Q2 2024 Blue Owl Capital Inc Earnings Call

Good morning and welcome to Blue Owl Capital's second quarter 2024 earnings call. During the presentation, your lines will remain on listen only.

Operator: 2024 Eridings Call. During the presentation, their lines will remain on listen-only. I'd like to advise all parties that this conference call is being recorded.

I'd like to advise all parties that this conference call is being recorded. I will now turn the call over to Ann Dai, Head of Investor Relations for Blue Owl.

Ann Dai: I will now turn call over to Ann Dai, Head of Investor Relations for Blue O.

Ann Dai: Thanks operator, good morning to everyone. Joining me today are Marc Lipschultz, 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 in global capital of filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

Ann Dai: Thanks, Operator, and good morning to everyone. Joining me today are Mark Lipschultz, Co-Chief Executive Officer, and Alan Kirshenbaum, our Chief Financial Officer.

Speaker Change: 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.

Speaker Change: Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Glell Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

Unknown Speaker: including those described from time to time in Glell Capital's filings with the securities and regulatory authorities, and 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 Blue Owl. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Elm.

Ann Dai: We'd also like to remind everyone that we refer to non-GAAP measures on the call, which are reconciled GAAP figures in our earnings presentation available on the investor resources section of our website at blueel.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue-El fund.

Speaker Change: 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 BlueOwl.com.

Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl Fund.

Ann Dai: This morning we issued our financial results of second quarter of 2024, reporting fee-related earnings or FRE of 21 cents per share and distributable earnings or DE of 19 cents per share. We also declared a dividend of 18 cents per share for the second quarter, payable on August 30th to holders of record as of August 21st. 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.

This morning, we issued our financial results for the second quarter of 2024, reporting fee-related earnings, or FRE, of $0.21 per share, and distributable earnings, or DE, of $0.19 per share.

Speaker Change: We also declared dividend of 18 cents per share for the second quarter payable on August 30th to holders of record as of August 21st.

Speaker Change: 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 Marc.

Ann Dai: With that, I'd like to turn the call over to Mark.

Marc Lipschultz: Great, thank you very much, Ann. Blueel had a very active second quarter, reporting another record quarter of earnings and announcing highly strategic acquisitions that further diversify our business. Over the last 12 months, we have generated 23 percent fee-related earnings growth at 19 percent, distributable earnings growth from the prior year period. And since becoming a public company, we've had 13 consecutive quarters of management fee and FRE, highlighting both the stability and strength of our business. Our disciplined investment approach and compelling track record have appealed to a growing pool of investors looking for uncorrelated, at income-driven returns.

Unknown Speaker: Blue Owl had a very active second quarter, reporting another record quarter of earnings and announcing highly strategic acquisitions that further diversify our business. We continue to expand the types of financing solutions we offer, making us an increasingly important counterparty. In conjunction, we continue to expand the range of strategies and product options we offer to our investors. Alternative Credit is a multi-trillion dollar market where legacy participants are pulling back, and we think we have exactly the right team in place to become an increasingly significant player in the space. Oak Street's AUM was roughly $12 billion.

Marc: Great. Thank you very much, Ann.

Marc: Blue Owl had a very active second quarter, reporting another record quarter of earnings and announcing highly strategic acquisitions that further diversify our business.

Marc: Over the last 12 months, we have generated 23% fee-related earnings growth and 19% distributable earnings growth from the prior year period. And since becoming a public company,

We've had 13 consecutive quarters of management fee and FRE growth, highlighting both the stability and strength of our business.

Speaker Change: Our disciplined investment approach and compelling track record have appealed to a growing pool of investors looking for uncorrelated and income-driven returns.

Marc Lipschultz: We continue to expand the types of financing solutions we offer, making us an increasingly important counterparty, and in conjunction, we continue to expand the range of strategies and product options we offer to our investors.

Speaker Change: We continue to expand the types of financing solutions we offer, making us an increasingly important counterparty, and in conjunction, we continue to expand the range of strategies and product options we offer to our investors.

Marc Lipschultz: Recently, we announced our intention to acquire one of the leading alternative credit managers in the market today, Adalaya Capital Management. Added substantial scale to Blueel's alternative credit capabilities and complementing our leading position in direct lending. Adalaya brings deep expertise and asset-based finance with a strong 18-year record through market cycles. And we believe our counterparties and clients will be very excited about the platform's energy opportunities will be able to create with the Adalaya team on board. Alternative credit is a multi-trillion-dollar market where legacy participants are pulling back.

Marc Lipschultz: And we think we have exactly the right team in place to become an increasingly significant player in the looking back, when we announced the Oak Street acquisition in 2021, Oak Street's AUM was roughly $12 billion. About two and a half years later, we have more than $28 billion of AUM in triple net lease alone. And I think this is a great case study for what we hope to achieve with that a lot.

Speaker Change: Looking back to when we announced the Oak Street Acquisition in 2021.

Speaker Change: Oak Street's AUM was roughly $12 billion. About two and a half years later, we have more than $28 billion of AUM in triple net lease alone. And I think this is a great case study for what we hope to achieve with Adelaide. Alan will talk more about this in a few minutes.

Marc Lipschultz: Alan will talk more about this in a few minutes. More broadly, we now have added critical capabilities in alternative credit and real estate credit.

Marc Lipschultz: Further building out the waterfront solutions we offer, both are deeply disrupted markets with huge, addressable opportunity sense. And with the acquisition of Kuvera Asset Management, we now offer a holistic asset management solution to insurance companies, broadening our potential investor base substantially. We expect integration of these businesses to go very smoothly, given that there is generally very little overlap between balls of existing footprints, and that the businesses we are acquiring. The vast majority of the employees will see very little change in their day to day, with investment teams remaining focused on their areas of expertise and continuing to be led by their founders or existing senior management teams. Our goal is to enhance what each firm is already doing well and create incremental opportunities for the combined entity and, critically.

Alan Kirshenbaum: We expect integration of these businesses to go very smoothly, given that there is generally very little overlap between Boal's existing footprint and that of the businesses we are acquiring.

Alan Kirshenbaum: The vast majority of the employees will see very little change in their day-to-day, with investment teams remaining focused on their areas of expertise and continuing to be led by their founders or existing senior management teams.

Alan Kirshenbaum: Our goal is to enhance what each firm is already doing well and create incremental opportunities for the combined entity, and critically.

Marc Lipschultz: All of these were proprietary acquisitions not done through auctions. The leaders of these firms, or the insurance partner in the case of Kuvera, wanted to grow their businesses as a part of Blue Alla. They're not selling to Blue Alla, but rather joining Blue Alla. We plan to leverage Blue Alla scale to benefit each of these businesses through our 700 plus sponsored relationships, are leading wealth distribution platform, a global and growing institutional platform, and greater efficiency and best in class corporate infrastructure.

Alan Kirshenbaum: All of these were proprietary acquisitions not done through auctions. The leaders of these firms, or the insurance partner in the case of Couvert, wanted to grow their businesses as a part of Blue Owl. They're not selling to Blue Owl, but rather joining Blue Owl.

Unknown Speaker: We plan to leverage Blue Olive's scale to benefit each of these businesses through our 700 plus sponsor relationships, our leading wealth distribution platform. Our incumbency position as one of the leaders in the private wealth channel is a result of the relationships and the level of trust we have built with distributors through thoughtful partnership, strong performance, and high-touch service at every level of these organizations. A more than solid showing, in our view, and we continue to bring new capabilities.

Marc Lipschultz: We're very excited about the collaborations we can create across the Blue Alla platform and look forward to sharing more about those in the quarters to come.

Marc Lipschultz: Moving on to the quarter, we continue to see good fundraising progress across the business. Gross wells into our perpetually distributed products reached $2.8 million in the second quarter, over 30% higher than the first quarter and more than double what we raised in the second quarter of 2023. Notably, redemptions in the perpetually offered products remain nominal despite objects across the industry, totally less than $325 million across all. Or under 20 basis points of our beginning AUL. That means we raised nine times more than what's left in the system in these products. Total gross wells for private wealth were $3.2 billion.

Alan Kirshenbaum: Gross flows into our perpetually distributed products reached $2.8 billion in the second quarter, over 30% higher than the first quarter, and more than double what we raised in the second quarter of 2023.

Alan Kirshenbaum: Notably, redemptions in the perpetually offered products remain nominal, despite upticks across the industry, totaling less than $325 million across all, or under 20 basis points of our beginning AUM.

Alan Kirshenbaum: That means we raised nine times more than what left the system in these products. Total gross loans from private wealth were $3.2 billion.

Marc Lipschultz: Our incompetency position as one of the leaders in the private wealth channel is a result of the relationships in the level trust we have built with distributors through thoughtful partnership, strong performance, and high touch service at every level of these organizations.

Marc Lipschultz: What's remarkable about the opportunity in private wealth is the overall very modest amount of allocation to alternative products, which is in the low to mid single-digit percentages. We think we're in the very early enemies of the adoption of all spy individual investors as they begin to see the benefits of diversification and uncorrelated asset classes and their portfolios. We also raised $2.2 billion from institutional investors across a number of strategies, including GP stakes, personally lending, liquid credit, diversified lending, and GP life secondaries, complementing our robust flows in private wealth and reflecting the ongoing diversification of fundraising across our business.

Alan Kirshenbaum: What's remarkable about the opportunity in private wealth is the overall very modest amount of allocation to alternative products Which is in the low to mid single-digit percentages

Alan Kirshenbaum: We also raised 2.2 billion dollars from institutional investors across a number of strategies, including GP stakes, first lien lending, liquid credit, diversified lending, and GP-led secondaries, complementing our robust flows in private wealth and reflecting the ongoing diversification of fundraising across our business.

Marc Lipschultz: To zoom out slightly, we have raised $32 billion across equity and debt over the past 12 months in an environment that most continue to describe as challenging. That's equivalent to over 20% of our AUM a year ago. We've raised in 12 months, a more than solid show in our view, and we continue to bring new capabilities to market.

Marc Lipschultz: Turning to business performance, we had a record quarter of deployment with more than $18.7 billion of gross origination contributions, primarily across new deals, add-ons, and refinancings where we decided to participate in the new law. Repayments were $6.9 billion, resulting in a higher quarter of net deployment. We continue to demonstrate that borrowers are drawn to the three P's of direct lending: predictability, privacy, and partnership. And that value proposition is compelling, whether this indicator markets are active or not. The longer term secular trend of sponsoring, gravitating more and more towards direct lending, remains in place, and we see healthy sponsor appetite to deploying incremental capital and monetizing existing investments over time.

Unknown Speaker: Turning to business performance, in credit, we had a record quarter of deployment with more than $18.7 billion of gross originations, primarily across new deals, add-ons, and refinancings where we decided to participate in the new launch. We continue to demonstrate that borrowers are drawn to the three P's of direct lending: predictability, privacy, and partnership. If you think about the keys to our success in direct lending, there's a very straightforward formula which, and more broadly.

Speaker Change: We continue to demonstrate that borrowers are drawn to the three P's of direct lending—predictability, privacy, and partnership—and that value proposition is compelling, whether the syndicated markets are active or not.

Marc Lipschultz: Direct lending metrics remained strong. On average, underlying revenue growth was in the high single digits, and EBITDA growth was in the mid-team to cross the portfolio with no significant step ups in non-approvals or amendments requests.

Marc Lipschultz: If you think about the keys to our success in direct lending, there's a very straightforward formula we follow. One, start by limiting low losses to rigorous underwriting and being highly selected. This is evident in our seven basis points of annualized realized losses since inception. And two, when there is a default, do everything we can to ensure a higher recovery.

Marc Lipschultz: I think we have demonstrated both of these tenants very successfully over the prior years. And more broadly, our portfolio companies continue to perform extremely well. We are pleased we're seeing across the business.

Marc Lipschultz: In our GP States business, our partner managers continue to benefit from two meaningful secular trends: growing allocations alternatives and GP consolidation. Collectively, our partner managers now manage over $1.8 trillion, giving us an unparalleled view over the alternative asset management industry. The ongoing diversification and scaling of all managers, the emergence and rapid growth of asset classes, such as direct lending and alternative credit, the partnerships being formed, the insurance asset management solutions, and the expansion of opportunity and private wealth. These are all trends readily observable across our partner managers and one for which Blue All's business is well positioned.

Marc Lipschultz: Transcribed by https://otter.ai, Unknown Attendee, Alexander Blostein, Ann Dai, Brennan Hawken, Bryan Cole, Alan Kirshenbaum, The ongoing diversification and scaling of alt-managers, the emergence and rapid growth of asset classes, such as direct lending and alternative credit, and partnerships being formed in insurance, asset management, and sales. As for our large cap GP stakes strategy, we remain on track to have Fund 5 substantially committed by the third or fourth quarter of this. What is important is that we remain very focused and confident in our ability to achieve our $13 billion goal over the next 18 months. We're buying a great property. With that, let me turn it over to Alan to discuss our financial results. Thank you, Marc. And good morning, everyone.

Marc Lipschultz: This past quarter, we have also observed an uptick in the asset sales for some of the partner manager portfolios, which could reflect sponsors' greater will and just to monetize assets and older vintage BE funds. During the second quarter, we made our first investment for our mid cap GP state strategy and have two additional investments agreed to in principle, which we expect to close in the third quarter. As for our large cap GP state strategy, we remain on track to have Fund five substantially committed by the third or fourth quarter of this year. We closed on an additional $1 billion, the latest vintage of the strategy during the second quarter, and it dissipates the fundraising, and the third quarter could be similar based on current visibility.

Alan Kirshenbaum: During the second quarter, we made our first investment for our mid-cap GP stake strategy and have two additional investments agreed to in principle, which we expect to close in the third quarter. As for our large-cap GP stake strategy, we remain on track to have Fund 5 substantially committed by the third or fourth quarter of this year.

Alan Kirshenbaum: We closed on an additional $1 billion for the latest vintage of the strategy during the second quarter, and anticipate that fundraising in the third quarter could be similar based on current visibility.

Marc Lipschultz: But keep in mind, we're not focused on the timing of closes quarter to quarter.

Alan Kirshenbaum: But keep in mind, we're not focused on the timing of closes quarter to quarter. What is important is that we remain very focused and confident in our ability to achieve our $13 billion goal over the next 18 months.

Marc Lipschultz: What is important is that we remain very focused and confident in our ability to achieve our $13 billion goal over the next 18 months.

Marc Lipschultz: In real estate, we continue to actively deploy capital at attractive cap rates behind our four major themes: digital infrastructure, onshoring, healthcare real estate, and central retail. The capital needs in each of these areas is very significant, and we are making good progress in deploying fund six, which we just finished fundraising during the last quarter. We believe we'll be approximately 60% committed for this fund by your end, which would put us ahead of expectations in deploying capital, demonstrating the strong demand for our net lease solutions.

Speaker Change: In real estate, we continue to actively deploy capital at attractive cap rates behind our four major themes, digital infrastructure, onshoring, healthcare real estate, and essential retail.

Speaker Change: The capital needs in each of these areas is very significant, and we are making good progress in deploying Fund 6, which we just finished fundraising during the last quarter.

Marc Lipschultz: Earlier, we spoke about the disrupted dynamics and alternative credit and real estate credit. The same dynamic applies to triple net lease, where we think we're seeing some of the very best risk-reward this face has seen in a very long time. We're buying great properties at cap rates in the mid to high sevens, facing generally investment grade 10s, and there are very few others doing what we do. That's a compelling proposition, and we are leaning into it.

Marc Lipschultz: We continue to see nice step functions upward in the fundraising for all rent. Second quarter flows were 130% higher than a year ago, bucking the trend seen across competitor, non-traded, REIT products, and we continue to launch on additional distribution platforms. To bring it all together, there's a lot of growth happening across blue aisle organically and inorganically, but the big picture is very simple. We're an alternative asset manager with leading positions in our direct lending, GP stakes, and triple net lease strategies. We have a leading position in private wealth distribution and an expanding global presence in institutional and insurance markets.

Speaker Change: To bring it all together, there's a lot of growth happening across Blue Owl organically and inorganically. But the big picture is very simple. We're an alternative asset manager with leading positions in our direct lending, GP stakes, and triple net lease strategies.

Marc Lipschultz: We're adding scale, alternative credit, and real estate credit capabilities with teams that have generated strong track records over decades, and our P&L model is very simple. Almost all of our revenue comes from durable permanent capital with best-in-class fee rates, and our earnings are made up entirely of fee-related earnings.

Speaker Change: We're adding scaled alternative credit and real estate credit capabilities with teams that have generated strong track records over decades.

Speaker Change: And our P&L model is very simple. Almost all of our revenue comes from durable permanent capital with best-in-class fee rates, and our earnings are made up entirely of fee-related earnings. We think this makes our business quite unique and compelling and well-positioned for strong and stable growth to come.

Marc Lipschultz: We think this makes our business quite unique and compelling, and well positioned for strong and stable growth to come.

Marc Lipschultz: With that, let me turn it down to discuss our financial results.

Speaker Change: With that, let me turn it to Alan to discuss our financial results.

Alan Kirshenbaum: Thank you, Mark.

Alan Kirshenbaum: We're very pleased with the differentiated and strong results we continue to post quarter after quarter. As Marc mentioned earlier, we have been able to achieve 13 consecutive quarters of both management fee and FRE growth due to the durability of our assets. Let's go through some of our key highlights on an LTM year over year basis through June 30. I'll break down the second quarter fundraising numbers across our strategies, of which $1.7 billion came from our non-traded BDC OCI. Inclusive of the July 1st close, we have now raised over $12 billion for OCIC.

Alan Kirshenbaum: Good morning, everyone. We're very pleased with the differentiated and strong results we continue to post quarter after quarter. As Mark mentioned earlier, we have been able to achieve 13 consecutive quarters of both management fee and FRE growth due to the durability of our asset base anchored by permanent capital and strong investor demand for the strategies we offer. Let's go through some of our key highlights on an LPM year-over-year basis through June 30th. Management fees are up 21%, and 92% of these management fees are from permanent capital vehicles. FRE is up 23% and DE is up 19%.

Alan Kirshenbaum: Thank you, Marc, and good morning, everyone. We're very pleased with the differentiated and strong results we continue to post quarter after quarter. As Marc mentioned earlier, we have been able to achieve 13 consecutive quarters of both management fee and FRE growth due to the durability of our asset base.

Speaker Change: Anchored by permanent capital and strong investor demand for the strategies we offer.

Speaker Change: FRE is up 23% and DE is up 19%. As you can see on slide 12, we raised $5.4 billion of equity in the second quarter and $19.2 billion of equity for the last 12 months.

Alan Kirshenbaum: As you can see on slide 12, we raised $5.4 billion of equity in the second quarter and $19.2 billion of equity for the last 12 months. I'll break down the second quarter fundraising numbers across our strategies and products. In credit, we raised $3.4 billion. $2.4 billion was raised in our diversified and first lean lending strategies, of which $1.7 billion came from our non-traded BDC. C, double what we raised in the second quarter of 2023. Inclusive of the July 1st close, we have now raised over $12 billion for OCIC since inception. The remainder was raised across software lending, liquid credit, and strategic equity.

Speaker Change: In credit, we raised $3.4 billion.

Unknown Speaker: The remainder was raised across software lending, liquid credit, and strategic, adding approximately $20 billion to AUM for the third quarter. Pro forma for the Adelaide closing, which is expected to add approximately $10 billion, our AUM will be over $220 billion. We also have approximately $135 million of incremental management fees that will turn on upon the listing of our remaining private BDCs. These two items alone would represent an increase of almost 20% from our last 12-month FRE record.

Speaker Change: The remainder was raised across software lending, liquid credit, and strategic equity.

Alan Kirshenbaum: In GP Strategic Capital, we raised $1.3 billion across our large cap strategy and co-invest vehicles. And in real estate, we raised over $650 million, primarily in O-rent, our perpetually offered net lease products. We're pleased with the increasing breadth of fundraising across strategies and products, which will continue to expand with our new insurance solutions offering and the Prima and Adelaide acquisitions. Prima closed in June, adding approximately $11 billion to AUM. And in early July, our acquisition of Kuvera's management also closed, adding approximately $20 billion to AUM for the 3rd quarter. Proforma for Adelaide closing, which is expected to add approximately $10 billion; our AUM will be over $220 billion.

Alan Kirshenbaum: And in real estate, we raised over $650 million, primarily in O-Rent, our perpetually-offered net lease product.

Alan Kirshenbaum: We're pleased with the increasing breadth of fundraising across strategies and products, which will continue to expand with our new insurance solutions offering and the Prima and Adelia acquisitions.

Speaker Change: Adding approximately $20 billion to AUM for the third quarter. Pro forma for Adelaide closing, which is expected to add approximately $10 billion, our AUM will be over $220 billion.

Alan Kirshenbaum: As a reminder, we also have substantial embedded earnings in our business. AUM Naya Pancise was $15.9 billion as at the end of the second quarter, corresponding to roughly $200 million of incremental annual management fees once deployed. We also have approximately $135 million of incremental management fees that will turn on upon the listing of our remaining private BDCs over time. These two items alone would represent an increase of almost 20 percent from our last 12 months FRE revenues. These aspects, combined with our business model of being virtually all permanent capital and 100 percent FRE, just gives us a higher quality of earnings than any of our peers in the industry.

Alan Kirshenbaum: We also have approximately $135 million of incremental management fees that will turn on upon the listing of our remaining private BDCs over time.

Unknown Speaker: These aspects, combined with our business model of being virtually all permanent capital and 100% FRE, just gives us a higher quality of earnings than any of our peers in the industry. This brings our gross originations for the last 12 months to over $40 billion.

Alan Kirshenbaum: These aspects, combined with our business model of being virtually all permanent capital and 100% FRE, just gives us a higher quality of earnings than any of our peers in the industry.

Alan Kirshenbaum: Moving on to our credit platform, we have gross originations of more than $18.7 billion for the quarter, a record high, and net funded deployment of $7.2 billion. This brings our gross originations for the last 12 months to over $40 billion, with $15.5 billion of net funded deployment. Our credit portfolio overturned 3 percent in the second quarter, and 16.4 percent over the last 12 months. Weighted average LTVs remain in the high 30s across direct lending, and in the low 30 specifically in our software lending portfolio. For our GP strategic capital platform, total invested commitments for our fifth GP stake funds, including a greenness in principle, are over 11.5 billion dollars of capital, with line of sight into over 3 billion of opportunities, which, if all our signs, will bring us through the remaining capital available in fund five.

Alan Kirshenbaum: This brings our gross originations for the last 12 months to over $40 billion, with $15.5 billion of net funded deployment.

Alan Kirshenbaum: Our credit portfolio returned 3% in the second quarter and 16.4% over the last 12 months.

Unknown Speaker: For our GP strategic capital platform, total invested commitments for our fifth GP stakes funds, including agreements in principle, are over $11.5 billion of capital with line of sight into over $3 billion of opportunity. And on our real estate platform, our pipeline continues to grow with nearly $10 billion of transaction volume on the letter of intent for contracting. As Marc mentioned earlier, we think we could be roughly 60% committed to Fund 6 by year-end, reflecting the strong demand we're seeing for our net leasing.

Speaker Change: For our GP strategic capital platform, total invested commitments for our fifth GP stakes fund, including agreements in principle, are over $11.5 billion of capital, with line of sight into over 3 billion of opportunities.

Speaker Change: which, if all are signs, would bring us through the remaining capital available in Fund 5. And performance across these funds remains strong, with a net IRR of 24% for Fund 3, 41% for Fund 4, and 12% for Fund 5.

Alan Kirshenbaum: In performance across these funds remain strong, with a net IRR of 24 percent for Fund three, 41 percent for Fund four, and 12 percent for Fund five. In an hour real estate platform, our pipeline continues to grow with nearly 10 billion of transactions volume under letter of incentive or contract to close. As Mark mentioned earlier, we think we could be roughly 60 percent committed for Fund Six by year end, reflecting the strong demand we're seeing for our net lead. Solutions. Many of these opportunities are built-to-suit arrangements, which are very capital efficient for the tenant, and where we get a premium cap rate for providing a flexible, balance sheet friendly solution to our partners.

Speaker Change: And in our real estate platform, our pipeline continues to grow with nearly $10 billion of transaction volume under letter of intent for contract to close. As Marc mentioned earlier, we think we could be roughly 60% committed for Fund 6 by year end, reflecting the strong demand we're seeing for our net lease solutions.

Speaker Change: Many of these opportunities are bill-to-suit arrangements, which are very capital efficient for the tenant and where we get a premium cap rate for providing a flexible, balance sheet-friendly solution to our apartments.

Alan Kirshenbaum: These can take between 18 and 24 months to fully deploy the capital we've committed, and as a reminder, we charge management fees mostly on invested capital, so we will earn incremental management fees as this capital is deployed. With seeing such strong deployment opportunities, this could position us well to be out in the market with the next vintage of this strategy before the end of next year. With regards to performance, growth returns across our real estate portfolio were 2.5% for the second quarter and 6.7% for the last 12 months, comparing favorably to the broader real estate market over this time period.

Speaker Change: These can take between 18 and 24 months to fully deploy the capital we've committed. And as a reminder, we charge management fees mostly on invested capital, so we will earn incremental management fees as this capital is deployed.

Unknown Speaker: With seeing such strong deployment opportunities, this could position us well to be out in the market with the next vintage of this strategy before the end of. The net IRR across our fully realized funds has been 24% for investment grade and creditworthy tenants, which we achieved through Cuvier, Prima, and the announcement of Adelaide, so check that out. Unknown Attendee, Alexander Blostein, Alan Kirshenbaum, Douglas Ostrover, Marc Lipschultz So overall, on this first one, we expect we are on.

Speaker Change: With regards to performance, gross returns across our real estate portfolio were 2.5% for the second quarter and 6.7% for the last 12 months, comparing favorably to the broader real estate market over this time period.

Alan Kirshenbaum: The net IRR across our fully realized funds has been 24% for investment grade and creditworthy tenant risk, for selecting the favorable value creation driven by our scale and solutions-based partnerships.

Alan Kirshenbaum: Okay, let's wrap up with a few closing thoughts. We continue to track to be in or around our dollar per share goal for 2025. We've talked about the four things, now three things. Then need to happen to be on track for this goal, which are first, the creative acquisitions, which we achieved through Vivair Prima and the announcement of Adelaia to check that. Three remaining things. One, continued strong fundraising levels for OCIC, OTIC, and L-Rent. We continue to see strong fundraising levels coming through for these products, and especially in the case of O-Rent, where we have seen a step function upwards, with another step up expected in the back half of this year.

Speaker Change: We've talked about the four things, now three things that need to happen to be on track for this goal, which are, first, accretive acquisitions, which we achieved through Cuvier, Prima, and the announcement of Adelaide, so check that.

Speaker Change: Three remaining things. One, continued strong fundraising levels for OCIC, OTIC, and O-Rent. We continue to see strong fundraise levels coming through for these products, and especially in the case of O-Rent, where we have seen a step function upwards with another step up expected in the back half of this year.

Alan Kirshenbaum: So overall on this first one, we expect we are on track. Two, a successful fundraise for our large CAPGP stake fund, and we are pacing at a good level here. As we have noted previously, our expectation is this will be a little more back-ended, with more fundraise expected in 2025 than 2024. Overall, on the second one, we expect we are on track. And three, the listing of some of our BDCs. We completed the listing of O-B-D-E or earlier this year. We continue to deploy Capitol and OTF-2, and for the BDCs that remain private, we are focused on executing on the strategy we outlined during last year's BDC Investor Day.

Unknown Speaker: Overall, on the second one, we expect we are on track. We completed the listing of OBDE earlier this year, we continue to deploy capital in OTF2, and for the BDCs that remain private, we are focused on executing on the strategy we outlined during last year's BDC investment. So overall, on the third one, we expect we are on track. Now let's talk a little more about our Adelaide acquisition for a moment, where we think there's a meaningful opportunity akin to what we saw for a. Marc mentioned earlier that we have more than doubled Oak Street's AUM in just under three years. Since acquiring Oak Street, we have doubled the net lease.

Speaker Change: 2. A successful fundraise for our Large Cap GP Stakes Fund, and we are pacing at a good level here. As we have noted previously, our expectation is this will be a little more back-ended, with more fundraise expected in 2025 than 2024.

Speaker Change: We completed the listing of OBDE earlier this year, we continue to deploy capital in OTF2, and for the BDCs that remain private, we are focused on executing on the strategy we outlined during last year's BDC Investor Day.

Alan Kirshenbaum: So overall, on the third one, we expect we are on track.

Speaker Change: So overall, on the third one, we expect we are on track.

Alan Kirshenbaum: Bringing this all together, we feel good about being in and around our dollar for share dividend goal, and reporting a very strong dividend growth rate for 2025 in the low to mid 30% range, resulting in a dividend CAGR of 30% since going power. Now let's talk a little more about our Adelaide acquisition for a moment, where we think there is a meaningful opportunity akin to what we saw for Oak Street. Mark mentioned earlier that we have more than doubled Oak Street AUM in just under three years. So let me put some color around how we've achieved that.

Speaker Change: Bringing this all together, we feel good about being in or around our dollar-per-share dividend goal and reporting a very strong dividend growth rate for 2025 in the low-to-mid 30% range, resulting in a dividend CAGR of 30% since going public.

Speaker Change: Now let's talk a little more about our Adelaide acquisition for a moment where we think there is a meaningful opportunity akin to what we saw for Oak Street.

Alan Kirshenbaum: Since acquiring Oak Street, we have doubled the net lease team, including the addition of Jesse Hahn as CIO of the platform. We have created new product offerings for the private wealth channel, and are in the process of launching a European net lease product. And the investments have started to pay off, with O-Rant outraising all of our peers on the net basis, and fun six well exceeding its five billion part gap. Bringing it all together, we have been able to accomplish a great deal in a relatively short amount of time in our net least business. We have more than doubled AUM.

Speaker Change: We have created new product offerings for the Private Wealth Channel and are in the process of launching a European net lease product, and the investments have started to pay off, with O-Rent out-raising all of our peers on a net basis, and Fund 6 well-exceeding its $5 billion hard cap.

Speaker Change: Bringing it all together, we have been able to accomplish a great deal in a relatively short amount of time in our Net Lease business.

Alan Kirshenbaum: We have almost tripled permanent capital. We have tripled FRE revenues, and we have grown our average management rate by over 30%. And most importantly, based on the increase in FRE that we have generated in our triple net least platform, we have created almost a billion dollars of additional value for our shareholders in just a few years in a very tough environment to raise real estate funds. We are equally excited about our Adelaide acquisition. The Adelaide team is one of, if not the best in the alternative credit industry, and we have a lot of runway ahead of us to grow this business together.

Unknown Speaker: We have almost tripled permanent. We have tripled FRE revenue. And most importantly, based on the increase in FRE that we have generated in our triple net lease platform, we have created almost a billion dollars of additional value for our shareholders in just a few years. We are equally excited about our Adelai Acquisition.

Speaker Change: And most importantly, based on the increase in FRE that we have generated in our triple net lease platform, we have created almost a billion dollars of additional value for our shareholders.

Speaker Change: In just a few years, in a very tough environment to raise real estate funds.

Speaker Change: We are equally excited about our Adelaide acquisition. The Adelaide team is one of, if not the best in the alternative credit industry. And we have a lot of runway ahead of us to grow this business together.

Unknown Speaker: The Adelaide team is one of, if not the best, in the alternative credit industry. We have a lot of runway ahead of us to grow this business. However, it is, however, margin dilutive for Blue Algae.

Alan Kirshenbaum: We have mentioned that this acquisition is modestly accretive in 2025, and we think much more accretive as we really ramped this business over the next number of years, similar to Oak Street. It is, however, margin diluted for blue out. As we continue to do acquisitions, we won't always find businesses with the same FRE margins. The margins here are well below our level. We believe we can increase them over time, but may not ultimately get up to 60% with each of our acquisitions. That's okay. We expect this deal will be very value accrued for us over time and feels a very strategic product area for us in a huge industry growth area.

Speaker Change: We have mentioned that this acquisition is modestly accretive in 2025, and we think much more accretive as we really ramp this business over the next number of years, similar to Oak Street.

Unknown Speaker: As we continue to do acquisitions, we won't always find businesses with the same FRE margin. We believe we can increase them over time, but they may not ultimately get up to 60% with each of our acquisitions. That's okay.

Unknown Speaker: We expect this deal will be very value-accretive for us over time and fills a very strategic product area for us in a huge industry growth. So as we go into the next year or so, we can see margins for the remainder of this year being slightly below the 60% level and for 2025 being 2 to 3%. Our first question comes from the line of Alex Blostein with Goldman Sachs. The part that I think gets us excited, and again, I'm not going to try to time the moment this happens, but starting from what we just said, there are a few things going on. One, as I just said, there is the relatively tepid PE activity. That will pick up. There's a huge amount of dry powder, as we all know.

Speaker Change: The margins here are well below our level.

Alan Kirshenbaum: So as we go into the next year or so, we can see margins for the remainder of this year being slightly below the 60% level and for 2025 being 2% to 3% lower.

Alan Kirshenbaum: On a last note, we have led the alternative asset management industry in growth since we listed in 2021, and we have every intention on continuing to lead the industry for this foreseeable future in the key metrics that matter to all of us. Management fees, FRE revenues, FRE and dividend growth, and we feel very confident we will accomplish these goals through continued organic and inorganic growth and reinvestment back into our business.

Speaker Change: On a last note, we have led the alternative asset management industry in growth since we listed in 2021, and we have every intention on continuing to lead the industry for this foreseeable future.

Speaker Change: and the key metrics that matter to all of us, management fees, FRE revenues, FRE and dividend growth. And we feel very confident we will accomplish these goals through continued organic and inorganic growth and reinvestment back into our business.

Unknown Attendee: With that, I'd like to thank everyone who has joined us on the call today.

Operator: Operator, can we please open the line for questions? Thank you, and the floor is now open for your questions. So to ask a question this time, please press start in the number one on your telephone keypad. As a reminder, you'll be provided the opportunity to ask one question for this Q&A. We'll just pause for just a moment to compile the Q&A roster.

Speaker Change: We'll just pause for just a moment to compile the Q&A roster.

Alex Westin: Our first question comes from the line of Alex Westin with Golden Sets.

Speaker Change: Our first question comes from the line of Alex Wasteem with Goldman Sachs.

Alex Westin: Thanks. Hey, good morning, everybody. So the first question may be on the deployment opportunities in private credit and direct lending, very big step up in the quarter on growth surgenations and net as well. And that's obviously despite a fairly high level of syndicated market activity, as well as higher re-five volumes across the industry. So maybe talk a little bit about how broad-based was the deployment you saw this quarter or anything particularly kind of lumpy that you would call out. And I guess how would you characterize growth and net deployment backdrop for the rest of the year?

Alex Wasteem: and I guess how would you characterize Gross and Net Deployment Backdrop for the rest of the year?

Alex Westin: Thanks, Alex. Look, it's a great environment for direct lending, and I actually think this court is very revealing about the power of the model. Given this is also a time where the syndicated market is as open as it's ever been, and PE activity remains, actually I think by our collective measure, tepid, relative to the dry powder. That's the backdrop, and yet, as noted, it was by far our biggest origination quarter. I take those three together, and I would actually say, yeah, that is meaningful, which is to say, no, there are not special one-time items, if you will, in the ultimate net originations number.

Speaker Change: Thanks, Alex.

Speaker Change: Look, it's a great environment for direct lending, and I actually think this quarter is very revealing about the power of the model.

Speaker Change: you know given this is also a time where the syndicated market is as open as it's ever been and P activity remains actually I think by our collective measure tepid relative to the dry powder

Alex Westin: There's a lot of broad activity. We thankfully have a combination of add-ons, which of course are proprietary. People that are already on assets are being sold, and we're the incumbent, and that often gives pretty proprietary angle on things, and then of course just new investments, and we are, I think, well positioned to continue to do very well in that marketplace. I look at this quarter as a pretty strong indicator going forward, and every quarter will vary based on indeed the exact volume, what we choose to do, but I think what we can read from this is that continued demand for direct lending by users of capital is extremely strong, even when the syndicated market is widely available.

Alex Wasteem: I look at this quarter as a pretty strong indicator going forward and every quarter will vary based on indeed the exact volume, what we choose to do, but I think what we can read from this is the continued demand for direct lending.

Alex Wasteem: by users of capital is extremely strong even when the syndicated market is widely available.

Alex Westin: And I think that's actually a really meaningful data point, because people have always sort of over-read this idea that all it's when the market is closed, then direct lending is the solution. I think what we're seeing is the extreme durability of having long-term capital to provide long-term solutions, and deliver the three P's: predictability, privacy, and partnership, to the users of the capital. The part that I think gets us excited, and again, I'm not going to try to tie in the moment this happens, but sorry from what we just said, there are a few things going on.

Alex Wasteem: and I think that's actually a really meaningful data point because people have always sort of over read this idea that oh it's when the market's closed and direct lending is the solution.

Speaker Change: I think what we're seeing is the extreme durability of having long term capital to provide long term solutions and deliver the three P's, predictability, privacy, and partnership to the users of the capital.

Alex Wasteem: The part that I think gets us excited, and again, I'm not going to try to time the moment this happens.

Alex Westin: One, as I just said, there is the relatively tepid PE activity. That will pick up. There's a huge amount of dry powders we all know. It will get deployed. And we can read from this quarter that whether the syndicated market is wide open or not, direct lending gets a big piece of that. Well, at some point, either we're going to have a less active syndicated market. That's inescapable at some point, given the relative strength today. And we're going to have a more active PE market. So combine that with what we're seeing in this environment. So that's a very robust outlook from our point of view.

Speaker Change: But starting from what we just said, you know, there are a few things going on. One, as I just said, there is...

Speaker Change: The relatively tepid PE activity, that will pick up. There's a huge amount of dry powder as we all know. It will get deployed.

Unknown Speaker: It will get deployed, and we can read from this quarter that whether the syndicated market is wide open or not, direct lending gets a big piece of that. Well, at some point, we're going to have a less active syndicated market, that's inescapable at some point, given the relative strength today, and we're going to have a more active PE market. So, combine that with what we're seeing in this environment, that's a very robust outlook from our point of view.

Speaker Change: And we can read from this quarter that whether the syndicated market is wide open or not, direct lending gets a big piece of that. Well, at some point, either we're going to have a less active syndicated market, that's inescapable at some point given the relative strength today, and we're going to have a more active P.E. market. So combine that with what we're seeing in this environment.

Unknown Speaker: And if you want to add one more cherry to that, you know, a slight moderation in interest rates, which seems to be forthcoming, would be good. That would be really good for continuing accelerated interest by people in doing financings and doing deals. So, yeah, we're feeling like it's a pretty good moment. Okay, great. Thanks.

Alex Westin: And if one add one more cherry to that, slight moderation in interest rates, which seems to be forthcoming, will be good. I mean, really good for continuing accelerated interest by people and doing finance and doing deals. So yeah, we're feeling like it's a pretty good moment.

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Alex Westin: Thanks, Alex.

Unknown Attendee: Before we move to the next question, just like to let people know that if you have a follow-up question, you can help back to the key time.

Alex Wasteem: Thanks, Alex.

Speaker Change: Before we move to the next question, I'd just like to let people know that if you have a follow-up question, you can hop back to the Q&A.

Brian McKenna: That our next question comes from the line of prime, Kenna. Good citizen, Jane. Okay, great.

Speaker Change: Our next question comes from the line of Brian McKenna.

Unknown Speaker: So just a question on all the recent M&A you've done, you know, strategically, all these deals make sense and round out the capabilities across the firm, but how should we think about the incremental growth from these deals relative to the legacy Blue Owl growth rate? It would seem like the revenue opportunities for all of these are quite a bit better than their legacy historical growth rates, similar to the outcome. The acquisitions, in the context of Blue Owl, are really people not selling to us but joining us.

Alex Wasteem: [inaudible]

Brian McKenna: Thanks. So just a question on all the recent M&A you've done. You know, strategically, all these deals make sense and round out the capabilities across the firm.

Speaker Change: Okay, great. Thanks. So, just a question on all the recent...

Brian McKenna: M&A you've done. You know, strategically, all these deals make sense.

Brian McKenna: But how should we think about the incremental growth from these deals relative to the legacy blue aisle growth rate? It would seem like the revenue opportunities for all of these are quite a bit better than their legacy historical growth rates. Similar to the with Oak Street. So, you know, I'm just trying to figure out, you know, if these deals will ultimately be treated to this term-eyed growth rate of Blue Owl over time. So the acquisitions, as of course you observe, have been really important parts of our strategy.

Brian McKenna: and round out the capabilities across the firm. But how should we think about the incremental growth?

Speaker Change: So the acquisitions, as of course you observe, have been really important parts of our strategy. And I think it's important to make two core observations before we get into the sort of specifics of the actual underlying businesses.

Marc Lipschultz: And I think it's important to make two core observations before we get into the sort of specifics of the actual underlying businesses. The acquisitions in the context of Blue Owl are really people not selling to us but joining us.

Alex Wasteem: The acquisitions in the context of Blue Owl are really people not selling to us, but joining us. I said this in my remarks a moment ago, but it's a really important framework when you think about what Blue Owl is doing.

Marc Lipschultz: And we said I said this in my remarks a moment ago, but it's really important framework when you think about what Blue Owl is doing. What we have done before and are continuing to do is say, look, where there are best of breed investment capabilities. And where's a great fit between that organization and ours and those leaders and our leadership group, then we can make, you know, the over the use one plus one equals, you know, I'm not going to use three, I think it's four and five. We're going to really try to combine, not change the world-class investment capabilities, but be able to bring our infrastructure and kind of, if you will, the origination synergies, the intellectual capital synergies between the businesses.

Unknown Speaker: And I said this in my remarks a moment ago, but it's a really important framework when you think about what Blue Owl is doing, and Alan, I'm sure, will add to this. We're gonna do the same in asset-backed credit. It's a bigger market. It's a $7 trillion market. It's only 5% penetrated by private solutions today. And now, Blue Owl is combined with Adelia. Adelia, it's a great idea on Wall Street today, asset-backed lending. And Adelia's been doing it for nearly 20 years.

Alex Wasteem: What we have done before and are continuing to do is say, look, where there are best of breed investment capabilities...

Alex Wasteem: and there's a great fit between that organization and ours and those leaders and our leadership group, then we can make, you know, the overly used 1 plus 1 equal you know, I'm not going to use 3, I think it's 4 and 5. We're going to really try to combine

Alex Wasteem: Not change the world-class investment capabilities, but be able to bring our infrastructure and kind of, if you will, the origination synergies, the intellectual capital synergies between the businesses.

Marc Lipschultz: And it works.

Marc Lipschultz: Look at Oak Street. Oak Street, at the time we announced it, had $12 billion of AUM. Today, $28 billion of AUM. And we have dramatically increased the amount of permanent capital we have created the wealth product. We've had a record; you know, the largest real estate fund ever completed last year was in our product suite. So I think we've seen that we know how to bring these world-class capabilities together with the Blue Owl platform, and that's a winner for our LPs and a winner for our shareholders.

Alex Wasteem: And it works. Look at Oak Street. Oak Street, at the time we announced it, had $12 billion of AUM.

Speaker Change: Today, $28 billion dollars, may you well.

Alex Wasteem: and we have dramatically increased the amount of permanent capital. We have created the wealth product.

Alex Wasteem: We've had a record, you know, the largest real estate fund ever completed last year was in...

Alex Wasteem: our product suite.

Alex Wasteem: So, I think we've seen that we know how to bring these world-class capabilities together with the Blue Owl platform, and that's a winner for our...

Marc Lipschultz: So that's sort of, I think, key observation, two observations really, which is joining, not selling. We're buying things in an auction, and someone exits; they join us. We are so fortunate to have, you know, Mark Zarr; you can see it in the leadership of the firm and in the leadership of real estate. You know, we all have Ivan Zinn joining us, Lini Adelaia. I mean, he is a superstar of the world of asset-based finance, and it goes on. So that's the way I would read the collection of assets.

Mark Zahr: are LPs and a winner for our shareholders. So, that's sort of, I think, key observation, well, two observations really, which is joining, not selling. We're buying things in an auction and someone exits, they join us. We are so fortunate to have, you know, Mark Zahr, you can see it.

Alex Wasteem: in the leadership of the firm and in the leadership of real estate. We have Ivan Zinn joining us, leading Atalaya. He is a superstar of the world of asset-based finance, and it goes on. So that's the way I would read the collection of assets. Now, what does it mean for our business?

Marc Lipschultz: Now what does it mean for our business? And Alan, I'm sure we'll add to this. These are our creative acquisitions. Just on their face. And so we'll see the benefits of that, but they're kind of inconsequential, if you will, in the scheme of the very near term, but they're critical for the long term.

Alex Wasteem: and Alan, I'm sure, will add to this.

Alan Kirshenbaum: These are accretive acquisitions just on their face and so we'll see the benefits of that but they're kind of inconsequential if you will in the scheme of the very near term but they're critical.

Marc Lipschultz: Well, we're doing now is setting the stage for the years beyond 2025. Well, we're doing is setting up products that have very large addressable markets where we have distinctive capabilities. That, again, distinctive capabilities, is key. So we look at things like alternative credit, asset-back credit. The next 10 years look a lot like the last 10 years did in direct lending. You know, when we came to direct lending with this notion of, hey, listen, what we're going to do is go offer private solutions. And we want to finance the best credits from the best users of capital, not lender of last resort, and provide those three P's: the people value, that certainty.

Alan Kirshenbaum: for the long term. What we're doing now is setting the stage for the years beyond 2025. What we're doing is setting up...

Alex Wasteem: products that have very large addressable markets where we have distinctive capabilities. Again, distinctive capabilities is key. So we look at things like alternative credit, asset-backed credit.

Alex Wasteem: The next 10 years look a lot like the last 10 years did in direct lending. You know, when we came to direct lending with this notion of, hey, listen, what we're going to do is go offer private solutions.

Alex Wasteem: and we want to finance the best credits from the best users of capital, not lender of last resort and provide those three P's that people value, that certainty.

Marc Lipschultz: We're going to do the same in asset-backed credit. It's a bigger market. It's a $7 trillion market. It's only 5% penetrated by private solutions today. And now, Blue Owl, combined with Adelaia, Adelaia, it's a great idea on Wall Street today. Adelaia has been doing it for nearly 20 years, with spectacular results. So now you have the Blue Owl credit platform married with one of kind of the couple best in the world, probably in this business. And that gives us the legs we need for, you know, not even just the next handful of years, but what we think can be the next decade version of direct lending.

Alex Wasteem: We're going to do the same in asset-backed credit. It's a bigger market.

Alex Wasteem: It's a $7 trillion market. It's only 5% penetrated by private solutions today.

Speaker Change: and now Blue Owl combined with with Atalaya. Atalaya, it's a great idea on Wall Street today, asset-backed. Atalaya has been doing it for nearly 20 years. 20 years with spectacular results.

Unknown Speaker: 20 years with spectacular results. So now you have the Blue Owl credit platform married to one of the kind of the best couple in the world, probably in this business. And that gives us the legs we need for, you know, not just the next handful of years but what we think can be the next decade version of direct lending. Prima, our foray into real estate credit. When you say real estate credit, everyone thinks, oh my gosh, you know, look at all the problems there.

Alex Wasteem: So now you have the Bilal Credit Platform married with one of kind of the couple best in the world probably in this business and that gives us the legs we need for you know not even just next handful years but what we think can be the next decade version of direct lending. Prima, our leg into real estate credit.

Marc Lipschultz: Prima, our leg into real estate credit. You say Real estate credit. Everyone thinks, oh my gosh, you know, look at all the problems there. Prima has been doing this business for over 30 years. They've had two losses, two losses in 32 years. So there are ways to go into each of these markets with exceptional talent and the very focused strategies that I will characterize as the boring versions. We're very into doing boring products, products that deliver in and out, up and down through all markets. And it turns out, when you do that over and over and over again, that turns out to be pretty exciting.

Speaker Change: You say real estate credit, everyone thinks, oh my gosh, you know, look at all the problems there. Prima has been doing this business for over 30 years. They've had two losses.

Unknown Speaker: Prima has been doing this business for over 30 years. [inaudible] So maybe another angle on the deal activity. So I agree, Oak Street seems to be a textbook purchase integration and accelerated growth story. But is it a world-class team at investing? But is it a tremendous fit for our firm? And I can tell you, the cultural assessment we go through when we think about something like a Primo or an Adelia is as important as the financial assessment.

Alex Wasteem: Two losses in 32 years. So there are ways to go into each of these markets with exceptional talent and with very focused strategies that I will characterize as the boring versions.

Alex Wasteem: We're very into doing boring products. Products that deliver in and out, up and down through all markets and it turns out when you do that over and over and over again

Marc Lipschultz: So that's where we bring Prima to the mix of Prima. That's probably a $5 trillion dressable market in the case of real estate credit. So we are looking at these as critical pieces along with our insurance now distribution. Remember, we're not getting insurance business, but we've now created an insurance alternative management capability where we can package capabilities. No coincidence to things like Prima and asset back credit are perfect marriages with that delivery to the insurance channel.

Alex Wasteem: That turns out to be pretty exciting. So that's where we bring Prima to the Mixed Prima. That's probably a $5 trillion addressable market in the case of real estate credit.

Alex Wasteem: We are looking at these as critical pieces along with our insurance now distribution

Alex Wasteem: Remember, we're not getting an insurance business, but we've now created an insurance alternative of management capability where we can package capabilities, no coincidence, with things like Prima.

Alex Wasteem: and Asset Backed Credit are perfect marriages with that delivery to the insurance channel.

Marc Lipschultz: So you all, this really kind of comes together around setting the stage for what comes, you know, in the next five and 10 years for us.

Alex Wasteem: You know, all of this really kind of comes together around setting the stage for what comes, you know, in the next five and ten years for us.

Alan Kirshenbaum: Brian, to broaden that a little bit, we, you know, I talked to my prepared remarks about the few things left for our in and around the dollar share goal. And now, as Mark's talking about now, everything else, all the things we've talked about this year so far on the road when we're meeting with our investors, are all growth initiatives beyond 2025. How do we keep this industry leading growth level well, well beyond this in and around the dollar share goal. So you sprinkle in these acquisitions, very targeted, focused acquisitions. We're going to continue to grow inorganically, but then you layer in the organic growth to talk about our credit products, our evergreen diversified lending strategy, our evergreen fund strategy, our health care vertical, or GP-led secondary product.

Brian McKenna: Brian, to broaden that a little bit, we, you know, I talked in my prepared remarks about the few things left for our in and around the dollar a share goal. And now as Mark's talking about, now everything else, all the things we've talked about this year so far on the road when we're meeting with our investors, are all growth initiatives beyond 2025. How do we keep this industry-leading growth level well, well beyond this in and around the dollar a share goal? So you sprinkle in these acquisitions, very targeted focus acquisitions.

Speaker Change: We're going to continue to grow inorganically, but that new layer in the organic growth...

Speaker Change: to talk about our credit products, our evergreen diversified lending strategy, our evergreen first lien fund strategy, our healthcare vertical, our GP-led secondary product.

Alan Kirshenbaum: And then you add in some real estate products or European triple net lease, which is getting really good traction, are growing, growing our real estate finance products and potentially gearing up, as I said, by the end of next year for our real estate fund seven and as Mark said, fund six we, you know, had a record year with where we ended up with fund six. And then our new mid market GP stakes product, so when you layer in the organic and inorganic growth, this is what we've been talking about all year: how do we really keep that industry-leading growth level.

Glenn Schorr: Schorr, Nevercore, IOSI.

Glenn Schorr: Hi, thank you. So maybe another angle on the deal activity. So I agree, Oak Street seems to be textbook purchase integration and accelerated growth story. When you think about it, you just did three deals in a reasonably short period of time.

Glenn Schorr: Is something different in the deal environment that has brought these companies to your doorstep and why? So I'm asking about what's going on with the deal environment. And two is history hasn't been great in asset management land for companies to buy a bunch of other companies, half leaving alone, half lever them. It usually hurt margins, and eventually you had some grew, some didn't. It's a bad, at least a bad taste in investors' mouth. I think the underlying growth of the alternatives backdrop is significantly better than what we're looking at.

Speaker Change: History hasn't been great in asset management land for companies to.

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Speaker Change: I think the underlying growth of the alternative backdrop is significantly better than what we're looking at. But my question is, how do you make sure you integrate enough, that you are one firm enough that you lever the brands and the best things and don't...

Marc Lipschultz: My question is how do you make sure you integrate enough that you are one firm enough that you lever the brands and the best things and don't learn or do learn from the mistakes of the past of the traditional asset managers? Thanks.

Speaker Change: or do learn from the mistakes of the past of the traditional asset managers.

Marc Lipschultz: Sure. So these coming together in this form, I think mostly we ought to look at as just a reflection of the right opportunity at the right time. These are businesses that came to us. These are, you know, one off, as we noted. So this is really about finding strong partnerships. And I think that does start to address this question of how do you get the best of both worlds? You know, this is us working in tandem with the leadership team of Premium, working in tandem with the leadership team of Adelaia, continuing in our partnership with Kuvera's remaining in the insurance business and remaining a strategic partner to us.

Speaker Change: Thanks.

Speaker Change: Sure, so these coming together in this form I think mostly we ought to look at as just a reflection of the right opportunity at the right time. These are businesses that came to us. These are you know one-off

Speaker Change: As we noted, so this is really about finding strong partnerships, and I think that does start to address this question of how do you get the best of both worlds.

Speaker Change: This is us working in tandem with the leadership team.

Speaker Change: of Prima working in tandem with the leadership team of Adelaide.

Speaker Change: continuing in our partnership with Cuvier's remaining in the insurance business and remaining a strategic partner to us we're providing asset management services so

Marc Lipschultz: We're providing asset management services. So I think the key for us here is these are one-off opportunities that are about joining us. And we assess that not just on, is it a good strategy? And is it a world-class team at investing? But is it a tremendous fit for our firm? And I can tell you the cultural assessment we go through when we think about something like a Primo or an Adelaia is as important as the financial assessment. And I can tell you, by the way, it's gorgeous to say these are great people. And they are very much a part of the blue owl, as we talk about. Everyone's going to wear the blue owl jersey.

Speaker Change: I think the key for us here is these are one-off opportunities that are about joining us and we assess that not just on, is it a good strategy.

Speaker Change: and is it a world-class?

Speaker Change: team at investing, but is it a tremendous fit for our firm? And I can tell you the cultural assessment we go through when we think about something like a

Speaker Change: Primo or an Adelia is as important.

Unknown Speaker: And I can tell you, by the way, it scores just as high. These are great people, and they are very much a part of Blue Owl. As we talked about, everyone's going to wear the Blue Owl jersey.

Speaker Change: as the financial assessment, and I can tell you, by the way, it scores just as high.

Speaker Change: These are great!

Speaker Change: People.

Unknown Speaker: And that is how we work. This is not a constellation of activities. It is absolutely one firm. That's how we operate. But what we don't change is the success of the investment strategies. And that's been the model for Direct Lending. It's been the model for GP States.

Speaker Change: And they are very much a part of the Blue Owl, as we talked about, everyone's going to wear the Blue Owl jersey. And that is how we work. This is not a constellation of activities. It is absolutely one firm. That's how we operate. But what we don't change...

Marc Lipschultz: And that is how we work. This is not a constellation of activities. It is absolutely one firm. That's how we operate. But what we don't change is the success of the investment strategies. And that's been the model for direct lending. It's been the model for GP stakes. It's been the model for Oak Street. So actually, it's been done multiple times for us here how to get the best of investment performance with the full integration of the businesses into the firm. So I have to say we feel very good about the muscles we have built for that.

Speaker Change: is the success of the investment strategies. And that's been the model for Direct Lending. It's been the model for GP States.

Unknown Speaker: It's been the model for Oak Street. So actually, it's been done multiple times for us here, how to get the best investment performance with the full integration of the businesses into the firm. So I have to say we feel very good about the muscle we have built for that.

Speaker Change: It's been the model for Oak Street.

Speaker Change: It's been done multiple times for us here, how to get the best of investment performance with the full integration of the businesses into the firm.

Unknown Speaker: And everything is moving along in the right direction. So I would tell you we feel like we understand very much the questions, the caution, if you will, that you're noting in any M&A and M&A in financial services. But in this case, Oak Street, to me, is a much better template to look at. In fact, that's actually ours, actually a very analogous sized business, actually an analogous set of circumstances, where the senior leadership team came and joined this firm to be a part of the leadership of Blue Owl, then sold it to this firm. Thanks, Patrick. I don't have the run rate off the top of my head.

Speaker Change: I have to say we feel very good about the muscles we have built for that and everything is

Marc Lipschultz: And everything is moving along in the right direction.

Marc Lipschultz: So I would tell you, we're feeling like we understand very much the questions, the caution, if you will, that you're noting in the M&A and M&A. In fact, that's actually ours, actually a very analogous-sized business, actually an analogous set of circumstances where the senior leadership team came and joined this firm to be a part of the leadership of Blue Al, then sell to this.

Speaker Change: Moving along the right direction so

Speaker Change: I would tell you we're feeling like we understand very much the questions, the caution, if you will, that you're noting in any M&A and M&A in financial services.

Speaker Change: But in this case, you know, Oak Street, to me, is a much better template to look at. In fact, because that's actually ours, actually a very analogous sized business, actually an analogous set of circumstances, where the senior leadership team

Patrick Davitt: Our next question comes from the line of Patrick Davitt from Autonomous Research. Hey, good morning, everyone.

Speaker Change: [inaudible]

Speaker Change: Our next question comes from the line of Patrick David from Autonomous Research.

Patrick Davitt: I think the management feature in the quarter was probably a little disappointing relative to the very positive FPA, the AUM inflow and AUM surprise. Were there any timing issues with big deployments, viewing later in the quarter that maybe aren't showing up in the full quarter? And if so, maybe the level set, do you know what the run rate for management fees would have been with the full quarter of all those, a full quarter of Prima, et cetera?

Patrick David: Hey, good morning, everyone.

Speaker Change: I think the management fee trend in the quarter was probably a little disappointing relative to the very positive FPAUM inflow and AUM surprise

Patrick David: So were there any timing issues with like big deployments skewing later in the quarter that maybe aren't showing up in the full quarter? And if so, maybe the level set, do you know what the run rate for management fees would have been with a full quarter of all those, a full quarter of Prima, etc.?

Alan Kirshenbaum: Thanks, Patrick. I don't have the run rate off the top of my head. I could tell you that we had some closings at the very end of the quarter, so didn't really have any time to create in for the quarter.

Unknown Speaker: I could tell you that we had some closings at the very end of the quarter, so didn't really have any time to accumulate for the quarter. And in 1Q, we had some small catch-up fees, both in real estate and in GP stakes, that elevated just slightly 1Q's numbers. Our next question comes from the line of Craig Siegenthaler with Bank of America. Thanks, Craig. Our next question comes from the line of Steven Chubak from Wolf Research. Hi, good morning. Good morning.

Speaker Change: Thanks, Patrick. I don't have the run rate off the top of my head. I could tell you that we had some closings at the very end of the quarter, so didn't really have any time to accrete in for the quarter. And in 1Q we had some small catch-up fees.

Alan Kirshenbaum: And in one queue, we had some small catch-up fees, both in real estate and in GP stakes, that elevated just slightly one queue's numbers.

Steven Chubak: Our next question comes from the line of great singing talent from Bank of America.

Speaker Change: Our next question comes from the line of Craig Sagan-Hammond with Bank of America.

Steven Chubak: Good morning, Mark Allen. Hope everyone's doing well.

Alan Kirshenbaum: We wanted to come back to Allen's margin commentary near the end of the prepared remarks. So, with the 2025 FRI margin now at 57 to 58%, longer term, FG scale digest these mergers. Where do you see the long-term target? Is that still 60% or maybe a little higher? How should we think about that?

Craig Sagan-Hammond: Good morning, Mark, Alan. Hope everyone's doing well. We wanted to come back to Alan's margin commentary near the end of the prepared remarks.

Craig Sagan-Hammond: So, with the 2025 EFRI margin now at 57 to 58 percent, longer term, after you scale digest these mergers, where do you see the long-term target? Is that still 60 percent or maybe a little higher? How should we think about that?

Alan Kirshenbaum: Central growth numbers over the next few years, and it fits a very strategic area for us in a very big addressable market, as Mark was talking about. So, let's talk for a minute about what we are creating here? When I look backwards just for a minute, and I look at our management fee growth for our real estate business on an LTM basis, since we acquired the Oak Street business, we haven't had a quarter go by where we haven't had 50% growth on an LTM basis in management fees there. And overall, Blue Allel, we haven't had a quarter go by that's been less than 20%.

Speaker Change: ...potential growth numbers over the next few years.

Speaker Change: and it fits a very strategic area for us in a very big addressable market as Mark was talking about. So let's talk for a minute about what are we creating here.

Speaker Change: When I look backwards just for a minute and I look at our management fee growth for our real estate business on an LTM basis since we acquired the Oak Street business, we haven't had a quarter go by where we haven't had 50% growth on an LTM basis in management fees there.

Speaker Change: and overall, Blue Owl, we haven't had a quarter go by that's been less than 20%.

Alan Kirshenbaum: And when you take that up to the Blue Allel FRI revenues, we haven't had a quarter go by that's been lower than 25% revenues.

Speaker Change: And when you take that up to the Blue Owl FRE revenues, we haven't had a quarter go by that's been lower than 25% revenues.

Alan Kirshenbaum: And so, that's looking backwards at what we've created. Now, looking forwards, when you think about the things that we have out there, AUM not yet paying fees, GP stake 6 fund raise, the CIC and TIC fund raise is over 24 and 25, and then the BDC step-ups and fees, that's another billion dollars of revenue from where we were at the end of 2023. So, that's a 60% growth just from those few things, and that doesn't include all the other things that I just rattle through in a previous question about growth initiatives beyond 2025. When I think about fund raising, we think we're going to almost double our equity fund raise versus where we were last year.

Speaker Change: And so that's looking backwards what we've created, now looking forwards.

Speaker Change: When you think about the things that we have out there...

Speaker Change: AUM Not Yet Paying Fees, GP Stakes 6 Fundraise

Speaker Change: The CIC and TIC fundraisers over 24 and 25, and then the BDC step-ups in fees.

Speaker Change: That's another billion dollars of revenue from where we were at the end of 2023. So that's a 60% growth just from those few things, and that doesn't include all the other things that I just rattled through in a previous question about growth initiatives beyond 2025.

Speaker Change: When I think about fundraising, we think we're going to almost double our equity fundraise versus where we were last year.

Alan Kirshenbaum: And so, what we're doing, it's working; we're re-investing back into our business, it's fueling industry-leading growth, and it's accelerating between now and the end of 2025. So, when you think about that 25% revenue number, we just post that on an LTM basis. That growth we think will accelerate to approaching 30% growth for this year and for next year. and again, I wouldn't change the longer term 60% F.R. E. Margin.

Speaker Change: And so what we're doing, it's working. We're reinvesting back into our business. It's fueling industry-leading growth. And it's accelerating between now and the end of 2025. So when you think about that 25% revenue number we just posted on an LTM basis.

Speaker Change: That growth we think will accelerate to approaching 30% growth for this year and for next year.

Speaker Change: And again, I wouldn't change the longer term 60% FRE margin.

Steven Chubak: Our next question comes to the line of Steven Chubak for full research. Hi, good morning. Good morning.

Craig: Thanks, Craig.

Speaker Change: Our next question comes to the line of Steve and Suga, both research.

Steven Chubak: So, wanted to ask a question on Part 1 fees. Just given the expectation for rate cuts on the horizon, loan spreads tightening over the last 12 months, there's some concern that Part 1 fees could come under greater pressure as the higher yielding backbook begins to roll off. Recognizing there's going to be a meaningful offset from ramping deployment activity, and certainly the comments there were quite constructive, but was hoping to get just a mark to market for where a current origination yield to today relative to the backbook, and maybe to speak to the ability to defend, I guess, what would now be a high 50s F.R.

Speaker Change: Hi, good morning.

Steven Chubak: Good morning.

Speaker Change: So, I wanted to ask a question on Part 1 fees, just given the expectation for rate cuts on the horizon, loan spreads tightening over the last 12 months.

Speaker Change: There's some concern that Part 1 fees could come under greater pressure as the higher yielding back book begins to roll off.

Unknown Speaker: Recognizing there's going to be a meaningful offset from ramping up deployment activity, and certainly the comments there were quite constructive, but I was hoping to get just a mark-to-market for where current origination yields sit today relative to the back book. Sure. Thanks for your question, Steven. Look, we have a BDC business that continues to grow. And so, yes, as rates come down, we will see some pressure on Part 1 fees

Unknown Speaker: Recognizing there's going to be a meaningful offset for ramping deployment activity, and certainly the comments there were quite constructive, but was hoping to get just a mark to market for where current origination yields sit today relative to the back book.

Speaker Change: And maybe just speak to the ability to defend, I guess what would now be a high 50s FRE margin in 25 amid deeper rate cuts and spread contraction.

Steven Chubak: E. Margin in 25 amid deeper rate cuts and spread contraction. Sure.

Alan Kirshenbaum: Thanks for your question, Steven. Look, we have a BDC business that continues to grow, and so yes, as rates come down, we will see some pressure on Part 1 fees. We also see from a number of perspectives Part 1 fees going up. So, we still have our software lending to BDC. That's not fully deployed. As we continue to deploy that capital, Part 1 fees are going to continue to go up vis-à-vis the prior quarter, and we still have some ways to go to fully deploy that capital. We still have two BDCs, and we'll continue to have two BDCs, OCIC and OTIC, that are fundraising at very strong levels today, and we'll continue to for everything that we see on the go forward.

Speaker Change: Sure, thanks for your question, Stephen.

Unknown Speaker: BDC business that continues to grow and so yes as rates come down we will see some pressure on part one fees. We also see from a number of perspectives part one fees going up.

Unknown Speaker: We also see from a number of perspectives Part 1 fees going up. So we still have our software lending to BDC that's not fully deployed. As we continue to deploy that capital, Part 1 fees are going to continue to go up as compared to the prior quarter, and we still have some ways to go to fully deploy that capital. We still have two BDCs, and we'll continue to have two BDCs, OCIC and OTIC, that are fundraising at very strong levels today and will continue to for everything that we see going forward. So we will continue to see Part 1 fees stepping up quarter over quarter as it relates to our fundraising efforts and these continuously offered products. Thanks. Good morning, everyone.

Unknown Speaker: So we still have our software lending to BDC that's not fully deployed. As we continue to deploy that capital, Part 1 fees are going to continue to go up vis-à-vis the prior quarter, and we still have some ways to go to fully deploy that capital. We still have two BDCs, and we'll continue to have two BDCs, OCIC and OTIC, that are fundraising at very strong levels today, and will continue to for everything that we see on the go forward. So we will continue to see Part 1 fees stepping up quarter over quarter as it relates to our fundraising efforts and these continually offered products.

Alan Kirshenbaum: So, we will continue to see Part 1 fees stepping up. Quarter over quarter as it relates to our fundraising efforts, and these continually offered products.

Kristen Bluck: Our next question comes from the line, Kristen Bluck, with Bipers Answer. Thanks. Good morning, everyone. Appreciate taking my question.

Unknown Speaker: Our next question comes from the line of Kristen Bluff with Piper Sampson.

Unknown Speaker: Appreciate you taking my question. Can you just give us an update on credit quality across the portfolio? What are you seeing?

Speaker Change: Can you give us an update on credit quality across the portfolio? What you're seeing? Are you seeing any degradation in the portfolio? And then when you look at Pluralsight specifically, how confident are you that that is a one-off in the portfolio versus a potential for other credit stress elsewhere?

Kristen Bluck: Can you give us an update on credit quality across the portfolio? What you're seeing? Are you seeing any degradation in the portfolio, and then when you look at plural sites specifically, how confident are you that that is a one-off in the portfolio versus a potential for other credit stress elsewhere? Thanks.

Unknown Speaker: Are you seeing any degradation in the portfolio? And then, when you look at Pluralsight specifically, how confident are you that that is a one-off in the portfolio versus the potential for other credit stress elsewhere? Unknown Attendee My line cut out a bit during your response to the question on the margin outlook, but it seems as though the margin compression is impacted by some of the deals that you guys have recently done, and you also reiterated your confidence to be at or around the dollar dividend.

Marc Lipschultz: Yeah, credit quality is very good. You know, this is a strong environment. Our portfolio on average grew EBITDA in the teens, midteens. So, we continue to see very strong overall performance. We have not seen any material change in amendment requirements or requests or changes in demand for payment in kind if they were cash pay before running down to revolvers. We will always have one-off companies that have some of their challenges. That's, of course, the nature of the beast. We, fortunately, as I described, look, we have a pretty simple system in theory, very complicated in execution, which is to find, you know, through rigorous work, great companies that are very likely to perform really well, and the handful of times they don't perform well make sure we get a strong recovery.

Speaker Change: Yeah, credit quality is very good. You know, this is a, this is a strong environment. Our portfolio, on average, grew EBITDA in the teens, mid-teens.

Speaker Change: so we continue to see very strong overall performance

Speaker Change: We have not seen any material change in...

Speaker Change: Douglas Ostrover, Ann Dai, Alan Kirshenbaum, Douglas Ostrover, Alan Kirshenbaum, Douglas

Speaker Change: that have some their challenges that's of course the nature of the beast we fortunately as I described look we have a pretty simple system in theory very complicated in execution

Speaker Change: which is to find through rigorous work great companies that are very likely to perform really well and the handful of times they don't perform well make sure we get a strong recovery.

Marc Lipschultz: And so, that being actually leads us right to pull overall credit quality, you know, continues to march on very, very steadily and very well.

Speaker Change: and so that actually leads us right to overall credit quality continues to march on very very steadily and very well.

Marc Lipschultz: In terms of Plural Site, but Plural Site, it's probably worth commenting on one thing. We care a lot about plural sites, performance in every credit, and ultimately every recovery. For the blue owl shareholder again, let's remember, we're a fee-based business. So, really, the underlying yields of the funds are not really directly a part of the Blue Owl business. We get fees. We don't have carry.

Speaker Change: In terms of Pluralsight, look, Pluralsight, it's probably worth commenting on one thing. We care a lot about Pluralsight's performance in every credit and ultimately every recovery.

Speaker Change: For the Blue Owl shareholder, again, let's remember we're a fee-based business, so really the underlying yields of the funds...

Speaker Change: are not really directly a part of the law business. We get fees, we don't have carry. So I just want to put that again as a flag. Now we carry a tremendous amount.

Marc Lipschultz: So, I just want to put that again as a fly. We care a tremendous amount about the performance.

Marc Lipschultz: Also, context is, let's, for those who don't know, Pluralsight is an IT training business that was bought by Toma Bravo, and that we led the financing of with several other private lenders. Oh, sorry, Vista, apologies. It is not a software business, just to make sure we're all clear on where it lands. But look, Vista is a great sponsor, makes a lot of great investments, and we do a lot of business together. You know, this one didn't work. I mean, obviously, that's disappointing to them. It's disappointing to us. It's not where we all like to be.

Speaker Change: about the performance.

Speaker Change: Also, Context, just for those who don't know, Pluralsight is an IT training business that was bought by Toma Bravo and that we led the financing of with several other private lenders.

Vista: Sorry, Vista, apologies.

Speaker Change: It is not a software business, just to make sure we're all clear on where it lands.

Speaker Change: But look, VISTA is a great sponsor.

Speaker Change: make a lot of great investments and we do a lot of business together.

Speaker Change: This one didn't work. I mean, obviously, that's disappointing.

Marc Lipschultz: It's at the end of the day, a small loan. It's a little over $300 million out of our almost $100 billion portfolio. And you know, now we'll end up owning it without a lot of streaming. Again, it's not what Vista, or we wanted to be the outcome. But actually, it's kind of a study in private lending working, which is, you know, here will be a smooth handoff I expect, and we'll carry on in supporting the management and the business. And stay tuned for the next few years. And we'll find out what the exact recovery is.

Speaker Change: to them. It's disappointing to us. It's not where we all like to be. It's, at the end of the day, a small loan. It's a little over $300 million out of our almost $100 billion portfolio.

Speaker Change: and you know now we'll end up owning it without...

Speaker Change: Again, it's not what Vista or we wanted to be the outcome.

Speaker Change: Lending working, which is, you know, here will be a smooth handoff, I expect, and we'll carry on and...

Speaker Change: supporting the management and the business and stay tuned for the next few years and we'll find out what the exact recovery is You know, do we?

Brandon Hockett: You know, most of our money back, we'll, you know, we'll all find that out together next few years. But that's the limit of the drama. It just doesn't really matter to our business. I know I don't think you can extrapolate anything from it. Our next question comes from the line of Brandon Hockett with UBS.

Douglas Ostrover: Douglas Ostrover, www.douglasostrover.com

Speaker Change: Our next question comes from the line of Brandon Hockett with UBS.

Brandon Hockett: Good morning. Thanks for taking my questions. I wanted to follow up on an apology if you hit on this. My line cut out that during your response to the question on the margin outlook. But it seems as though the margin compression is impacted by some of the deals that you guys have recently done. And you also reiterated your confidence to be at or around the dollar dividend. And so is the bridge there better revenue growth? And can you just confirm whether or not some of the recent deals are really what's pulling down the margin?

Speaker Change: Good morning. Thanks for taking my questions.

Speaker Change: Alan, I wanted to follow up on, and apologies if you hit on this, my line cut out a bit during your response to the question on the margin outlook.

Speaker Change: But it seems as though the margin compression is impacted by some of the deals that you guys have recently done.

Speaker Change: and you also reiterated your confidence to be at or around the dollar dividend. And so is the bridge there better revenue growth?

Unknown Speaker: And so is the bridge there better revenue growth? The payout rate's been about 100% round numbers. So I'm wondering if you could just talk about the algorithm in terms of capital allocation and why the import on the dollar and whether there is a broader argument here to potentially move away from a dividend growth story and think about a broader capital return opportunity.

Speaker Change: and can you just confirm whether or not some of the recent deals are really what's pulling down the margin rather than anything beyond that that would be idio

Alan Kirshenbaum: I would have been anything beyond that; that would be idiot.

Alan Kirshenbaum: Yeah, that's right, Brandon.

Alan Kirshenbaum: Thank you for the question. In particular, the Adelaia transaction has the Adelaia as a business has roughly half the margin that we do. We know we can grow this over time. We just don't know yet whether we can get it up to the same margin as where we are today. And we're investing in these acquisitions. So as I outlined what we did with Oak Street. So we could have some slight downward momentum before it swings back up. But we feel very confident and very strong about the long-term trajectory of keeping that 60% or higher margin over time.

Unknown Speaker: Yeah, that's right, Brennan. Thank you for the question. In particular, the Adelaide transaction, Adelaide as a business has roughly half the margin that we do.

Speaker Change: We know we can grow this over time. We just don't know yet whether we can get it up to the same margin as where we are today.

Speaker Change: and we're investing in these acquisitions, so as I outlined what we did with Oak Street. So we could have some slight downward momentum before it swings back up, but we feel very confident and very strong about the long-term trajectory of keeping that 60% or higher margin over time.

Alan Kirshenbaum: And it is driven by the acquisitions that we're making and the investment we're putting into these acquisitions.

Speaker Change: And it is driven by the acquisitions that we're making and the investment we're putting into these acquisitions.

Bill Katz: Our next question comes from the line of bill cats from GDCal.

Unknown Speaker: Our next question comes from the line of Bill Katz from TD Cal.

Bill Katz: Okay, thank you very much.

Bill Katz: I just want to unpack the dividend a little bit further. So you from the 72 cents this year. And you think you can grow that in the low to mid 30% range year and year. And it does sound like top line driven. So if I take 35% as a reasonable proxy, I get to about 97 cents. And so as I look at the year-to-date dynamics between distributed earnings and the dividend, the payout rate's been about 100% round numbers.

Speaker Change: Okay, thank you very much. I just want to unpack the dividend a little bit further. So you affirmed the $0.72 this year.

Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

Alan Kirshenbaum: So I'm wondering if you could just talk about the algorithm in terms of capital allocation and why the import on the dollar and is there a broader argument here to potentially move away from a dividend growth story and think about a broader capital return opportunity. Thank you.

Unknown Speaker: The payout rate's been about 100% round numbers, so I'm wondering if you could just talk about the algorithm in terms of capital allocation and why the import on the dollar and is there a broader argument here to potentially move away from a dividend growth story and think about a broader capital return opportunity. Thank you.

Alan Kirshenbaum: Sure, thank you, Bill. So, that's right. We're targeting a low to mid dividend growth for 2025 versus 2024. That low to mid will put a somewhere around the 96 cents. That is a approaching, if not 100% dividend payout ratio. That's really what we've been communicating to investors. It's where we've seen this year, where we'll step up to a 90-low 90s percent payout ratio, and then we would look to bring that back down over time as we get past 2025. So, we've continued to keep our eye on that in and around the dividend. In and around the dollar share dividend goal, and then over time we'll bring that payout ratio back down a little bit.

Unknown Speaker: Sure, thank you, Bill. So, that's right, we're targeting a low to mid-dividend growth.

Speaker Change: for 2025 versus 2024. That low to mid would put us somewhere around the 96 cents.

Speaker Change: that is a, you know, approaching if not a hundred percent dividend payout ratio. That's really what we've been...

Speaker Change: communicating to investors. It's where, you know, we've seen this year, we'll step up to a, you know, 90 low 90s percent payout ratio. And then we would look to bring that back down over time as we get past 2025.

Speaker Change: So we've continued to keep our eye on that in and around the dividend, in and around the dollar share dividend goal, and then over time we'll bring that payout ratio back down a little bit.

Patrick Davitt: Patrick, I think you're on for a follow-up.

Speaker Change: We're happy if you follow us.

Patrick Davitt: Hey, thanks, guys. Who there? Just closed on July 1st.

Unknown Speaker: Patrick, I think you're on for a follow-up.

Speaker Change: Hey, thanks guys.

Speaker Change: Couvert just closed on July 1st.

Alan Kirshenbaum: Could you update us on how we should think about kind of the regular way, annuity type, quarterly inflow, you'll start to see from that given the ongoing annuity issuance from the insurance partner there. Thank you.

Speaker Change: Could you update us on how we should think about kind of the regular way annuity type quarterly inflow? You'll start to see from that given the kind of ongoing annuity issuance from the insurance partner there. Thank you.

Marc Lipschultz: Yeah, the Kuver acquisition is a very exciting one for us, and I want to reframe importantly what we did buy and what we didn't buy. So, we bought the Kuver asset management business, getting paid fees to manage assets in fashions that are packaged delivered both in terms of abilities and structures for insurance companies. We did not buy the insurance operations. We are not in the insurance business. We don't have a spread-related earnings concept. We continue to have fee-related earnings. That's very important to our business model. So, Kuver remains very active in the insurance business and very successfully so.

Speaker Change: Yeah, the Cuvier acquisition is a very exciting one for us, and I want to reframe, importantly, what we did buy and what we didn't buy. So we bought the Cuvier asset management business, getting paid fees to manage assets in fashions that are packaged, delivered, both in terms of abilities and structures, for insurance companies.

Speaker Change: We did not buy the insurance operations. We are not in the insurance business. We don't

Speaker Change: have a spread-related earnings concept. We continue to have fee-related earnings. That's very important to our business model. So, Couvert remains very active in the insurance business and very successfully so.

Marc Lipschultz: That is to say that they continue to be very successful in issuing annuities. They have been, in fact, for an insurance company their size. I think it's quite impressive what they've accomplished in terms of access, for example, to the Japanese market. In 2023, there was $5.6 billion of flows. The expected growth rate this year has been higher for them. It's actually total originations. They've had a good, strong start to the year. So, we continue to expect; again, that was 20.3, and we're rising from there. So, this is something that will be contributing over time done the way we expected will.

Speaker Change: That is to say that they continue to be very successful in issuing annuities.

Speaker Change: They have been, in fact, for an insurance company their size.

Speaker Change: I think it's quite impressive what they've accomplished in terms of access, for example, to the Japanese market. In 2023, there was $5.6 billion of flows. The expected growth rate this year has been higher for them, expected total originations.

Speaker Change: They've had a good strong start to the year.

Speaker Change: So we continue to expect, you know, again, that was 2023 and we're rising from there. So this is something that will be contributing over time, done, you know, the way we expect it will, you know, billions of dollars of flows for us on an annual basis, and in fact, on a quarterly basis. So...

Marc Lipschultz: Billions of dollars of flows for us on an annual basis and, in fact, on a quarterly basis.

Marc Lipschultz: So, we are very happy to have this additional leg to our stool, along with being one of the key leaders in wealth. Remember there we have 3.2 billion in the wealth channel, institutional, great continued growth in institutional and access to new accounts. And now we add insurance where we have another set of flows. You know, started off at this base of 20 billion dollars of assets we just took, and as you note in your question, as there are inflows, those come to us to match. So, this is yet another engine for us. It's continued to originate exactly what we want, which are long dated BPANAS.

Speaker Change: We are very happy to have this additional leg to our stool along with being...

Speaker Change: You know, one of the key leaders in wealth.

Speaker Change: Remember there, we had $3.2 billion in the wealth channel, institutional.

Speaker Change: Great continued growth and institutional and access to new accounts and now we add insurance Where we have another set of flows, you know started off at this base of 20 billion dollars of assets we just took and as you note in your question as there are inflows Those come to us to manage

Speaker Change: So, this is yet another engine for us to continue to originate exactly what we want, which are long-dated, fee-paying assets.

Marc Lipschultz: So the insurance edition married, as I mentioned, but these other capabilities that, by the way, not a coincidence, that something like Prima and asset back lending are perfect strategies for insurance users.

Unknown Speaker: So the insurance edition is married, as I mentioned, to these other capabilities which, by the way, is not a coincidence that something like Prima and asset-backed lending are perfect strategies for insurance users. I think we're gonna have something pretty special to offer to the marketplace. Then our next question comes from the line of Brennan Hawken with UBS. Hey, thank you for taking my follow-up. I would just like to make sure I understand what, Yeah, let me try to course correct a little bit, and Alan can add to that. It's not that it's more complicated to integrate. It's not that it's anything unexpected. It's, it's math.

Unknown Speaker: So the insurance edition married as I mentioned with these other capabilities that by the way not a coincidence that something like Prima

Unknown Speaker: And asset-backed lending are perfect strategies for insurance users. I think we're going to have something pretty special to offer out to the marketplace.

Marc Lipschultz: I think we're going to have something pretty special to offer out to the marketplace.

Brandon Hockett: The next question comes from the light of Brown Hawken, the UBS. Hey, thank you for taking my follow-up. I would just like to make sure I understand what, make sure I'm putting it together to pieces correctly here. It seems like what's happened is you guys have had some good deals come together, and you've done several deals rather quickly. You're realizing it's going to probably take a little bit longer to get all of these pieces put together. And so we're going to see some margin compression next year. You guys still feel good about the dividend and getting to the dividend, but you're kind of getting their via the higher payout rate ratio.

Unknown Speaker: Then our next question comes from the line at Brandon Hawkins at UBS.

Brennan Hawken: Hey, thank you for taking my follow-up. I would just like to make sure I understand what...

Unknown Speaker: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show.

Brandon Hockett: And so it's more driven by that ratio rather than the earnings growth. Do I have that right and/or would you course-correct me in anything there?

Marc Lipschultz: Yeah, let me try to course correct a little bit, and Alan can add to it. It's not that it's more complicated to integrate; it's not that it's anything unexpected. It's it's math. If you acquire at the time, a lower margin business, it's going to, for some short period of time, be an impact of margins until we complete as planned, the full integration and then continue to optimize across the whole integrated business. So, you know, it's I don't want to say anything about a change in expectations, but again, if I acquire something, which we do with a lower margin and integrate, and then operationalize, will return.

Speaker Change: Yeah, let me try to course correct a little bit, and Alan can add too. It's not that it's more complicated to integrate. It's not that it's anything...

Unknown Speaker: If you acquire, at the time, a lower-margin business, it's going to have, for some short period of time, an impact on margins until we complete, as planned, the full integration and then continue to optimize across the whole integrated business. So, you know, I don't want to say anything about a change in expectations. But again, if I acquire something which we do with a lower margin and integrate and then operationalize it, we'll return, we expect fully, to our 60% plus margin, but it would be essentially a near mathematical impossibility to buy something with a meaningful lower margin and not have it, in the short term, impact the margin. So no, I think it's pretty transitory.

Unknown Speaker: On expected, it's math. If you acquire, at the time, a lower-margin business, it's going to, for some short period of time...

Unknown Speaker: impact to margins until we complete as planned the full integration and then continue to optimize across the whole integrated business so you know it's

Unknown Speaker: I don't want to say anything about a change in expectations.

Unknown Speaker: But again, if I acquire something, which we do, with a lower margin and integrate and then operationalize, we'll return, we expect, fully to our 60% plus margin.

Marc Lipschultz: We expect fully to our 60% plus margin, but it would be essentially a near mathematical impossibility to buy something with a meaningful lower margin and not have it in the short term impact the margin. So, no, I think it's pretty transitory, but I also would emphasize from our point of view and I would suggest from our investors' point of view, what you want to do is continue to encourage us and focus we will on how do we continue to deliver very high predictable growth in FRE and dividend. And margin is it's obviously a measure of obviously the profitability, but we rather have more revenue and have more growth and more opportunity, whether that absolute, what we want to do is drive absolute dollars.

Unknown Speaker: But I also would emphasize, from our point of view, and I would suggest from our investors' point of view, what you want to do is continue to encourage us and focus, we will, on how we continue to deliver very high, predictable growth in FRE and dividend. Thank you, everyone. Enjoy the rest of the summer.

Unknown Speaker: But it would be essentially a near mathematical impossibility to buy something with a meaningful lower margin and not have it in the short-term Impact the margin. So no, I think it's pretty transitory But I also would emphasize

Unknown Speaker: From our point of view, and I would suggest from our investors' point of view, what you want to do is continue to encourage us and focus, we will, on how do we continue to deliver very high predictable growth in FRE and dividend.

Speaker Change: And margin is obviously a measure of the profitability, but we'd rather have more revenue and have more growth and more opportunity. What we want to do is drive absolute dollars.

Alan Kirshenbaum: It happens to be the case to hear we expect this to be yes or short term dilution from acquisitions and return to the 60% plus, but I actually don't think that ought to particularly be the measure of success. The measure of success is are we substantially growing our per share absolute FRE DE and dividend, and that's exactly what these acquisitions are augmenting for us at the short term and absolutely positioning us for the long term. And I'll just add to that, Brennan, the guidance of low to mid 30s dividend growth is right on top of our in and about a dollar share that we've been talking about, obviously well before, you know, we had our eye on, on frankly any of these acquisitions.

Speaker Change: It happens to be the case that here we expect this to be, yes, a short-term dilution from acquisitions.

Speaker Change: and return to the 60% plus, but I actually don't think that ought to particularly be the measure of success. The measure of success is, are we substantially growing?

Unknown Speaker: are per share absolute, FRE, DE, and dividend, and that's exactly what these acquisitions are augmenting for us in the short term and absolutely positioning us for the long term.

Speaker Change: And I'll just add to that, Brennan, the guidance of low to mid-30s dividend growth is right on top of our in and about a dollar a share that we've been talking about obviously well before we had our eye on, frankly, any of these acquisitions.

Alan Kirshenbaum: And let's just pick 96. If 96 is the number, that's a I made this comment in my prepared remarks. It's a 30% keger over four and a half years for our dividend. So we feel fantastic about that. We feel really great about it, and we feel even better about what our trajectory looks like for growth, as we talked about well beyond 2025.

Speaker Change: and let's just pick 96. If 96 is the number that's a, I made this comment in my prepared remarks, it's a 30% CAGR over four and a half years for our dividend.

Unknown Speaker: So we feel fantastic about that. We feel really great about it and we feel even better about what our future trajectory looks like for growth as we talked about well beyond 2025.

Marc Lipschultz: Okay, I don't think we have any further questions. So look, we appreciate everyone's time. It was an exceptional course. I mean, we are really pleased with where things stand. We're pleased, most importantly, with the returns from our LPs and all of our strategies. We're extremely pleased to be here, you know, telling you the second verse, same as the verse, which is we keep delivering, marching forward our 13th straight quarter of increases. We see our continuing trajectory looking very bright with the acquisitions. We have set the stage, which of course we'll talk about in much more detail in the future.

Speaker Change: Okay, I don't think...

Speaker Change: Don't think we have any further questions. So, look, we appreciate everyone's time.

Speaker Change: It was an exceptional quarter. I mean, we are really pleased with where things stand.

Speaker Change: We're pleased, most importantly, with the returns from our LPs and all of our strategies.

Speaker Change: We're extremely pleased to be here.

Unknown Speaker: telling you the second verse same as the first, which is we keep delivering, marching forward, our 13th straight quarter of increases. We see our continuing trajectory looking very bright.

Unknown Speaker: With the acquisitions, we have set the stage, which of course we'll talk about in much more detail in the future, set the stage to continue our highly predictable and stable growth plan.

Marc Lipschultz: Set the stage to continue our highly predictable and stable growth plan and our very strong study march on FRED and dividends. So we're very happy with where things stand. We think we've got very exciting opportunities ahead. So we look forward to keeping you all posted, and we think you'll all share our enthusiasm as you start to see us reveal the positives of what we can develop out of our continuing organic strategies and these inorganic additions.

Unknown Speaker: and our very strong, steady march on FRED and dividends.

Unknown Speaker: So we're very happy with where things we're standing. We think we've got very exciting opportunities

Speaker Change: So we look forward to keeping you all posted, and we think you'll all share our enthusiasm as you start to see us reveal the positives of what we can develop out of our continuing organic strategies and these inorganic additions.

Operator: Thank you, everyone. Enjoy the rest of the summer.

Unknown Speaker: Thank you everyone. Enjoy the rest of the summer.

Operator: The reading is now concluded.

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