Q4 2024 Blue Owl Capital Inc Earnings Call
Good morning and welcome to the Blue Owl Capital's 4th quarter and full year 2024 earnings call during the presentation, your lines will remain on listen-only mode after the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question by that time, please press star, followed by one on your telephone keypad. I'd like to advise all parties that this conference call is being recorded. Thank you. I will now
turn the call over to And Jai, head of investor relations for Blue Owl. Please go ahead.
Thanks, operator, and good morning to everyone.
Joining me today are Mark Lipschultz, our co-chief executive officer, and Alan Kirshenbaum, our chief financial officer. The assumes no obligation to update any for booking statements.
We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to gap figures in our
earnings presentation available on the shareholder section of our website at Blueowl.com.
Please note that nothing on this call constitutes an offer to sell or a solicitation of an offered purchase and interest in any Blue Owl fund.
This morning we issued our financial results for the 4th quarter of 2024 reporting fee-related earnings or FRE of 23 cents per share and distributable earnings or DE of 21 cents per share.
For the full year 2024, we reported FRE of 86 cents per share and DE of 77 cents per share.
He declared a dividend of 18 cents per share for the 4th quarter, payable on February 28th to holders of record as of February 19th, and we also announced an annual fixed dividend of 90 cents for 2025 or 22.5 cents per quarter starting with our first quarter 2025 earnings, up 25% from the prior year.
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 Mark.
Great thank you so much and.
We capped off a highly successful year for Blue Owl with a record core fundraising reflecting the ongoing diversification of our business and high levels of investor interest in our differentiated products.
This brings our total equity raise in 2024 to $27.5 billion about 75% higher than 2023 and including that we raised over $47 billion also a record for us.
On top of our robust fundraising we deployed substantial amounts of capital across the business, including a record $52 billion gross deployment and credit.
Driving 26% FRE growth for the year.
Taking a step back.
We have now grown FRE at least 25% each year since we've been public despite highly inflationary periods, geopolitical events, great volatility, and a significant slowdown in capital markets to us this has been an incredible test of the durability of our business and the power of permanent capital.
We've had a very active year across the business with some simple themes that defined our direction of travel.
Innovation diversification and scale.
And thinking about what we've accomplished this year. I'd like to call out a few highlights that exemplify these themes.
On innovation
We've been very aligned with the ongoing evolution of the alternatives industry focused on asset classes such as direct lending and GP stakes that have expanded to meet the financing needs of the private markets.
Not least has followed a similar trajectory, becoming a truly institutional category.
All of these market opportunities have significant runway ahead of it.
And we expect to meaningfully participate in that growth given our leadership positions in each area.
And thinking about where the puck is going next. We've made strategically important acquisitions in markets with growing capital needs, namely alternative credit and digital infrastructure.
We've also expanded our insurance capabilities to deliver a more holistic solution in that market.
And we brought on a real estate credit manager with an incredible 30 year record to take advantage of the disintermediation we're seeing there.
It's clear to us that private solutions providers are going to take an increasingly larger role in the financing of all of these markets. We plan to meet these opportunities head on with differentiated strategies, product innovation and best in class market leaders that have invested in these asset classes for decades.
A diversification.
It's apparent even in our 2024 results, how much more diversified our businesses today, but a couple of years ago.
This diversification spans investment capabilities, sources of capital and geographic footprint.
Looking ahead, we see tremendous growth for both the newer businesses under our umbrella and our existing capabilities.
We plan to continue expanding our global distribution while introducing new strategies and product structures that further strengthen Blue Ol's value proposition for institutional private wealth, and insurance clients.
On scale
We ended the year at a quarter of a trillion dollars of AUM and pro forma for the acquisition of IPI, which closed on January 3rd. We now have $265 billion of AUM.
Over the past decade we have seen the largest managers consolidate market share in the alternatives industry. We expect this trend to continue for the next decade, and we fully expect to be one of those consolidating managers.
With the full suite of capabilities we have today and our scale permanent capital we're able to create even more of the bespoke solutions to counterparties are looking for further positioning ourselves to be the first call.
And subsequent year end we closed the merger of OBDC and OBDE are publicly traded diversified lending BDCs, resulting in the 2nd largest publicly traded BDC with assets under management of about $21.5 billion.
We're also working towards the proposed merger of OTF and OTF2.
Once merged and lied, we expect to have the largest technology focused BDC in the markets.
Zooing in on the 4th quarter.
We had our highest quarter fundraising with $9.5 billion of equity capital raised and over $18 billion including debt raised.
Private wealth fundraising remained very strong and nearly $4 billion driven by our perpetually distributed products and fundraise for GP stakes.
For the year, private wealth drove over $13.5 billion of equity commitments, an increase of 50% year over year.
And we are excited about what 2025 will bring with an alternative credit product launching shortly and currency specific solutions coming for OCIC and Ore.
In addition to the ongoing cross-selling and expansion on existing platforms.
We had our highest quarter of fundraising in our institutional channel, raising $5.6 billion across a variety of strategies, including a number of mandates within credit large cap and midcap GP stakes insurance solutions and real assets.
For the year institutional fundraising drove half of total capital raised and doubled from the prior year.
As of this week we're approaching $1 billion committed for our European at least strategy headed towards our $1.5 billion dollar hard cap.
And we are also approaching $1 billion of capital committed for our GP led continuation strategy.
Our 4th quarter results reflect the impact.
In both organic new product development and recent acquisitions are having on the range of fund raising across Blue O.
And we see much more to come at.
The $47 billion we have raised organically across equity and debt over the past 12 months.
is equivalent to 29% of our AUM a year ago.
Now turning to business performance in credit, we had another solid quarter of deployment specifically for direct lending, gross and net origations were over $13 billion.02 billion dollars for the quarter.
reflecting a high level repayments and refinancing that stayed within our system.
Taking a step back.
Consider the environment we've been in this past year. The CLO market returned in full force at the beginning of 2024, for historically high levels of broadly syndicated market activity driven by refinances.
In the midst of that environment.
We deployed nearly $52 billion on a gross basis and $16.6 billion on a net basis in 2024.
So even in a tepid M&A market with active broadly syndicated markets competing we doubled net deployment year over year and I think it's a great demonstration of the power of scale and incumbency coming together to drive strong origination outcomes for the investors in our provinces.
Credit quality metrics and direct lending continued to reinforce the strength of our underwriting.
On average, underlying revenue and even do growth was high single digits across the portfolio.
With no significant step ups and not accruals or amendment requests.
And we're at 11 basis point average annual realized loss rate.
As the alternative credit.
The team is already well integrated and working with direct lending and insurance solutions on transactions.
Having completed several deals that bring together the sourcing and execution capabilities of our combined credit platform.
During the 4th quarter, we announced a sizable forward flow agreement with Upstart and have subsequently seen significant demand from large lending platforms looking to partner with us as a source of stable capital.
More broadly,
We view the additional alternative credit as a strategically important expansion of our credit capabilities.
Focused on money into main street segments such as consumer spending, small business borrowing, and residential finance. These complement the corporate leaning of our direct lending businesses very nicely.
Not only are the main street opportunities sets very significant in their own right.
But having a scaled alternative credit capability under the umbrella sharpens our 30,000 ft view of the broader credit marketplace enhancing outcomes for investors across the board.
Finally, we're making great progress toward launching a new alternative credit product for both the wealth and institutional markets and look forward to providing an update in coming quarters.
In GP states 2024 was a year that proved out our long standing thesis that the largest and most diversified managers are best suited to navigate and thrive in this next stage of the alternatives industry over the past year, the AUL of our partner managers increased by approximately 11% and we continue to see significant interest for managers looking to source growth capital for their businesses. It's a better position themselves in a market landscape that favors scale.
As we mentioned in our last earnings call we completed two strip sales with 13 during the 3rd and 4th quarters, returning significant capital to RLPs and bringing new investors into the strategy.
These sales generated $1.4 billion of gross proceeds at a 4.1x goes multiple on invested capital 2.7 X net.
Between the strip sales, other opportunistic liquidity events and regular distributions for partner manager earnings from our flagship products. We distributed $2.4 billion GPs state fund investors in 2024 during a period where many GPs struggled to provide liquidity to their LPs.
It's not only benefits that current investors in our strategy to provide an excellent case study for post active investors.
In real assets we continue to actively deploy across our draw down funds, our non-tradre and now real estate credit.
In that lease we're over 75% committed on 6 a year end.
After I just completed fundraising in the first quarter of 2024.
This sets us up extremely well to be back in the market in 2025.
Market dynamics and the net lease market remain fairly unchanged for us as we utilize our scale and proprietary relationships to drive premium cap rates and monetize a meaningful spread.
During the 4th quarter we deployed nearly $4 billion of capital.
Bringing full your deployment to over $7.5 billion at an average 8% cap rate.
Concurrently, we monetized over half a billion dollars during 2024 and an average 5.9% cap rate reflecting incredible thread capture.
As we look at the quarter and into the first half of 2025.
We have a number of new products and structures to talk about.
Underscoring the ongoing diversification of real assets.
For instance, we raised over a half a billion dollars during the 4th quarter for our European net lease strategy, which is now approaching our $1 billion target and well on our way to the $1.5 billion dollar hard cap.
On top of that we anticipate a co mingled real estate credit product to be launched in the first half of the year.
And of course the IPI acquisition closed on January 3rd, adding more than $14 billion of AUL I'm on a pro forma basis.
This figure reflects an incremental $3.3 billion raised during the 4th quarter prior to the closing of the transaction.
Since the transaction announcement.
AUM is already increased 35% driven primarily by capital raising.
We expect to finish up the current vintage of our flagship digital infrastructure fund at the hard cap of $7 billion in short order, and we are very excited to show the market what we can do with this business. In fact, you'll hear more about our plans tomorrow at Investigate.
Bringing it all together.
We're highly confident and Aboal's position for the future.
There's a lot more to say on this front.
But I think we'll save that for investor day.
We're looking forward to seeing you in person or on the webcast.
And I think it will be a very illuminating and educational morning as we lay out our 5 year strategic plan for Blue Owl and show you the chessboard we have in front of us.
With that, let me turn it Alan to discuss our financial results.
Thank you, Mark, and good morning everyone. We're ending 2024 on a strong note with over a quarter of a trillion dollars of assets under management.
Our 15th consecutive quarter of management fee and FRE growth and a record fundraising quarter for the fund.
Some additional highlights for the year include management fee is about 30% and 91% of these management fees are from permanent capital vehicles.
FRE 26%.
DE up 22%.
And as you can see on slide 12, we raised $9.5 billion of equity in the fourth quarter and $27.5 billion in 2024.
An increase of 74% from the prior year.
An inclusive of debt, we raised $47.5 billion in 2024.
To help break down the 4th quarter fundraising numbers across our strategies and products in credit, we raised $4.3 billion.
3.1 billion was raised in our direct lending strategies, of which 1.7 billion.
Came from our non-traded BDCs OTIC and OTIC.
We also close on approximately $1.4 billion across SMAs and ODL our institutional evergreen product.
The remainder was raised across investment grade credit alternative credit, and our GP led secondary strategy.
Overall for the year in credit we raised 13.9 billion including 7.3 billion in our dedicated wealth products OTIC and OTIC.
And GP strategic capital, we raised $3.2 billion during the quarter, including another 1.7 billion for our large cap strategy, bringing the latest vintage to $7 billion.
We've always expected to fundraise here to be somewhat back ended, which means overall we're a little ahead of where we thought we would be with our $13 billion target.
I would continue to assume more fund raising comes in back ended this year than straight line.
We also have a second close for our midcap strategy, bringing it up to $1 billion raised to be.
And in real assets we raised $1.9 billion primarily from ON, European net lease, and SMA and insurance solution.
As Mark mentioned earlier we are approaching $1 billion raised for our European net strategy.
Overall for the year in real assets, we raised $4.9 billion including 2.5 billion and now dedicated wealth product OEM.
In which we expect to see an increase to the $2.5 billion level for 2025.
We've mentioned the ongoing breadth and diversification of fundraising, and this quarter is another great example of the power of our organic growth engine.
We generated robust flows from our established direct lending GP stakes and net lease products.
While approaching the billion dollar mark for three new strategies, European Net Les, our GP led secondary strategy and our midcap GP stake strategy.
Over 30% of our capital raised in the 4th quarter came from products which did not exist or were not part of our platform a year ago.
We're very proud of the progress we have made in expanding Blue Owl's suite of capabilities, and we'll have a lot more to talk about regarding the diversification of our business tomorrow at Investor.
We continue to have high levels of visibility on earnings growth with substantial embedded earnings driven by future deployment and a listing of our software lending BBC.
Are you not yet paying fees with $22.6 billion as of the end of the 4th quarter.
Corresponding to over $300 million of incremental annual management fees once deployed.
This number has increased from $14.5 billion this time last year.
Reflecting robust fundraising in products that earn fees upon the point.
Upon a lifting of our software lending BBC we have approximately $135 million of incremental management fees that will turn up.
These two items alone.
Would represent an increase in management fees of nearly $450 million.
For 20+ percent growth from our 2024 management fee level.
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.
Focusing now on our credit platform, our credit portfolio gross returns were 3.1% in the fourth quarter and 13.9% over the last 12 months.
Weighted average LTBs remain in the high 30s across direct lending.
And in the low 30s, specifically in our software lending portfolio.
As Mark mentioned earlier, our overall portfolio continues to perform extremely well.
For our GP strategic capital platform total invested capital for our 5th GP stakes fund, including agreements in principle for over 11.6 billion of capital with line of sight into over $4 billion of opportunity.
Which of follow signs would bring us well through the remaining capital available in fund 5.
Performance across these funds remains strong with the net IRR of 22% for funds 3.
39% for fund 4 and 19% for fun.
And then real assets, we continue to deploy meaningful amounts of capital in our latest net least drawdown funds.
Which is over 75% commitment.
Even with robust deployment, our net leaf pipeline continues to grow, with approximately $34 billion of transaction volume under letter of intent or contract to close.
With regards to performance, gross returns across our real estate portfolio was flat for the 4th quarter and 4% for the last 12 months.
And continues to compare very favorably to the broader real estate market over this time period.
The net IRR across I fully realized net these funds has been 24% for investment grade and credit worthy payment.
Reflecting the favorable value creation driven by our scale and solutions based partnership.
OK, let's wrap up with a few remaining items to cover.
On our effective tax rate, we ended the year at just under 4%, in line with where we guided everyone to at the beginning of this past year.
For 2025, you can expect an effective tax rate in the mid to high single digits.
And for the few years beyond, you should see our effective tax rate increase a little bit each year, maybe a few percent per year.
So overall the story here remains the same. You should expect our effective tax rate to be lower for loans.
As a reminder, we pay our tax receivable agreement out during the 1st quarter.
So expect a higher level for the first quarter of 2025.
This is the same timetable as in 2024.
Higher effective tax rate in the 1st quarter and much lower for the 2nd, 3rd, and 4th 4th.
As we announced earlier, our dividend for 2025 is 90 cents per share.
We are very pleased with our 2024 results, our industry leading growth and how we've built the differentiated business.
A steady, consistent, predictable cash flowing business that will continue to pay the bulk of our earnings out in dividends.
As a final note from the entire management team here at Blue Owl. It's been an extremely successful few years and we're very proud of what we've accomplished for our shareholders.
At our investor day tomorrow we're looking forward to laying out what we think is a very achievable path.
We're continuing to lead our industry with robust long-term growth.
We look forward to seeing you in the audience or on the webcast.
Operator, can we please open the line for questions.
We are now opening the floor for question and answer session. If you'd like to ask a question, please press star, followed by one on your telephone keypad. Kindly limit your questions to one question only. And then you can jump back in the queue by pressing star and one again. Thank you. Your first question comes from Glenn Shore from Evercore ISI. Your line is now open.
Hi, thanks very much.
Um
Maybe I'll ask on on on gross to net uh deployment, um, probably not the number you you want it to be, but I'm curious how much you focus on that in credit on on any given quarter and you, do you think that's a function of the deal environment, or does that say something about the attractiveness of deals out there just curious how we should look at that.
Yeah, thanks for the question and um great to have a chance to chat with you this morning. So gross to net has a couple dimensions to it. So look, the ones observable fact is the net deployment, of course relates to getting new dollars to work, um, but I guess I'd start with this, the incredibly active both growth and ultimately, you know, net year in total, you know, I would take as a sign of great strength. I mean this was a very tepid.
a year and so you know you think about how much we much activity we had in a year that was both low on M&A but with a very open
Um, syndicated market, I actually foretells a very good things to come in 2025 as we see the M&A market turn active again.
Uh, again, we're always all, you know, waiting for the, the quote dam to break and I'm not here to call the time it'll happen, but clearly there's already been an uptick in M&A pipeline and activities, compression of bids and asks.
So I think we're
Like many people, pretty optimistic that 2025 will be a more favorable M&A environment. So I start with actually it's pretty interesting baseline year because our most active overall origination year in a macro setting you would not consider quote good for direct lending. Now the gross net itself has two dimensions. It's actually a really good news from the point of view of credit.
And it's really good news from the point of view of the power of incumbency because what you're seeing grossed net often as obviously, as you note is refinancing of of credit facilities that were done some time ago and so what we end up getting to do of course is relook at the credit and redecide if we still want to own it. So it's really a kind of a credit enhancing uh exercise 12, speaks a lot to the power of incumbency, which is a huge advantage, you know, we have just a couple
others have, which is once these loans are in our system, they often stay with us. And I think that also is positive. So when we look at it, I have to say we don't look at a a like a, a large gross load that as as a problem we look at it as a set of data in context, obviously we want some quarters that have big nets, but we love some quarters that have big growth and low net also, so what the balance is good.
I, I don't think the one thing I would say to me it doesn't reflect anything about.
Some market dynamic change. I think it's exactly what you'd anticipate would happen in a market that is more open and active again, uh, but doesn't have tons of M&A so people you end up focusing on refis as opposed to new things. Now eventually you run out of rely so I will say we've obviously a lot of companies have done their refi cycle, so odds are we'll start to see that compressed in any case.
Thanks Mark.
Sure, thank you.
Your next question comes from Craig Shaking Tyler from Bank of America, your line is now.
Mark Allen, good morning. Hope everyone's doing well, so my question is on organic growth. Good morning. Um, so you ended the year with strength in the fundraising front almost 10 billion a record quarter, you've just recently planted seeds through for strategic acquisitions which you know aren't even close to scaled yet and now the macro backdrop is strengthening, so without stealing too much thunder from your investor date tomorrow. What is the
fundraising outlook look like for 2025 and maybe you could break apart some of the bigger drivers.
Sure.
Well, I, I, I honestly couldn't encapsulate it better than you did, you know, I think the overall take is we have
Big flagships we have continued accelerating success in wealth, more platforms, we have some new wealth products or alternative credit continuously offered product which we will be out with in 2025. I think it's gonna do very well with, as you know, new acquisitions like data centers again you know we're continuing our flagship which has already been extremely successful rapidly moving toward its hard.
cap, uh, and then we'll be back again, um, with, with digital infrastructure and continuous software form and not too distant future and so yeah I think we have a lot more ways to win, frankly a more.
Probably kind of bullish animal spirited environment. So yeah, we go in on a strong foot and, well, I guess we, we end the year on a strong foot without all those benefits yet and then those coming into play. Maybe I don't let you comment a little bit about direction of travel from there. Sure, um, thanks, thanks, Craig for the question. Good morning. Um, look, we, we are, as Mark said, very bullish about what we think we can do in fundraising in 25. Well, obviously it
hit a number of aspects of this tomorrow during Investor Day and, and we'll take that out a number of years, not just 2025, but we, we certainly are expecting a meaningful increase from our level in 2024 when we think about equity fundraise and what we can do in 2025.
Thank you.
Thanks Craig.
Your next question comes from Steven Chibok from Wolf Research. Your line is now open.
Hi, good morning, Mark. Good morning, Alan. Thanks for taking my questions.
Thanks, Steven.
For you guys, so, um, wanted to ask a question on expense, so DNA was up 41% in 24.
I recognize merger costs, higher wealth distribution expense, it's gonna impact that growth rate. How should we think about the normal growth rate for opex just given plans to continue to lean into retail but also investing to help scale some of the more nascent strategies and ABS insurance and data centers.
So let me, I take a crack at sort of the qualitative inputs for that and then Alan will comment quantitatively. So, number one, and, and you, you implicitly put your finger on it. Look, we invest in having the best people. We invest in having the best distribution.
Uh, and you know, our, our, our one of our core pillars is excellent, so we're gonna do it, we're going to do it great and so sometimes that takes upfront investment. We've never hesitated to do it and we've been able to yield the benefits of it. With that said, to be specific, we've made a lot of those investments in the groups you've talked about acquisitions are part of that bulking up those with additional team members adding to our credit platform, you know, so you're indeed already seeing a lot of the
Uh, Stephen, appreciate the question. Um, uh, let me approach it a couple of different ways. One, I think overall we came in a little under on expenses light on comp a little heavier on GNA.
Specifically for GNA, I think I would point out we're, we're certainly to your point seeing our acquisitions being folded in, um, in 4Q there were a couple one time items in the court or not distribution costs related. Um, but, but overall we are right on top of the guidance for our 59% FRE margin for 24, and then for 2025, our guidance continues to be 57 58% FRE margin if, if you want a better feel for run rate levels and.
how we think about that this year, and I, I think about it from an annual perspective for 2024, we're at about 12% GNA as a percent of revenue, and we were at about 28.5% for comp.
And so when I think about 25 for the year, the quarters will move around a bit, but for the year 2025, you could expect about the same ratio for DNA, so about 12%, give or take, of course, and with margins at 57 58%, that puts comp at about 30, 31%.
So I, I, I hope that was helpful.
No, very helpful. Thanks for taking the question.
Of course thank you Steve.
OK
Your next question comes from Brian McKenna from Citizens JMP. Your line is now open.
Thanks. Good morning everyone. Uh, I had a question on your BBC, so you just completed the OBDC OBDE merger, uh, and then you're, you're obviously working on the OTF merger. Are there any updated timelines for the OTF merger getting done and when that could be uplisted and then beyond that you're gonna have two large BDCs in the public market so how are you thinking about growth for both these vehicles longer term from an equity and debt capital raising perspective.
Sure. Good morning, Brian. Thank, thank you for the question. I'll I'll, I'll take this, uh, and if Mark has anything to add after that for, um, we did complete the merger of OBDE into OBDC. I think that's now the 2nd largest publicly traded BDC out there, um, we are going through the merger as we speak between OTF and OTF2, uh, we, we've commented publicly that that's on track to close in early 2Q so things are going well there and, and on track, uh, and you certainly could expect.
the listing, uh, shortly after that, uh, we'll talk a little bit more about all this tomorrow at Investor Day, um, if you recall upon a listing of that software lending merge software lending BDC, that's an incremental $135 million of annualized management fees, um, and so, uh, yes, we, we would expect that we will have at some point this year two publicly traded BDCs, slightly different strategy, obviously we have our diversified lending.
Publicly traded BDC OBDC today and at some point this year we would expect that we have our software lending BDC, uh, publicly traded in terms of growing them beyond that, you know, we could look at what some of our peers do in terms of uh what's called an ATM program, and at the money program, uh, for raising capital, uh, as we go, we could look at that for OBDC and certainly upon a listing of the software landing BBC we could look at that for that as well. On the debt raise side we
continue to do all of the things that we've done historically we've meaningfully increased our revolvers across our BDC in 2024. We had a significant capital raise in what we call SPV drop down structures, uh, bilateral structures, uh, secured with banks, and we continue to raise a significant amount of unsecured debt. So we have a lot of tools at our disposal to be able to continue to raise both equity and debt dollars in what will be both publicly traded BDCs.
Great thanks Alan and looking forward to seeing everyone tomorrow.
You too, Brian. Thank you so much.
Your next question comes from Brandon Hawkins from UBS airline is now.
Uh good morning, Mark and Alan. Thanks for taking my question.
Morning, Brennan.
Um, so
I know there's going to be some movement here in um in real assets, uh, and, and there already has been, you know, with with Prema, and now you've got IPI closed, um, when we think about 42 and the fee rate for that business is is that the right jumping off point fully reflected of prima or with some there's some noise and then what's the best way to think about
I know you gave us the total AUM for IPI, but what's the fee paying AUM and how should we be thinking about the impact to the fee rate from that acquisition closing. Thanks.
Sure, thanks, Brandon. Um, on the first one, yes, Prima is fully loaded into our AUMC paying AUM and average fee rates, so, so that's reflective when you think about the acquisition of IPI IPI was running at about 115 basis points on fee paying AUM.
And so, when when we closed, we had about 14 and change billion of AUM and about almost 11 billion of fee paying AUM for IPI. So those are those two numbers. And on a go-forward basis, you know, you could think of IPI running maybe a little higher than the 115 level, but that, that's how it blends into our, our real assets business.
OK
Right
And then last quarter, um, Alan, you gave an expectation thinking about 2025 and again it's a little awkward because you're, we're all gonna get together tomorrow morning, but, uh, and we'll talk about probably more than just 2025, far longer time frames, but you know, the, the last time the 3rd quarter call you had uh laid out an expectation of, you know, FRE growth mid to upper 20%, um, are you?
still feeling like that's the right way to think about it as we're um updating our models, uh, or, um, or should we revise that uh one way or another.
Uh, no, no worries at all, Brandon. Um, and, and appreciate the follow on. So yes, we're gonna talk a lot more about all of that tomorrow, very excited to get into all that specifically for 2025, uh, I'm happy to talk about that now. Last quarter to, to your good point, I talked about FRE revenue growth for 2025 in the upper 20% or more.
Fully on track, no change to that guidance. I talked about on last quarter's earnings call FRE growth in the mid to upper 20% fully on track, no change to that guidance and on a per share of FRE per share, you can think of that as about 20%.
Great
Thanks for that update.
Of course. Look forward to seeing you tomorrow.
Likewise.
Your next question comes from Alex B Bostin from Goldman Sachs Airline is now open.
Hey, good morning everybody. Thanks for the question, um.
I'll keep the big picture, um, hello, uh, I'll, we'll keep the big picture stuff to tomorrow. I did want to ask about some of the New York term pipelines um on the deployment side you're seeing so it's a little bit of a follow up to Glenn's question from earlier, but if you look at the M&A pipelines, there hasn't been tremendous amount of announcements so far this year, so curious what you're seeing kind of underneath the surface in conversations with sponsors and more importantly, um, what have been the recent spreads uh to which your underwriting kind of newer loans to just trying to get it.
terms of the competitive nature in that market today. Thanks.
Sure.
So look, we're, we, we see things early, but not the earliest, right? The M&A, uh, advisor will often see the earliest views of pre-pipeline and obviously the PE firms, you know, know what they're spending their time on on the sell side.
So I, I think what I can say is we continue to have a good sound level of activity we've not observed an uptick, yeah, and as I said, I think we're we're optimistic, and I don't mean that in a rose colored glass sense that 2025 we will see something more materially moving upward.
But in terms of activity level, you know what I, what I understand and hear from the M&A advisors, they objectively are seen more activity in the pipeline starting more processes, you know the people feel I don't know if it's unleashed or just look, we're just through a lot of uncertainties from the fall, and people are ready to to to undertake activity. So I don't have some grand insight by any measure to offer except to say that our planning, our thinking,
what Alan just talked about is not predicated on some sort of market rally. It's not predicated on a different environment than we've been confronting in this past year, so I would do that, not, not so much as called upside to 2025 performance, but I would tell you that that sort of dam break or uptick will certainly be welcome, uh, but it's not, it's not necessary to our, to our thinking. So that's kind of I think contextually where we, we
If it does seem it, but I can't tell you we we'll get on one of these calls where we'll tell you, OK, now are you know I see pipelines are that much thicker that many more things flowing through as we said prior quarters that that had not been the case yet, but I can't say that's the case yet now, but I anticipate there will be a quarter this year we'll be able to say that.
Um, with regard to spreads, you know, I'd say it's now relatively stable, you know, we want, we go through these ebbs and flows we've all talked about this, you know, things cycle up and, and needless to say it all, it is related to amount of activity availability of public markets. And so we want to, you know, peak spreads in 2022 we came down in 2024, you know, to go back down again, 100 basis points probably on average across the portfolio maybe 150.
on new originated loan, but we continue to hold on. This is what's interesting when you look over time, and you look at the spread to the broader marketplace, you know, we continue to hold on to a pretty steady couple 100 basis points all in.
So the product works. It's a durable all market product and uh you know yeah some ebbs and flows along the way, but we view it as very banded, so we're, we're perfectly happy, I'm happy to take more spread. I mean, safe to say, but we're perfectly happy with the risk return we're seeing.
All right, sounds good thanks for all that to you guys tomorrow.
Thank you. Look forward to it thanks Alex.
Your next question comes from Patrick David from Autonomous Research airline is now open.
Uh, hey, good morning, uh, everyone, um.
Patrick, we might, we might get into this tomorrow, but you mentioned the new alternative credit, uh, retail products, um, but there are.
products in that asset class with with a significant head start on you getting a lot of traction so could you maybe speak a little bit about how you think your product fits in against the more established ones, anything different about it you would point to and your confidence in getting placement um with several products already ahead of you. Thank you.
Well, I, I'm, I'm gonna say ahead of us maybe is the eye of the beholder. I would actually suggest that
We have probably one of the most advanced capabilities in alternative credit remember Adelia has been at this for 20 years. Yes, it's a hot topic today. 20 years ago wasn't exactly a hot topic, but they've been doing it for 20 years to spectacular.
Results incredibly low loss rates, great arrangements we are a a a provider of choice. In fact, just this morning, other forward flow uh agreement that we announced of $2.6 billion with Gaia. So I would actually proffer, we may be much more ahead than people understood. They just haven't focused on analy now you know alternative credit in terms of product launch, um, yes, there's a couple.
launch products and full respect, I think the infrastructure we have and the track record we have and the reception we've already received in rolling out our
platforms or to be directing your question, we're already out with platforms, um, and with RIAs and for I think for good reason, once you see the results we are getting a very strong reception, so I feel great frankly about where we will land.
I don't, yeah, I don't take anything away from the fact that there are a couple other wonderful products in the category. I think that's gonna be a typical structure, as you know in these wealth categories. There'll be a few participants that are gonna be really the bulk of a given subcategory given asset class. I fully expect will be one of them an alternative credit. We are one of them in direct lending where you're net leader in real estate, and I think we will be one of the key leaders in digital infrastructure.
So, you know, I, I think it's a very interesting market. We feel very fortunate to have started at it 10 years ago, which puts us in a position where kind of interesting gap actually which you'll find we probably have the lowest brand recognition amongst the biggest firms, no shock there. But actually if you look at people view our brand, it's amongst the very best in the marketplace. That's a, that's a pretty nice gap to have. That gives us a lot of headroom.
Your next question comes from Crispin Love from Peper Sandler, your line is now open.
Thank you. Good morning, everyone. I appreciate you taking my question.
top data centers you've you've now closed IPI. There's articles about a potential Stargate investment out there. Can you discuss your views on data centers going forward, potential growth opportunities, and how you balance that in light of the recent deep seek news out there which could impact the industry broadly.
going to call out IPI, which is now all digital infrastructure, a clear pioneer. We were just talking about this yesterday, you know, the, the scale of this market trillions was certainly not that when IPI had the foresight to become a leader in the space. It was a much, much, much smaller world, but that means they have many, many more skills and relationships and lessons learned.
Um, as a result, we have built and managed 85 different data centers with a gigantic active pipeline behind it, uh, and so we have I, I guess I would dare say a lot of insights into what's happening in that marketplace.
And what we're seeing and hearing from the client base and and quite frankly it's all you all know this well people out in the public market talking.
Uh, but Deep Seek is really, really fascinated and we should all keep front of mind Javi's paradox, you have the idea that there's this disruptive technology is to be expected, hoped for in the world of technology evolution. And, in all likelihood, accelerates adoption.
So you know it's not clear that what deep seek means exactly for ultimate compute, but here's what we can frame around that question. It may mean it all happens faster. It may happen broader. Uh, it may mean you need a little less compute to train a model, but then you do more inference. I think I think it's hard to, to reach a conclusion other than what it tells us is that AI is happening more faster broader.
That's great news for our strategy.
So what I guess I would, what I take out of from where we said at Blue Owl in, in, in Deep seek is a good news story, which is the megatrend, the overall notion of AI adoption is only happening faster. And the whole reason you use our strategy, the whole reason to get the DNA of our business is downside protected very attractive returns with stability and protection and income.
So
You know, if you want to play the edges of AI, people may make great money on the cutting edge or they may wake up and find out that someone was working on deep seek in China. We don't want any of those risks for our investors. So if you believe that 10 years from now, AI will be an important part of the kind of fabric of you know IT or the way we operate in this economy, then you want the picks and shovels, you want the infrastructure that goes with it, that's what we provide, so.
I would dare say we feel, you know, very, very good. Now let's add that to a few macro numbers and then you know I'll move on.
The announcements coming out of the people who really know what they're planning to do, and by the way, whose credit we ultimately get paid by, you know, they've made their positions clear even in the two weeks since Deep Seek, right? We've seen Mata come out and move their number to 65 billion. Microsoft, which when we signed our deal, I, I think we thought they were gonna be around 50 billion, I think they've now come out with 80 billion, um, we're hearing 80 billion as a number around Amazon, I
Google 75 billion they announced yesterday, so people are spending the actual money, have made their position clear, and that's our client base, and then they pay us for 15 years with their near sovereign like credit ratings. So all that feels very good. Last thing I'll say, not because I want a pound on this, but we're all trying to get our minds around just the evolution of the market.
If you look at the demand for compute and the multi-trillion dollar opportunity that we're excited about and and others too. 75% of that was already anticipated to be for inference and to be for just cloud compute.
So even when we get into the deep sea change the fundamental need for raw compute power for training models. We're really talking about modulation around that last 25%, so all that taken together, if you believe in AI and you want to have a great way to make a really attractive risk return, then you go with a pioneer and actually, you know, go to partner and building and managing the data centers. We have 1000 people.
inside of our operations group more widely known as Stack.
They're the experts in how to make that happen. It's a huge barrier to entry. So
He seeks fascinating. I think it means, you know, join, join our strategy if you want to make sure you play the foundation of it, and then you can also, you know, do the cutting edge and I'll take technology skills that thankfully not decisions we have to make.
Thanks, Crispin. Thank you, Martha.
Appreciate the answer. I look forward to seeing everyone tomorrow.
Your next question comes from Mike Brown from Wells Fargo your line is now open.
Hey, good morning, Mark Allen and and.
Morning, Mike.
So
So, um, you know, lots of, lots of good questions. I just wanted to narrow in on maybe the credit results this quarter, um.
These rose about 25 million quarter over quarter, and this would be the first full quarter with Adaliya.
By my estimate that should have added, I, I'd say 20 to 22 million in, in the quarter so I guess one is that about right? and then 2, can you help us understand some of the other drivers beneath the service and and maybe why the feed X Adeli didn't.
Increase as much quarter over quarter and then you know finally started just maybe also any color on an incremental increase into one cu as we think about to go forward. Thank you.
Sure. Thanks, Mike. Uh, I, I think your numbers are directionally correct on the Adelaya ad, um, we, we certainly saw increases across all of our products, uh, in terms of management fees quarter over quarter, so we, we had a strong, uh, growth quarter and management fees across credit, um.
We, we also raised capital during the quarter at higher fees, um, so you'll, you'll see an increase in that, um, management fees from AUM not yet earning fees, and you'll see a little drop down in part one fees, um, effectively flat, but I, I think it was down about $2 million quarter over quarter, um, as we think about part one fees, you know what I mentioned on last quarter's calls you can think of you know 3 Q4Q is kind of a jumping off point as a run rate level if you will.
don't move up a little or down a little quarter over quarter, and then you'll see a step function upon a listing of the software lending BDC.
OK, great thank you uh look forward to seeing you all tomorrow.
You as well, Mike thank you.
Your next question comes from Kenneth Worthington from JP Morgan. Your line is now.
Hi, good morning. This is Alex Bernstein on for 10. Thanks for taking our questions, um, at the risk of double clicking on, on the same topic again um just wanted to hopefully uh get get a different flavor, um, out of the Delta, uh, between gross and net you spoke about incumbency, which, which is definitely uh a key point and maybe to help us better understand the power of that as we look at what is actually net which includes refi as I understand it that you're doing yourself for your own product.
What's the difference between what is staying in the system and and what might be exiting the system and specifically what's happening with the broadly syndicated market, um, and, and the bank competition when we saw this topic first come up earlier in the year, so say Q1 really when, when it sort of hit most people's, uh, attention spans. It made sense that there was more refi from the DSL in the context of that market being closed and then rates moving down over the course of that period while that market was.
closed and when it opened, we don't have that same dynamic today, so wanted to understand why that number was as a percentage, uh, the conversion was lower in Q4 than it was for the whole year. Thanks so much.
Yeah, sure. So a couple of dynamics to pack, uh, again, I'll reinforce what we net net it's ultimately a pretty healthy dynamic in the portfolio or an expected and healthy dynamic.
Uh, it also not to be lost, it does accelerate. OID comes with prepayment benefits so that there's also not to be lost in this other benefits that come from these types of refinancings.
With that said, you, you put your finger on a good point about sort of the might call the rush of refinancing in the first part of the year, which was indeed impacted partly by the the reopening of the BSL market. I think a lot of, uh, and I won't be able to give you an exact number on this, but I would say directionally a lot of what we're seeing are companies that have are doing well coming back have grown, you know, delevered and
saying, look, the world's different from where it was a few years ago when I did my financing and so I'd like to, you know, redo it that does include redoing spread often includes redoing and resetting the right size of the cap stack, so it's not been a a drawdown or a draw away by the BSL market will always have some, you know, some things that move from us to the BSL market, from the BSL market to us. I actually would characterize qualitatively the reply now as you
has more about people just redoing cap sacks in a healthier environment. Those who have healthy, you know, more delaborate businesses than it is about, you know, the, the, the surge into BSL is back and so people that were kind of waiting out their time shifted.
So the, the BSL market, I guess I'd say the effect of having a very full bore available VSL market like that's already that's fully in the system so as we enter 2025, you know that we've already experienced, we've already experienced all that, and there'll always be loans to move back and forth. I think at the end of the day for us now pull out a refinancing has occurred. They'll always be some thankfully because we have healthy companies that are doing really well and rightfully so, they have a chance.
3 and they come to us because they like working with us and they do it again.
Very helpful appreciate the answers always and I know Ken's excited to to see you all tomorrow. Thank you.
Thank you, thank you.
Your final question comes from Bradley Hayes from TD Cohen, your line is now open.
Hi, good morning, Bradley Hayes on for Bill Cats.
Good morning Bradley. You've reached about 300 million and management fees from deploying AUM not yet paying fees. How should we be thinking about the cadence of deployment? Any color on the opportunity to deploy some of this dry powder into 25.
Sure, um, I, I'll take that, Bradley. So when we think about that AUM not yet earning fees, it's a little over $300 million of management fees that, by the way, combines with the 135 million of annualized management fee increase from a software lending BDC increase it's almost $450 million. Those two items alone would represent over a 20% increase from our 2024 management fee level, um, kind of.
time frame obviously hard to tell. Generally speaking, most of that I would expect can get deployed uh within the next year.
Um, and so, you know, maybe some of that tails into 2026, but um we think we can deploy that roughly in about a year and we're we're expecting, um, deployment opportunities to be able to put that capital to work.
OK great thank you very much.
Very welcome, thank you.
Thank you. I'd now like to hand the call over back to Mark Lipshops for further remark.
Terrific. Well, look, thank you all. I guess I made just a couple of of uh final comments.
It was a great quarter, uh, and it was a great quarter measure in absolute terms in terms of results, but I also want to come back to a great quarter measured in durability of the model and of our growth.
So this has been a volatile world the last year, the last several years, and we're going to talk about this more tomorrow. We have continued and will continue a strong up and to the right march, and I think that durability really showed again in this quarter, uh, we, you know, for all that's happened in the world, here we are plowing forward at at rates of growth that have materially eclipsed the the market pure sat and we're gonna talk more about how we continue
that path forward and continue to win as we as we look to the next 5 years. So also I'll say we do indeed after, you know, the size to look forward to the main course, if you will, tomorrow, uh, and we have, we have a lot we're excited to share with you as how we pull all these pieces together. Doug is gonna talk about the chessboard that he sees, and I think you'll all share this exciting vision for that chessboard. uh, we saw it before and that's what got us to.
where we are now we see the chessboard from here forward again. So we look forward to really having a chance to talk with you all about that and answer further questions. And, lastly, let's say thank you. Really, we do appreciate the time, the thought, and, and the support, and we will keep working very, very hard to keep delivering on on uh on all these opportunities for you.
Have a great day.
Thank you for attending today's conference call. You may now disconnect. Have a wonderful day, everyone.