount of gross profit right 80, 90% margins, but is spending a lot of that to further grow their business and therefore further grow those gross margin dollars and rates way above the average enterprise in the U S or elsewhere.
Patrick Davitt: Quick follow-up. You know, the 15% EBITDA growth in the portfolio is obviously great, but I assume that excludes the recurring revenue loans. So could you update us on what percentage of the portfolio is recurring revenue and how those borrowers are performing? I don't have the percentage in front of me, so I can't quite answer that, but I can say they're doing very well.
As a lender to that company you don't get to spend 50% of your revenues on marketing and sales. If you don't pay your interest Bill. So I think one of the durability elements that has shown and we thought to be true and I think still though sometimes in this distinction not say loss, but.
Mark Lipschultz: That is to say that the software area continues to be extremely healthy. We continue to be in a place where we have not yet had a loss on a software loan. In fact, we've not had a default on a software loan, and that continues to be true.
Mark Lipschultz: So the recurring revenue loans, or those businesses, continue to do very well. And when I think about the portfolio, I would stand by what we concluded six years ago: software, on average, is the best credit in the market, which is why we went there in the first place and why we will go there now.
I think is undervalued.
I have $400 million of revenue and a 90% gross margin $360 million to spend.
I may want to spend it all on growing my business, but I don't get to spend any of it until I pay for that 30% and it's only on average by $30 a fraction percent of my capital structure that blue hours financed.
Mark Lipschultz: So the recurring revenue loans are doing very well. Remember, one other thing about recurring revenue loans, because, again, for reasons I understand, it gets a lot of attention in the sort of, hey, that's not what people traditionally have pictured. But a recurring revenue loan, in the context of a big SaaS company, is a company that has a lot of revenue, a tremendous amount of gross profit, right? 80-90% margins, but is spending a lot of that to further grow the business and therefore further grow those gross margin dollars at rates way above, you know, the average enterprise in the U.S. or elsewhere. As a lender to that company, you don't get to spend 50% of your revenues on marketing and sales if you don't pay your interest bill.
Feel very good about the stability of those positions and we've experienced that when there have been questions raised those are some of the earliest people to say no problem. We gotcha like let's just let's just talk this through and.
We love our company and we want to keep growing so how about we put up some more money how about we come up with something that works for everybody.
Yeah.
Your next question comes from Brennan Hawken with UBS. Please go ahead.
Good morning, Thanks for taking my question.
A lot. This morning, so hopefully my questions arent too long here.
Was curious about.
What feedback has been from the listing so far I know, it's early days, but <unk>.
Mark Lipschultz: So I think one of the durability elements that has shown and we thought to be true, and I think still, sometimes in this distinction, not to say it is lost, but I think it is undervalued, is if I have $400 million of revenue and a 90% gross margin, I have $360 million to spend. And I may want to spend it all on growing my business, but I don't get to spend any of it until I pay for that 30 percent. And it's only, on average, by 30 and a fraction percent of my capital structure that Blue Owl has financed. So I feel very good about the stability of those positions. And we've experienced that when there have been questions raised. Those are some of the earliest people to say, "No problem; we've got you."
Shares haven't traded that well, so curious whether or not that's impacted any of the reception and maybe could you talk about any potential to consider a merger between some of the listed bdcs and what benefits it could bring to investors in those vehicles.
Of course, what your question is we're certainly not too long I think we can all included is any dangerous to my answers are too long, but we.
We'd like to be transparent so.
With that said with regard to the listing.
The listing has been extremely well received and here's why we told people when we create these private vehicles that we will in an orderly basis in an appropriate amount of time create the option, but not the obligation.
Mark Lipschultz: Like, let's just let's just talk this through. And, you know, we love our company, and we want to keep growing. So how about we put up some more money? How about we, you know, come up with something that works for everyone. Your next question comes from Brennan Hawken with UVS. Let's go ahead. Good morning.
Two for liquidity.
People that had an illiquid position.
A wonderful return now have a liquid position, earning a wonderful return.
Brennan Hawken: Thanks for taking my question. I covered a lot this morning, so hopefully, my questions aren't too long here. I was curious about what feedback there has been from the listing so far. I know it's early days, but you know, shares haven't traded that well. So curious whether or not that's impacted any of the reception.
And so that no one has to sell anything and in fact, which remain the same mystery to us but we.
Certainly with proper to many investors that are considering direct London why why wouldn't you buy BDC is in the public market.
At a discount to their now I know Theres a reason for that some people don't want that level of volatility so back to the point create the ecosystem create different access points different people have different preferences for how they want to to.
Mark Lipschultz: And maybe could you talk about any potential to consider a merger? Of course, your questions are certainly not too long. I think we can all conclude that there's no danger that my answers are too long. But, you know, we like to be transparent.
To invest but it's a heck of a fine proposition. So if you don't sell them. These variances and trading really arent going to matter and youre going to get your dividends, but if you want to sell because you have other priorities adjusted for whatever that price may be then great. Now you have that option that doesn't exist in a traditional.
Mark Lipschultz: So with that said, with regard to the listing, the listing has been extremely well received. And here's why we told people when we created these private vehicles that we would, on an orderly basis and an appropriate amount of time, create the option, but not the obligation, to for liquidity; people that had an illiquid position, earning a wonderful return, now have a liquid position, earning a wonderful return. And so no one has to sell anything. And in fact, what's remained, I don't want to say a mystery to us, but we certainly would proffer to many investors that are considering direct lending, why wouldn't you buy BDCs in the public market at a discount to their NAV? No, there's a reason for that.
Funding so.
I think it's been very well received because we for us it's important to us to deliver on our commitments to our investors and our commitment was to deliver that option at the right time.
So with regard to the possibilities going forward mergers, maybe Alan I'll turn it to for that sure. Thank you Mark Brendan. Thank you for the question. We continue to evaluate the strategic options that are available to our BDC shareholders on the diversified lending side, we have BDC.
Two we have BDC, three which is now now obesity.
We could continue to have that listed on the New York stock exchange. It could also be natural to overtime merge.
Mark Lipschultz: Some people don't want that level of volatility. So back to the point: create the ecosystem, create different access points; different people have different preferences for how they want to invest. But it's a heck of a fine proposition. So if you don't sell, then these variances in trading really aren't going to matter, and you're going to get your dividends. But if you want to sell because you have other priorities adjusted for whatever that price may be, then great; now you have that option that doesn't exist in a traditional fund.
Something like <unk> BDC, but we continue to look at that and continue to talk to our shareholders.
On the tech side on the software lending side, we have two private <unk>.
Private to public Bdcs OTF in OTF too.
And we continue to evaluate options for those shareholders as well we have OTF, which is fully invested fully deployed it's fully levered.
You have to we still are deploying some of the capital we have not drawn down all the capital from our shareholders there but.
But over the course of this next year, we'll make a lot of progress there and we'll continue to evaluate whether it makes sense to merge those two and then list them or to list. One and then continue to look at that.
Mark Lipschultz: So I think it's been very well received because, for us, it's important to us to deliver on our commitments to our investors, and our commitment was to deliver that option at the right time. So, with regard to the possibilities for future mergers, maybe Alan, I'll turn it to you for that. Sure. Thank you, Mark.
Got it thanks for that color.
And then I know.
It was only three months ago. When you guys last spoke about the dividend and the potential risk to the dollar, but the environment does seem to be getting better.
Alan Hirshenbaum: Brennan, thank you for the question. Look, we continue to evaluate the strategic options that are available to our BDC shareholders. On the diversified lending side, we have BDC-2; we have BDC-3, which is now OBDE.
You guys are putting up some nice growth in the dividend for this year.
Has that risk to the dollar in 2025 diminished given the improvement that you guys have seen in the environment or should we still consider those.
Alan Hirshenbaum: We could continue to have that listed on the New York Stock Exchange. It could also be natural to, over time, merge something like OBDE into OBDC, but we continue to look at that and continue to talk to our shareholders. On the tech side, on the software lending side, we have two private-to-public BDCs, OTF and OTF-2, and we continue to evaluate options for those shareholders as well.
That outlook unchanged.
Listen we remain on track to deliver in or around a dollar and certainly we've taken another really nice step right. We've raised the dividend, 29% to 72 cents and fundamentals in the business are strong. So every time, we step closer obviously that.
It feels good and trying to get there and deliver and obviously you can give us all collectively more comfort.
Alan Hirshenbaum: We have OTF, which is fully invested, fully deployed, and fully levered. OTF-2, we are still deploying some of the capital. We have not drawn down all the capital from our shareholders there, but over the course of this next year, we'll make a lot of progress there, and we'll continue to evaluate whether it makes sense to merge those two and then list them or to list one and then continue to look at that. Got it. Thanks for that color.
There's still enough variables between here and 2025 that we.
In and around US we pick up purpose of dollar remains our target we feel good about being in that range I think the really important point I want to come back to here is that because of the predictability of our model the stability and the growth. We've now this year have grown kind of all our key metrics 25%.
And that's more than double the average of our many of our peers. When we look at results, which are all good results an incredible organization. So we've done that in a highly predictable way remember also where we are right now is exactly where we all talked about a year ago and that is true I think maybe it's most distinct.
Brennan Hawken: Um, and then I know it was only three months ago when you guys last spoke about the dividend and the potential risk to the dollar, but the environment does seem to be getting better. So you guys are putting up some nice growth in the dividend for this year. You know, has that risk to the dollar in 2025 diminished?
Our performance. This year is not just the pure strength of it which I mean, obviously, we're very pleased with but also the consistency and predictability. Despite all the changes in the market. We don't have carry in our numbers and then a lot of people had some really strong fourth.
Alan Hirshenbaum: at that outlook. Listen, we remain on track to deliver in or around a dollar, and certainly we've taken another really nice step, right? We've raised the dividend 29% to $0.72, and the fundamentals in the business are strong. So every time we step closer, obviously that feels good about trying to get there and deliver, and can give us all collectively more comfort. There's still enough variables between here and 2025 that in and around, we pick on purpose.
Quarters, but that was after people didn't expect things to be good in the fourth quarter people didn't think there'd be much carrier. So numbers came down so I think that predictability. It gives us the following comfort and every time, we get closer probably qualitatively a tighter band.
Alan Hirshenbaum: The dollar remains our target. We feel good about being in that range. I think the really important point I want to come back to here is that because of the predictability of our model, the stability and the growth, we've now grown kind of all our key metrics by 25% this year, and that's more than kind of double the average of many of our peers when we look at results, which are all good results, an incredible organization. So we've done that in a highly predictable way. Remember also that where we are right now is exactly where we all talked about a year ago, and that is true. I think what maybe is most distinct about our performance this year is not just the pure strength of it, which I mean, obviously, we're very pleased with, but also the consistency and predictability despite all the changes in the market. We don't have to carry them in our numbers.
The band around that dollar should be narrow so our aim remains the dollar we continue to see the pathway forward, but in any case that band gets narrower and it should be within a narrow band given just the nature of our business. So mark what I would I would.
I have to do for folks and I hopefully Brandon.
You and your colleagues will find this helpful.
When we think about how do we paint the picture for you all.
How do you get to the dollar a share in your modeling, it's really straightforward and it's not that many things that have to happen. It's just keeping that real focus on a handful of things to get to get to that goal. So when I think about.
<unk> 2023 revenues of $1 6 billion seven we have another $1 billion of revenue that we have line of sight on so what does that $1 billion some of that by the way about $400 million $425 million of those revenues are not not from raising any more equity fund.
Alan Hirshenbaum: A lot of people had some really strong fourth quarters, but that was after people didn't expect things to be good in the fourth quarter. People didn't think there'd be much carry, so numbers came down. So I think that predictability gives us the following comfort, and every time we get closer, probably qualitatively a tighter band, the band around that dollar should be narrow. So our aim remains the dollar. We continue to see the pathway forward, but in any case, that band gets narrower, and it should be within a narrow band given just the nature of our business. So Mark, what I'd love to do for folks, and hopefully, Brandon, you and your colleagues will find this helpful. When we think about how we paint the picture for you all of how you get to the dollar a share in your modeling, it's really straightforward, and there are not that many things that have to happen. It's just keeping that real focus on a handful of things to get to that goal. So when I think about 2023 revenues of a billion six, a billion seven, we have another billion dollars of revenue that we have a line of sight on. So what is that billion dollars?
<unk> dollars and so we have a 25% growth in the 2023 revenues just from taking our AUM, not yet earning fees and deploying that.
As well as the fee step ups from our private to public Bdcs, that's over $400 million that would represent 25% growth on our revenue line from 2023 without doing any fund raising whatsoever.
When you add fund raising for just a few products, our GP Stakes six product and our non traded Bdcs CIC TICC, that's another $450 million to $500 million of revenues over the next two years right. So we've talked about GP stake six that's a two year, we're targeting 24 and 'twenty five.
As Mark commented as I commented earlier, thats going to ebb and flow a little between between closes, but that's a total of a 60% revenue growth and so when you think about what do we need to do to hit the dollar a share we need to keep fundraising on the wealth side, we have to raise continue to raise our non traded products CIC TICC <unk>.
All of those are key to this fund raise for GP Stakes fund six we've already listed BDC three now traded as OBE and then if we can lift one may be both but one of our software lending Bdcs theres, an accretive M&A deal out there we achieve our goal of a dollar a share.
Alan Hirshenbaum: Some of that, by the way, about 400 million, 425 million of those revenues are not from raising any more equity fundraise dollars. And so we have a 25% growth in 2023 revenues just from taking our AUM that is not yet earning fees and deploying that, as well as the fee step-ups from our private-to-public BDC. That's over $400 million.
It's not 12 things that have to happen when you look out beyond 2025, obviously, we're putting a number of calls in the fire to continue that growth and we've talked about the 60% FRE margin and how we are putting a lot of that R&D dollars back into the business to keep a very strong growth rate out beyond 2025.
Alan Hirshenbaum: That would represent 25% growth in our revenue line from 2023 without doing any fundraising whatsoever. Then when you add fundraising for just a few products, our GP Stakes 6 product and our non-traded BDCs, OCIC and OTIC, that's another $450 to $500 million of revenues over the next two years. So we've talked about GP Stakes 6. That's a two-year, we're targeting 24 and
A few things that have to happen for us to achieve that dollar a share dividend its going to take a lot of hard work just just to be clear, but it's not a lot of things that have to happen.
Thanks for all that color very helpful.
Great. Thank you Brendan.
Your next question comes from Crispin Love with Piper Sandler. Please go ahead.
Alan Hirshenbaum: As Mark commented, as I commented earlier, that's going to ebb and flow a little between closes, but that's a total of 60% revenue growth. And so when you think about what we need to do to hit the dollar a share, we need to keep fundraising on the wealth side. We have to continue to raise our non-traded products, CIC, TIC, and O-Rent. All of those are key to this. Fundraise for GP Stakes Fund 6. We've already listed OBDC 3, which is now traded as OBDE.
Thanks. Good morning, everyone. Appreciate you taking my question just one question from me on the European.
Net lease product can you talk a little bit more about that is that expected to be done all organically over time and if there any major differences differences between the European and the U S product other than the obvious.
Alan Hirshenbaum: And then if we can list one, maybe both, but one of our software lending BDCs, there's an accretive M&A deal out there. We achieve our goal of $1 a share. It's not 12 things that have to happen.
Yeah happy to so.
Today, we do some opportunities in Europe, but we have a U S centric product obviously.
Alan Hirshenbaum: When you look out beyond 2025, obviously, we're putting a number of coals in the fire to continue that growth. And we've talked about the 60% FRE margin and how we're putting a lot of R&D dollars back into the business to keep a very strong growth rate out beyond 2025. But there are a few things that have to happen for us to achieve that dollar a share dividend. It's going to take a lot of hard work, just to be clear. But there are not a lot of things that have to happen.
U S centric.
Focus.
The companies, we work with our global and so they have regularly come to us and said Hey, listen this really great solution. We have with you in the U S. How about Europe.
And periodically we do one but what we need now is a dedicated pool of capital to expand what we have available to be able to meet that need and we will do that through a structure that's appropriate for Europe.
Alan Hirshenbaum: Thanks for all that, Kyle. Thank you, Brennan. Your next question comes from Crispin Love on behalf of Piper Fandler.
And so we're really following are our customers are really following the demand and that demand is substantial is there a difference well the similarities is theyre very high quality companies and in many cases, the same global enterprises not obviously in every case so it expands our lens in terms of.
Crispin Love: Please go ahead. Thanks. Good morning, everyone.
Mark Lipschultz: I appreciate you taking my question. Just one question for me. On the European net lease product, can you talk a little bit more about that? Is that expected to be done all organically over time? And are there any major differences between the European and the U.S. product, other than the obvious?
Where we can work with our current customers that expands the customers we can work with.
The opportunity therefore for us is organic because.
We already are the leader in that market and have the distinctive skills. So this this is an organic build an opportunity.
Mark Lipschultz: Yeah, happy to. So today, we have some opportunities in Europe, but we have a U.S.-centric product, obviously, and a U.S.-centric focus. But the companies we work with are global. And so they have regularly come to us and said, hey, listen, this really great solution we have with you in the U.S., how about Europe? And periodically, we do one, but what we need now is a dedicated pool of capital to expand what we have available to be able to meet that need, and we'll do that through a structure that's appropriate for Europe. And so we're really following our customers; we're really following the demand. And that demand is substantial. Is there a difference?
Are there any real differences the only thing when I.
Talk to the team today.
On average the terms that is to say the lease terms the opportunities are probably a little better in Europe right now.
So I would tell you the cap.
Cap rates meet quality of credit probably a little more attractive, but I don't know if thats statistically significant at the end of the day, it's really doing what we do so well here.
And taking it to this marketplace and putting in place a structure that is optimized for doing so and in Europe.
Great. Thank you I appreciate you taking my question.
Your next question comes from Brian Bedell with Deutsche Bank. Please go ahead.
Mark Lipschultz: Well, the similarities are they're very high-quality companies, and in many cases, the same global enterprises, not, obviously, in every case. So it expands our lens in terms of where we can work with our current customers. It expands the customers we can work with. The opportunity, you know, therefore, for us is organic because we... We are already a leader in that market and have distinctive skills. So this is an organic build and opportunity. Are there any real differences?
Great. Thanks, Thanks, very much Alan you asked are you answered my.
Question with Brennan's question, mostly so I'm going to skip that one.
A follow up.
Maybe for Mark just you mentioned earlier in your prepared remarks about the rising consolidation and yet in the alternative asset management business certainly we've been seeing this.
Maybe if you can just talk about.
Mark Lipschultz: The only thing when I talk to the team today, on average, the terms, that is to say the least terms, the opportunities are probably a little better in Europe right now. So I'd say the cap rates meet the quality of credit, probably a little more attractive. But I don't know if that's statistically significant.
How you see that impacting your GPS solutions business the opportunities that you can get from that.
Theres also.
In that vein opportunities on the direct lending side.
Maybe combines the deal activity.
And then.
Mark Lipschultz: At the end of the day, it's really doing what we do so well here and taking it to this marketplace and putting in place a structure that is optimized for doing so in Europe. Great, thank you. I appreciate you taking my question. Your next question comes from Brian Bedell with Deutsche Bank. Please go ahead.
And then just maybe thoughts around that.
<unk> that thoughts around the potential for turning on fund six.
And GP Stakes, whether that's it sounds like that's probably more a 2025 of them, but just wanted to check in on that.
Absolutely and thank you on the consolidation activity.
<unk>, it's clearly noticeable right, it's happening in pretty material fashion and seems like just continuing to be a lot of activity out there in terms of pending.
Alan Hirshenbaum: Alan, you answered my question mostly on Brennan's question, so I'm going to skip that one and go right to my follow-up. Maybe for Mark, you mentioned earlier in your prepared remarks about the rise in consolidation in the alternative asset management business. Certainly, we've been seeing this. Maybe if you could just talk about how you see that impacting your GP solutions business, the opportunities that you can get from that, whether there's also within that vein opportunities on the direct lending side, maybe combined with deal activity. And then, and then maybe thoughts around the, you know, considering thoughts around the potential for the, you know, turning on fund six and GP stakes, whether that's, sounds like that's probably more 2025. Absolutely, and thank you. The consolidation activity in ALTS is, it's clearly noticeable, right?
<unk> explorations people are having.
And so few implications of that.
Your question hits right on probably the most substantial one which is look it's clearly a tailwind for our GP strategic capital business.
And I say that I guess in two ways.
Most importantly, always coming back how do we deliver great results for our investors we own a vast number of stakes in <unk>, some of whom will end up selling themselves to other consolidated tours or other big firms, we've already seen that right, we see like an arc market purchased.
Great Great results for us, perhaps there'll be some more ipos.
Mark Lipschultz: It's happening in pretty material fashion and seems like there's continuing to be a lot of activity out there in terms of pending conversations, and explorations people are having. And so, you know, a few implications of that. And your question hits right on probably the most substantial one, which is, look, it's clearly a tailwind for our GP strategic capital business. And I say that, I guess, in two ways. Most importantly, always coming back to how do we deliver great results for our investors, we own a vast number of stakes and GPs, some of whom will end up selling themselves to other consolidators or other big firms. We've already seen that, right?
That tends to be a good path for us overtime.
So that consolidation is a lift in the potential valuation and realization of value in all our prior GP funds. So.
Start there that's good for our investors.
Also presents new opportunities because on the other hand, you're also going to have people, where there is one firm chose into buy another and need capital to do it right. So that's another great motivation for working with our GP strategic capital business to provide the capital you might need to go be one of the consolidators.
And so that creates more demand.
Mark Lipschultz: We've seen an ARCBOT get purchased, and that was a great, you know, great result for us. Perhaps there'll be some more IPOs, you know; that tends to be a good path for us over time. So that consolidation is a lift in the potential valuation and realization of value in all our prior GP funds, again, start there; that's good for our investors. It also presents new opportunities because, on the other hand, you're also gonna have people where there's one firm choosing to buy another and need capital to do it, right?
On the GP stake side, we have a lot of active conversations we are largely through the commitments as you know of.
Investing fund five in fact, we even did a little bridge co investment vehicle that we mentioned here before just to kind of bring us from one 5% to now fund six where we've done this close.
So it should be an active area. It is clearly a favorable dynamic to have more consolidation activity both for portfolio and for deal activity. So.
It's a positive you know exactly how much of a positive we'll see as the year plays out, but it's a helpful trend.
Mark Lipschultz: So that's another great motivation for working with our GP strategic capital businesses to provide the capital you might need to go be one of the consolidators. And so that creates more demand; we're active on the GP stakes side. We have a lot of active conversations.
On the fund six closing just to close that out Brian we did our closing towards the end of the quarter. So we will start to see a positive management fee impact starting in <unk>.
Mark Lipschultz: We're largely through the commitments, as you know, of investing Fund 5. In fact, we even did a little bridge co-investment vehicle that we mentioned here before, just to kind of bring us from Fund 5 to now Fund 6, where we've done this close. So it should be an active area.
Great. Okay awesome. Thank you.
Thanks, Brian.
Your final question comes from Ken Worthington with Jpmorgan. Please go ahead hi.
Good morning hard to imagine Theres any questions left but I've got one.
Mark Lipschultz: It is clearly a favorable dynamic to have more consolidation activity both for portfolio and for deal activity. So it's positive. But you know exactly how much of a positive it is.
Bring it home is strong.
Real estate returns you called out were negative in the quarter Triple net leases held up really well versus other parts of the private real estate.
Mark Lipschultz: We'll see as the year plays out, but it's a helpful trend. And on Fund 6 closing, just to close that out, Brian, we did our closing towards the end of the quarter, so we'll start to see a positive management fee impact starting in 1Q. That's great. Okay. Awesome. Thank you. Thanks, Brian. Your final question comes from Ken Worthington with JP Morgan. Please go ahead. Hi, good morning. Hard to imagine there are any questions left, but I've got one. Hi. Bring it home strong. Yeah. Real estate returns, as you called out, were negative in the quarter. However, triple net lease has held up really well versus other parts of the private real estate market this year and last year.
Market.
This year than last year, and the yield environment was sort of favorable in <unk>, so anything to kind of callout on the returns this quarter or what drove the negative. Thanks.
Okay.
So.
Look this has been a really wonderful durable strategy by design.
That is our reason to be that's our value add and DNA high risk on market people.
It's hard to get that signal through the noise and obviously in this environment. The signal comes through loud and this is a strategy that performs in all markets and we've seen that here.
As for the loss this very small loss this quarter.
Ken Worthington: And the yield environment was sort of favorable in 4Q. So anything to kind of call out on the returns this quarter or what drove them negative? So, look, this has been a really wonderful, durable strategy by design. That is our reason to be, that's our value-add, and in a high-risk-odd market, people go hard to get that signal through the noise, and obviously, in this environment, the signal comes through loud and clear. And this is a strategy that performs in all markets, and we've seen that here. As for the loss, this very small loss this quarter, that was actually, the portfolio has done really, really well. The slight negative, for what it's worth, was tied to a mark-to-market on the debt in our real estate business, but not to haggle in any which way. The aggregate result for the year is a pretty good template for where we are and where we've been. There was nothing peculiar about the fourth quarter other than some peculiarities in this mark-to-market part, but nothing about performance.
That was actually portfolio has done really really well the slight negative for what it's worth was tied to a mark to market on the debt and our real estate business, but yeah.
Not that Hegel, Eddie which direction. The aggregate result for the year is a pretty good template for where we are and where we've been there was nothing peculiar about fourth quarter other than some <unk>.
Juilliard is in this mark to market part, but nothing about performance performance remains extremely strong excellent.
Excellent. Thank you.
Thanks, Ken.
This concludes our question and answer session I will now turn the call back over to Mark <unk> for any closing remarks.
Thank you all for your time, we really do appreciate the patience here this morning, and spending the time with us and.
And we look forward to continuing to drive hard we have a lot of work ahead, but we are excited about the starting point for this year and the opportunities and conditions to keep driving forward in our mission and goal to try to get to that dollar a share in 2025.
Mark Lipschultz: Performance remains extremely strong. Thanks, can This concludes our question and answer session. I will now turn the call back over to Mark Lipschultz for any closing remarks. Thank you all for your time. We really do appreciate your patience here this morning and spending the time with us. We look forward to continuing to drive hard. We have a lot of work ahead, but we are excited about the starting point for this year and the opportunities and conditions to keep driving forward in our mission and goal to try to get to that dollar a share in 2025. Have a good day. Thank you, everyone. This concludes today's conference. You may now disconnect.
Good day, Thank you everyone.
This concludes today's conference you may now disconnect.
Please wait the conference will begin shortly.
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