Blue Owl Capital Corporation (OBDC) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you so much for joining us. I'm Dana Sclafani, Head of BDC Investor Relations. On behalf of our entire team and everyone who made this event today possible, it's my great pleasure to welcome you to our BDC Investor Day. As you can see, we have a packed agenda today. You'll get a chance to hear from and interact with our deep bench of senior leaders who have built our direct lending business and run it day to day. Throughout the day, you'll have the opportunity to ask questions at the end of certain sessions. For those of you joining us virtually, who want to ask a question, please use the Q&A box on the portal. We'll do our best to get to as many questions as possible. But to the extent we run out of time, someone on the IR team will follow up with you after the day. Now to get things started, I want to share a short video on the Blue Owl origins before I sit down with Marc Lipschultz, Co-Founder and Co-CEO of Blue Owl; and Machal Karim, our Head of ESG. [Presentation]

Great. Well, thank you so much for being here with us today.

Thank you. Excited to be here. Thanks, everybody, for allowing us to spend time with you.

So just to kick it off, Marc, you had an incredible career before starting Owl Rock and now Blue Owl. Can you just give us a little insight on how that came to be? And what experience has shaped your forming up Blue Owl?

Sure. Thank you. So look, a long time ago, it really was a long time ago, I started in what then was not called alternatives, but alternatives, nearly 30 years ago at KKR and I think as we just referred to in the video, in 1995, I joined the firm, already, of course, incredibly established franchise. But if I picture back to that time, that we had 20 total professionals, front, mid and back office included at KKR. And we have one large fund. Be clear that large fund was a $3 billion mega fund. There are only 2 large private equity firms to speak of in the world at that time. There was KKR [indiscernible] other firms that we all know today, obviously, as extraordinary giants were largely startups at that time. TPG started '94, I think. So it was a very different world. And at that time, we have this little niche of a thing called LBOs, which we call private equity, and we did financings in the way that we all kind of probably remember or remember from the movies, which is you go to banks and you actually get the money and the banks are the lender and they're counterparty. And over the next 20-plus years, 21 years that I was at KKR, I had the good fortune of being a part of actually doing private equity, the very transactions we finance today and growing up with the people that we mostly work with today. I started the infrastructure business and a chance to create a direct assets business. [indiscernible] management committee, we went from a private business to a large public business. And then ultimately from that place, in 2015, we decided with Craig and Doug to launch Owl Rock. We saw really a very different landscape that had gone from that niche of a couple of private equity firms, again, not called private equity, to really a whole industry, a multitrillion dollar industry that's only gotten bigger. And really an opportunity from now a platform in KKR that 1,200 people and really at every product in every market to see an opportunity to sort of do in private credit, what people have done so well, so successfully in private equity over the decades prior to that.

Great. And what were the founding principles that you guys wanted to set in motion when you started Owl Rock in 2015?

So I think there's a few core principles that I would focus on, most importantly, is building a culture around delivering for our investors and understanding what it is that we're going to be really distinctive at. And when I say we're going to be distinctive at, I think you really have to know your DNA to ultimately deliver a superior result. And the DNA that we've set up in Blue Owl and starting with Owl Rock was building a business that's centered on capital preservation, capital certainty, sort of protecting credit which at the time was the product. Obviously, there are other products that have the same attributes that are important which is principal preservation, stability, predictability with a strong component of current yield. And that really is kind of the DNA of the suite that we set up and then what we wanted to do was make sure we build an organization with the very best people. We've been incredibly lucky in attracting the best and retaining the best. And then having everyone understand, look, we have a singular job. Our job is to deliver on that promise on those outstanding results. That is to say that principal preservation, the most strong predictable outcomes for our investors, whatever that takes. Everybody in the firm understands. Nobody works on 1 product, 1 thing, 1 area. Everybody, whether it's front, mid, back office operations, investing everybody here today, everybody understands the job is to deliver a great result for anybody that trust us with their capital.

Great. And can you just walk us through -- a lot's happened since 2015, can you walk us through the evolution of the business and how we got to where we are today?

Sure. So in 2015, we started with, of course, [indiscernible] an aspiration and idea. And the journey is never over, so I'm going to talk in ways about where we are, but of course, where we're going will ultimately prove more important. But in 2015, we thought about what we wanted to build. What we said is we saw marketplace and park it back to what I described about that evolution over the 20 years prior to that in then called private equity. So we've gone from a couple of firms to 1,000 firms -- thousands of firms, gone from a very much cottage business through a true global industry. And all of it have been built around this notion that private equity has a long-term investor with a long view could be in many instances, a superior owner of businesses. And by taking that view and that structure that private structure, the ability to take a view that looks past quarters, looks past years, one could actually deliver superior, risk-adjusted returns. And I think private equity has absolutely done that and done it well. The analog that we saw at the start of this journey was well, wait, that's what we want to do in private credit, in direct lending. And direct lending, and many of you will remember this, but if we try to sort of harken back to roughly 10 years ago, just before we launched this, private credit, direct lending really was a lender of last resort model. It was relatively small pools of capital, where you would go -- if you couldn't finance something in the sort of traditional mainstream sense of the word. And I say that contextualized to having gotten been at KKR for 21 years, until 2015, I don't think we ever used a direct lender. Sure there's exceptions inside that vast complex. But I don't think we've used a direct lender. And the real key point was direct lenders were for the smaller companies, the companies that just -- they had issues, have challenges, no one else really wanted to finance them until there is where you're at. Our idea at starting the business and the journey we started in 2015, as I said, was most importantly, how do we deliver an outstanding risk result for our investors. But of course, how do you do that? You have to have a business model. And the business model that we set upon was to take private credit direct lending and say we want to become the lender of first resort. Lender first of choice for the best companies, the biggest companies with the best sponsors. And I would dare say that part has happened. And so the journey has, and that's not to say we don't [indiscernible] fighting that fight, and we have more -- much more ambition to go, as I said. But in 2015, the capital when we started 2016, we started with a large pool of capital by direct lending standards, that was quite on purpose because we wanted to target those very big companies or big [indiscernible] companies, better companies. Now big then and big now looks very different. Back then, someone can provide $100 million ourselves and maybe 1 or 2 other firms, that was big. Today, obviously, to be big, relevant, impactful to the kinds of high-quality companies we finance, now you need to be able to provide $1 billion. And otherwise, you're not really in the dialogue in terms of the lead conversation and the real structuring of the very best deals. So when I say best, really important part of this evolution, you're going to continue to see as we talk about it. Best for us is a very simple metric, best credit quality. We want companies where we are not going to have problems. If we have a problem and a rare one at that, thankfully, we're going to get our money back. And that has been the sort of narrative from day 1. It is all about capital protection and preservation. And while that seems maybe obvious now, if you kind of harken back to that time in 2016, that actually wasn't a lot of what drive the direct lending market. Direct lending market was a lot about, well, I'm going to try to get paid more to kind of go out into these custody edgy areas. And our view was that was not what we want kind of antithetical to what we wanted. We want to build a large cap solution base again, for 1 [indiscernible], their better credits. And I can say this with strong conviction now, $75-plus billion [indiscernible] doing loans, the bigger companies are more durable. They got to pick them right. We looked at 8,000, and Craig is going to talk a lot more about this, 8,000 to make the 400 loans that we've made. But the pattern is undeniable. The larger, bigger businesses with more lines or product lines, more people, more sophistication, all of those areas more facilities, just more degrees of freedom to deal with changes. And that is all about protecting capital. And that became the sort of evolution of the firm, which is let's build the big, large pool, let's invest heavily, always invest ahead in the people, have more people, higher quality people, operations team and infrastructure that was world class from day 1 and always build ahead of ourselves in that way and then invest in these larger companies. And then as we evolve the business, we said, well, what else could we do, should we do with that? So direct lending is, was, and remains our core. It's our largest business. But that ethos can be found and indeed, we did find in 2 more partners. So [indiscernible] now the GP Stakes business at Blue Owl was doing the very same thing providing private financing solutions for the GPs themselves, right? So taking that same lens, how can we make really safe investments in really high-quality businesses. In this case, it was investing in Silver Lake, in Veritas, in HIG, it was opposed to financing portfolio of companies. But to put those 2 together, we wanted an ecosystem. It's a very powerful ecosystem because for any large cap, any GP, we cover probably 700 today. They can come to us and say, "Listen, we need a capital solution. Maybe it's something we're doing at our own firm level, maybe it's something at the portfolio level. But if we talk to Blue Owl, we have all those solutions on offer. And then you start to get the flywheel that comes with that. Think about people -- everyone in this room would build relationships. And everyone in this room is trying to earn the respect and the trust of the people they do business with, and that's critical. Like trust and respect, I think, is often the attributes of the people we all like to work with. But building those proprietary partnerships, some were talking about proprietary sourcing. So one of the things that we saw in this combination, in the ecosystem was what better partnership could we have than being an owner of the very GP who we're talking to about financing a portfolio company. I want to be crystal clear. These are minority interest, we don't control them. We would never expect or ask a partner manager to do something that's not in their interest. However, as a financing source and as really one of the leading financing sources to come and say, listen, we love that company, and we'd like to be the financier for that business. That's not that hard to do. If you say, well, of course, I mean this is the group I trust. This is the group I know and point of fact, they're an owner of ours. They're a partner of ours. So we said, there's a way to create a really powerful flywheel that serves everyone's interest. Most take our lens here today from a direct lending point of view, it really just means we can do something better in terms of origination, getting that first call, that last look. Getting at that sort of tie goes to the runner, it's pretty valuable. And that was part of that first step in the ecosystem. And then to accelerate forward, we said, well, where else are the financing solutions that have these similar attributes, all about durability, predictability and current returns. And it turns out that Marc Zahr and Oak Street, now Blue Owl Real Estate had architected without question the leading product in this area. Triple net lease, and I know we're not here to dwell on that, but triple net lease is a financing solution. It's taking an asset, a real asset, a distribution warehouse for Amazon and then leasing it back to them. And what is a long-term lease, 15, 20 years. It's a finance. So here's another place where in point of fact, financings are happening on this very durable kind, and we can add that to now we have a real estate-based financing capability. Now that's not CRE financing. We don't finance real estate in the sense we're doing mortgages. Quite the opposite, we're really financing Amazon. We're really financing Walgreens, but we're doing it by buying a noncore asset of theirs and leasing it back. So that's really been this continuing arc. So I think what you can see, and I'll leave it at this, is a metaphor. I like to picture. Think of Blue Owl as there's a lot of firms out there that have gone the direction of being all things to all people and very successfully, global footprints with $1 trillion and they're really good at what they do. But they do everything. On the other hand, there's sort of the very narrow gauge idea of just stay in your lane. And I think that's too narrow in interpretation to end up delivering an optimal result for our investors, and that's what this is all about. So the way to picture our business [indiscernible], I think, kind of where is direct lending in the Blue Owl context is, we're on a highway. Our highway points one direction. We know what that direction is. We point north, and it has a set of attributes around capital preservation, principal protection and generally current yield and it has a direction around being a financing source. We're the picks and shovels to the gold miners. This giant multitrillion dollar [ alts ] industry, we serve that, and we know what our job is and our role is. So it's not a lane, but it is a highway with multiple lanes. And what we can do successfully is by occupying adjacent lanes do a better job for everyone. Now the biggest lane for sure is direct lending and that's what we're here to talk about today.

Great. Thank you. So you mentioned our investors, and I think our scale is such an important competitive advantage. Can you talk about how we work with different various investor types and why they like to partner with us.

Absolutely. So I mentioned the words like, trust, respect and respect. And I really believe and it applies much more broadly into our business that's pretty good set of attributes to aspire to. And I think it is in no small part, how we go to market, so to speak. Again, and coming to this industry with a very different approach starting in 2016, which we want to win the right to finance your favorite companies, your best companies not, hey, you're stuck with us, so get used to it. And that was kind of where, again, the industry more was that it wasn't. To do that, you have to come to market with a very different approach. You have to come and again, you have to earn the right to deliver that solution. And you have to earn the right to get paid to deliver that solution. So Remember, something -- and I'll say this intentionally in this kind of provocative way to start. When we go to someone and offer a loan, we are going to charge them more. And we're going to have a much more restrictive document. I might even argue that's more valuable than the first in terms of credit and delivering results for our shareholders here. And we're going to do much more invasive due diligence. Now I stopped my conversation there, we probably would get a lot of takers right? Look around the room and say, "Well, we want that." And it's always the sanity check like how is it that we can deliver so much superior in the way of results with really, really low risk. How? We have to have a value proposition, and this is the go-to-market point. The value proposition we've created, we call the 3Ps, predictability, privacy and partnership. And I'm not going to dive into all of it because again, there's going to be a lot more in-depth work on direct lending today. But what that's all about is becoming a reliable, predictable partner. You tell us today, we're going to agree on them out, we're going to agree on a set of terms, and we will be there. That has value. And sitting here today, it's probably intuitively obvious to everyone why predictability has value in an unpredictable world. Privacy. Well, that's just private equity meets private debt. Yes, it's kind of intuitive, but wasn't apparent or frankly didn't exist in the decade that I experienced in prior to this now evolution of private credit. This idea that, well, wait a minute, if I want to truly have a private company, they can then also have bonds. I can then also have syndicated loans, I'm back reporting on a quarterly basis. I'm back in the world of reporting to rating agencies. So it isn't just about what I want to accomplish over the next 3 to 5 years. It's actually what happens this quarter and what do people think of it. So going and closing that loop, part of the value proposition. So we have to go to people and say, "Look, we are going to be your one-stop private partner, that's it you talk to us and other financing source that's part of that loan. And that's it, keep it private." And most importantly, partnership. And that has been the root of our business in every regard. Partnership with our investors, partnership with our shareholders. It will sound like a throwaway comment. We view absolutely everyone in this room, everyone that we're lucky enough to have on the stream, everyone we work with internal, external as our partners. And we mean that as a 2-way street idea. We're here to help each other. And the partnership idea, it kind of really imbues everything we do with these potential users of capital. And with Craig and the team that has done just an extraordinary job going out and getting in front of these sponsors and in front of the companies and earning that right to be their trusted partner then they come back, and I will speak when we get to it to the evolution of the market. Now what that meant is also for us delivering these solutions as both a public access point, ORCC, private BDC access points for individual investors and equally for institutional investors. In fact, we've always built our products and our platform to serve institutions and individuals as absolute peers. And of course, you couldn't see that more than on display in ORCC. ORCC from its first day and today is a fantastic mix of the smallest individual investor, all the way up to the very biggest institutions. And that's because we're trying to create that experience, that result that works for everybody. We're not trying to say, well, this is what would be good for an individual's loan book. This is what's good for an institution. Everyone wants the same thing, the best credits and the best results. So the beauty for us is we've been able to attract to the Blue Owl platform. People like on the slide you all see, institutions of the highest quality, some of the very biggest [indiscernible] have all of the biggest pension funds in the U.S. and the top few and really great institutions, great endowments, great universities, sovereign wealth funds and wonderful institutions and platforms and partners, and we view those as equally important. And what comes with that, I think, is, importantly, the -- so early on and today, remember, we're being added continuously by the most sophisticated institutions in the world who are likewise choosing to invest in the same loans with the same origination function, the same underwriting back to this point, we have one big funnel that is to say all of those 8,000 loans started at one place and they went through this system where we have well over 100 investment professionals just doing direct lending. And when we deem them good, those 400 out of the 8,000, any vehicle that was relevant participated in those loans. So every time one of these new [indiscernible] becomes a multibillion-dollar partner of ours, they're signing up for the same credit experience that everyone in this room is signing up for. And I think that is sort of another layer of view. There's another group of people that are continuously vetting everything about our investment process and our operations and our infrastructure. So I think that's been really about building, like, trust and respect with institutions and individuals and most importantly, building out of all that durable partnerships that people are willing to pay for because we offer them value for what they pay.

That's a good segue to the team. I'd love for you to talk a little bit about the team and how the business culture has evolved and how important collaboration is.

Collaboration is everything. Collaboration is everything. The benefit of having both the scale of people we have dedicated to direct lending. We've got one of the largest teams in the world dedicated to direct funding. But beyond that, the team we have dedicated to these perfectly adjacent spaces. So we've got to think about the people that are spending all their day thinking about the GP Stakes. I mean that is the same ecosystem. It is the same, sponsors. It's the same people. So the synergy comes from having all of those people pointed down this northern highway in lanes driving together. I'm guessing [indiscernible] Peloton engines like a bike, so we can all draft behind each other. So I had to modify my imagery a little bit, but somewhere in there is this idea that we can really pull each other forward by working together. And we do have intellectual capital that genuinely applies across the groups. We have different companies who will know from different perspectives. We'll have different GPs, we'll know from different perspectives. And so that is all about collaboration and the key to making collaboration work, of course, is having an incentive system to flex that, and we do. Everyone in this firm gets rewarded for the ultimate aggregate performance of the firm. And very importantly, is culture. It is the absolute expectation that if you got an e-mail, a call that said, "Hey, something just came up overnight. It's on insurance brokers firm, we know you've worked on 6 of them. It has to do with something we're working on over here. I need your help in London." The person is gone. There's no question about, well, he's got my group, he's got my banker. We don't talk with my, it's our. And that can only work if you constantly push for collaboration.

And I think we talked a lot about infrastructure as you built the firm and you knew the growth is coming. So can you talk about the importance of centralized functions like legal, compliance, accounting operations?

So this I don't know if this will sound surprise to people or not. But from the beginning and today, I would argue and believe that getting operations to the point of excellence is actually absolutely as important as bringing investing to that same point of excellence. That is to say, you can't be great at one and not at the other and deliver the great result. You can't. Investors are counting on us to not just do a great job but make sure they get what they need. They get the information. It's accurate. It's precise that we've thought through every element of risk. And we manage a complex, they're counting on us to manage these pools of capital in perpetuity. So building that durability isn't just about often the way these firms -- I think many firms [indiscernible] seems to show up on the investment side. I don't believe that to be true, and I don't think we've built our firm that way. Everything has to be equally strong. You're only as strong like overstated point as your weakest link. But it's really true, especially in businesses that are about capital preservation, protection, safety, security in uncertain times and think about those attributes back to what I talked about our highway being. That's true. And it is true for us. That means everything has to rise to that standard. Everything has to be durable when COVID hits. And it did. COVID hit, and we were on our front foot doing business. 2022 and all the commotion in the market on our front foot. That's not just about investing. That's about the infrastructure to serve thousands of investors in the case of individual shareholders or maybe it's hundreds of investors or $1 billion investor. It all takes infrastructure to be predictable. We put compliance on the absolute highest pedestal we have, an incredible legal and compliance group, led by Neena and [ Karen ] and kind of get that right every day. So I don't want to miss -- try to misstate this, but I don't think I'm overstating to say operations and investing just like individuals and institutions are true peers in our organization, and we've got to get it all right and equally right.

So switching gears a little. I want to talk about the shared values that we've created as you built Blue Owl. Can you talk a little bit about those and how corporate sustainability fits into that?

Yes. So our business is built around 4 core values, and this will lead right to this. Really, I'd like to have this image because the umbrella of corporate sustainability sits over all of this. So for us, mutual respect. And I'm not going to dive into all these now, so I don't want to get into sustainability. Mutual respect, constructive dialogue. We must talk about things. Anyone that has an opinion, there are so many good people to work at our firm. There is no monopoly on knowledge amongst the senior people. There's no monopoly on knowledge amongst the people on the investment committee. I think we bring experience that's useful. But there's people today I would proffer, there are people that are probably 23 that are going to be much more agile on the topic of AI as much time as I've tried to thinking about it than I do, right? And that view is critical to an intelligent conversation when you're trying to avoid making a mistake on a loan or anything in a defensive kind of protect your capital model. So constructive dialogue. Excellence. And this came through, I hope maybe what I was just saying maybe over -- went on too long on topic of operations. Anything we do, we want to do with excellence. We're not going to do it that standard, we just shouldn't do it that should apply to every product we have, every decision we make, everything we do. This event should be excellent. I hope afterwards, people say this worked really, really well. I know how hard you have worked in particular, to put this together. That doesn't mean perfect. We have people learning back to the point of constructive dialogue, we share your thoughts. But we want to do it really well, or we should do it. So that's excellence and then 1 team, which is really encapsulates the collaboration point. We are 1 team, and we have 1 set of clients, and that is any investor that's counting on us, always work for that person. So those are our values. The umbrella over that is, okay, great. How do you do that in a way that is going to be enduring and works for your stakeholders, go back to my first comment, mutual respect. I would say mutual respect is a probably very simplified word for what is corporate sustainability look like? What does it mean to be mutually respectful with the stakeholders you work with. So in a way, our first value actually evolved in this much bigger proposition that kind of sits over everything of corporate sustainability. And how do we be a good corporate citizen and a sustainable part of this landscape since we're planning to manage capital in perpetuity.

Great. Well, Machal, thanks so much for being with us today. Just to start, could you give us your background and what drew you to Blue Owl?

Yes, sure. Thank you, and good morning, everyone. So my background, a little bit different is purely in sustainability. So that's basically what I've been doing my professional career. However, a big part of that was in what does that mean capital. What does that mean for providers of capital. So I've worked historically with different asset classes in the private markets and really understanding what does -- how do you incorporate these values of sustainability into the cycle.

Great. And corporate sustainability and ESG have been in the spotlight recently. Can you talk a little bit about what it is and how it's evolved over time?

Yes. So I mean one thing that's quite funny actually. Marc and I did not preplan this. And it's quite funny that he was saying a lot of things that I was actually going to touch on the sense that what is -- what drives this and what is corporate sustainability. It's been an evolving definition for a long time. One thing that I think Blue Owl has really done is really put some effort into really understanding what do we want it to mean for us. And that was a big part of my decision actually to join. That's one drew me in. It's this idea that, okay, we want to be excellent in everything we do. And this particular topic is hard. It's really hard to understand. So if we're going to do it, and Marc basically took words out of my mouth, that if we're going to do it, we're going to do it well, right? So we have to figure out what that means and all the components that comes with. So I'm going to try to put this in simple terms. Corporate sustainability of where it's evolved today, I think the basic, simplest way to think about it is how does the firm really try to better understand its relationships with its stakeholders and in the ecosystem in which it operates. So we, as a firm, particularly as an asset manager, we rely on our relationships. These are the people we employ. These are the businesses that we finance. These are the communities in which we work. But we have to understand what our role is in that. Importantly, I think what we do see is the nature of corporate sustainability of investing responsibly as an asset manager. It's become an imperative to take these considerations into mind. So we have to think about to the extent this applies to what is our fiduciary obligation to our investors. We really need to understand. Are there risks? Are there opportunities embedded in these relationships? And how do we optimize that as we're just deploying our capital. We want to know what that spectrum looks like because we have a role to play in.

Great. And can you talk a little bit about how we've incorporated that into our business today and any achievements you'd like to highlight?

Yes, for sure. I think it's been a journey. So it's been about a year since we've been doing this and trying our best to build up from the bottom up. I think the focus very similar to on the investment side, it's really the fundamentals. It's really starting with those fundamentals. A big part, I am equally just as much huge fan of legal and compliance, they give me a huge amount of their time because it is very important to get those mechanics right like we're saying it's a tricky space, and you have to be able to understand what is core to the business, what's fundamental, how can we stand by what we say that's becoming more imperative than ever before to be able to demonstrate that you are doing what you say you're doing? And what does it take operationally to get there? So we're -- our kind of mantra philosophy on corporate sustainability and being an investment -- responsible investment practitioner is really saying, okay, we need to embed this. It needs to be firm-wide. It needs to be part of our culture. Everybody should have the ability and feel equipped to navigate the space even if it is complex. So one thing we did earlier this year, we rolled out a firm-wide online training on corporate sustainability, responsible investment. Very proud to say we hit a completion rate of 84% across the firm. And that just really tells -- that's indicative of like people actually want to understand and they care about this and they need to understand [indiscernible] affects their business. So hopefully, everyone is a little more equipped to actually deal with the complexity of it. And that's really important. And another big thing that we've been thinking about is climate risk management. What does that mean for us? That's probably a topic that a lot of you hear. It's very kind of a big thing that a lot of people have views on. But for us, it's understanding what does it mean for our business. It is a form of risk management that we have to think about, and we have to be very practical about how to incorporate that right?

Maybe spend a minute just how it's incorporated in the direct lending business specifically.

Yes. So moving on from that big picture, then a very core part of what corporate sustainability is for an asset manager is necessarily this idea that how do you demonstrate as an investor, how do you demonstrate that you're taking specific considerations as part of that decision making. A lot of it is this idea of what we refer to ESG analysis, which is the consideration of environmental, social or governance factors when we're making those investment decisions. So the way we've approached it at Blue Owl is we have a centralized matrix and framework that really captures how do we want to practically apply this kind of analysis and this lends on to investments. So it absolutely needs to be about enhancing our investment decision process. It absolutely needs to be about being complementary to our deal teams and the business they need to do and really making sure that, that's weaved through the process. So we have a centralized framework, but we also acknowledge we have this multilane highway and then there's various ways to get to that end goal in all these different groups and asset classes need a more customized tools, around processes, around support. So we developed that. And for direct lending, specifically, I mean, you all have a QR code on the other side of your little box there. We have a very specific set of steps how that incorporates and that paper and the QR code actually articulates that.

Great. Well, you've accomplished a lot already in a year, but I know you have more things you want to do. So can you give us some insight in what you hope to accomplish in the next 12 months?

So our focus, I think, as true to [indiscernible] style and a lot of what Marc said as well as just like head down focused fundamentals, like it's something we have to build. And it's a journey, and it takes time. I think the market is aware of that. I think our investors and our shareholders are quite understanding of that journey. We have to show them that progress, but also that it will be [indiscernible] and there's incremental value to taking a process, not just I'd like to use this phrase a lot is we don't like to throw spaghetti at a wall. So I think the focus. A few key things will be continuing to build out the internal processes around being able to back what we say, being able to demonstrate, being in line with compliance and legal around our requirements, making sure, to the extent that we can, sharing visibility and information with our shareholders, understanding full well that these products can be complex and getting data and information from them is sometimes difficult. Really scaling up the tools and processes, making them seamless, making sure these synergies across the business are being leveraged and being available so that teams are really accountable in owning for this. And then lastly, it's a fast-changing environment. And I think it's really important for us to just be fully kind of aware of what's happening and really like tapped into the direction of travel. I mean, lastly, I think it's really important. The leadership of Blue Owl is very supportive of this. And since my arrival it's been extremely clear that this is part of our DNA, and we need to figure out what works for our best. So where we are today in direction of travel is very important.

Great. Well, thank you so much again. Marc, just before we wrap up, I want to just talk quickly about the future of Blue Owl. How should investors think about the growth of the credit business and the evolution of that?

Well, that ties nicely this question sustainability. And first, I want to say, Machal, thank you for all Machal's done to take this methodical journey. And I -- again, I think themes you'll see through today is, we like to do things pretty methodically like we are in the risk management business. And being a good partner also means being a thoughtful partner. It doesn't mean lurching left and lurching right and lurching forward and back. And Machal has and this will speak to this kind of credit business helped us develop in credit a framework that works is different from the framework that you can use in equity. If you're a control equity investor, you have a different role with the company. And so really tailoring some of the sort of thinking around ESG into direct lending framework is something we want to help lead. We want to help keep part of as this industry evolves. So as this industry evolves. So where are we today? So I talked about where we started. The aspiration to be that lender first choice for the biggest companies with the best sponsors, again, for credit reasons not because that sounds great because it means better results. And today, you look back at 2022. And in 2022, if you look at the largest tech private in the marketplace, about 50% of them were done with private lenders. And actually, we were one of the lead in 85% of those. So this occupying this space amongst these outstanding high-quality, large-cap companies, has become a reality as opposed to an aspiration app. Every single day, we have to come back and figure how do we keep innovating, how do we keep developing the right pools of capital that are tailored to meet the evolving needs of this multitrillion dollar industry. Sitting here today, we don't have enough capital. We as an industry and we all do not have enough capital. The private equity industry has probably $1.5 trillion of dry powder and well times were a little bit quieter to begin the year with SVB and all the chaos. That money is going to get invested and that money is going to get invested with an ever larger share of it being supported by direct lending. Now importantly, direct lending is not here to replace the syndicated market. Everybody likes to sort of put on the banks versus the direct lenders. It really is a false dichotomy. We fundamentally deliver something different and the banks fundamentally deliver something different. The banks can deliver very large, scaled syndicated distributed solutions to markets when markets are receptive to only that kind of paper. We deliver and focus on one thing. How are we going to make a great loan to a great company and 3, 5, 7 years now have gone, our coupons getting paid back. That is our calculation. The sort of dynamics, technicals of the market at a given moment aren't part of that calculus. But they have a healthy capital market system. We need both. I mean the capital markets are trillions of dollars. We, private lenders will never have trillions of dollars as ambitious as we all may be. We're still a minority part of this marketplace. There's times when we are the marketplace. And by the way, that's really good, really healthy for the economy, right? In 2022, if Blue Owl and a handful of other large lenders work around, there would be a capital marketplace. So it's a very stabilized influence. I think we'll continue to play that stabilizing role. Most important thing we do make good credit decisions. That means delivering on predictability, privacy and partnership scaling the pools of capital to meet this very large demand from private equity firms or other private borrowers. And if we do that and if you doing it well and do it with that set of values front of line, I think we can continue to deliver very, very [ durable ] capital with very strong returns for the investors that have been kind enough to share time with us today.

So thank you so much. I think that's all we have time for. Thank you for kicking off a great -- well, we hope we'll get a great event. Now it is my pleasure to introduce Craig Packer, Co President and Co-Founder of Blue Owl and CEO of Owl Rock.

I'm really excited to have you all here. There's only so much you can get to understand our business by listening to our quarterly earnings or reading our disclosure. So what we really hope to today is to give you a much deeper understanding of our team, what makes us tick, the way we do business. I really hope you come away with a greater understanding of our investment approach and the quality of our portfolio. But most of all, I really hope you come away with a much deeper appreciation for the quality of our team and how much of a collaborative approach that we take in working together. We built this business from scratch 7 years ago. We handpicked every single person on this team. And I'm highly biased. I really think it's the best team in the industry. Each person on our team shares our common goal of terrific investment performance and great returns to our investors. At your seats, there's a little packet of bios of the team. [indiscernible] at it right now. But take a look at it later. I think you'll be really impressed with the quality of the team. So now I'll pick up where my partner, Marc left off. You just heard a brief intro to who we are and how we got here. And now I want to paint a full picture of our direct lending business in our BDC. Our direct lending business is $71 billion of AUM, which is about half of all Blue Owl's AUM. The largest piece of our direct lending business is what we call diversified direct lending. It simply means our generalist BDCs like ORCC. After that, we have our technology investing business. We have a small first lien only fund. We have an opportunistic fund, and we have a modest CLO business that we acquired about a year ago called Wellfleet. Our goal, Marc talked about this a lot, is to build a market-leading institutional quality direct lending platform with distinct competitive advantages Scale is very important in this business. It was important when we started 7 years ago, it's even more important now. Our scale allows us to be a partner of choice for the private equity firms that we work with. It allows us to find the very best investment opportunities. You heard about the 8,000 deals we've looked at. It allows us to attract the highest quality team. And I'm not just talking about the investment team, the whole team. They are choosing to join us because they see the size and strength and stability of our platform and our future, and they are excited to be a part of it. You're going to hear a lot more today about our sponsor relationships, our team and our investment process. Now everyone in the room and everyone who's watching is here because in some way or part of the BDC universe can be an analyst, equity investor, bondholder. We think we're a little different than many of the other BDC managers. When we began the business, we felt BDCs where the ideal structure to use to implement a direct lending strategy. When I think back on it, I don't know that, that was the most obvious choice in 2016. It might seem obvious now. But I wouldn't have said in 2016 that BDCs were some in favor structure that would be obvious to build a business around. Most managers that you're familiar with, like we have one BDC but they have many other funds that they manage. The BDC may be a small portion of their assets under management. We took a different approach. We focus primarily on BDCs, they comprise 70% of our assets. We believe that makes us a better financing source for our borrowers, given our platform and base of significant permanent capital. It also gives us a tremendous strength to build our business around. As a result of this approach, we manage 7 BDCs. Now to be clear, most managers of our size manage many more funds than we do. We're just not aware of them all because they're private funds. They typically manage 30-or-more funds. These funds are structured in what would be called a co-mingled format, not BDCs. You might hear the phrase GP/LP co-mingled fund as the traditional format in the private credit and the private equity industry. The issue is those co-mingled funds have a finite life and that can create friction for borrowers and for investors when you come to the end of that finite life. BDCs are permanent capital and avoid this friction. Now we fully appreciate having 7 BDCs can cause a little confusion. That has been mentioned to us. So one of the things we wanted to do today is help you understand why we did it. How to better think about how all these various BDCs relate to each other. I'm going to talk more about this later today. But a central premise that we believe and we have found over the last 7 years, and this is core to what we do and how we do it is by designing funds with different structures, we are able to appeal to a much broader set of investors who invest in different ways. That's why we did it, broadened the universe of folks that could work with us. Institutional investors and retail investors invest in many different ways, and they have different priorities of what's important to them when they make investment decisions. Some investors, liquidity is really important. Some investors, it's really not important. They have a much longer time horizon. Some investors have a tolerance for market volatility. Some investors, and I think some of them are in this room don't like market volatility. By having different structures, we meet investors where they live and broaden our investor base. So let me walk you through our BDC and how we think about them. 2 broad categories, diversified and technology. Again, I mentioned this a second ago. And our diversified funds, these are all industry groups as opposed to our tech, which is just tech. For investors that prioritize daily liquidity, we've got ORCC, our publicly traded BDC, which many of you may be most familiar with. Lots of institutional investors and retail investors are capable and prefer to invest in a private fund and they have the ability to do draw down capital, which many retail investors don't have the ability to make a commitment and have that commitment drawn over time. So for those investors, we have ORCC 2 and ORCC 3. Many high net worth investors, they don't make their own investment decisions, they're not comfortable doing that. They prefer to work with wealth management platforms that help them make decisions. So for those clients, we've designed our nontraded funds, such as ORCIC for those channels. We have the same construct on the tech side. We have 2 private BDCs and 1 evergreen BDC. Later on, I'm going to use this to try to keep you here for the full day. I'm going to comment on how all that might evolve over time, if you got to stay to the end or watch it on video later. So just talking about what differentiates us. We believe it's really simple. Our team, our scale and our approach. We talked about this and we keep talking about scale is very important in this business. One of the greatest differentiating factors a direct lender can have is the ability to commit and hold large amounts of first lien, second lien and unitranche. First lien, second lien, and unitranche, all 3, chocolate, vanilla, strawberry. They do all 3. When you to go to ice cream shop for 1 flavor. There are big direct lenders say that can only do 1 flavor. And that's what's hurting them. Our ability to do all those flavors really invites the discussion with the private equity firms. When they're looking at an opportunity, they don't know what the best solution is. They want to talk to a financing partner that can offer all the options to them. So that's very distinctive. How we cover the sponsors, I think, is very distinctive. Doug, Marc, myself, we know the heads of the private equity firms. We have worked with them for 30 years. There are peers. As we started the business, they welcomed the opportunity to get to know us, see what we had built and wanted to do business with us based on that history. When we acquired the Dyal business, we brought on Michael Rees to our leadership team. They own stakes in 40 of the leading private equity firms. It's an extraordinary set of relationships. But Doug, Marc, Mike and I can't cover 600 private equity firms. So we've built a substantial team covering those firms on a day-to-day basis, covering the deal captains that are making the individual decisions on financing for deals. That combination, in my opinion, is differentiated. And there are very few firms that do that well. We're not unique, but I would say it's very limited to the ones that do that well. And then the last thing I would say and Nicole will talk about all this, how we do business. We have a high bar on credit. But we are very clear where we are. We're very efficient in the questions that we ask. We're very reliable. If we say something, you can count on it. We're very predictable, no late surprises. And that matters a lot in this business. So we'll get really -- the sponsor panel, I think you guys will really, really enjoy and hear that in great detail. The team. again, I think we've built the direct best team in the direct lending industry. Our IC is led by myself and my 2 partners, Doug and Marc, as well as Alexis Maged. You'll hear from Alexis a little bit later today, he is our Head of Credit. There are additional members of the IC depending upon which fund, but the 4 of us are the core. We have a large team that's more than 100 people. That allows us to have deep expertise in every aspect of the investing process from origination, underwriting, portfolio management, all through exit. We have invested significantly on the origination side. I have 9 senior originators covering primarily sponsors but also on the sponsor origination I think this is one of the largest in the industry. We continue to invest on it to this day. I literally have hired a managing Director 2 months ago despite a pretty modest deal environment coming from another direct lender, who I will not name, because I know that this is the lifeblood of our business, and we're going to keep investing in it because I'm building a business that's going to be successful for the next 20 years. We also have for each fund strategy focused portfolio managers. We've invested heavily in our underwriting team. Alexis, as I mentioned, heads credit. We have 3 heads of underwriting that are at an intermediary level, sitting on top of our underwriting team. So we made a heavy investment. So that means every deal comes through. There's a team working on it or is an underwriting captain and there's Alexis and then eventually me. I mean think about the level of detailed work and thought is going through every credit. And if it doesn't check 4 boxes along the way, we're just not going to do it. You're going to hear from all these folks later today. We've hired from lots of places, but I will tell you, and I think this is important that there are a number of folks on the team where we have worked together previously at other firms for many years. I ran the leveraged finance business at Goldman Sachs. A number of folks who are here worked for me at Goldman. And that history, I think, is really important. Yes, we've been around 7 years. There are many of us who have worked together for 15 years. Alexis and I have worked together for 20 too many -- So Alexis has been my partner, Credit Suisse, Goldman and Building Blue Owl. And that partnership is critical to our success. So you'll hear more from the team. Sponsor relationships, we go talk about this. We believe sponsored deals are the most attractive. We really like having commitment from a private equity firm beneath us. The commitment they make in dollars, in resource and caring about the business, being able to change the strategic direction of the business, change out a management team that's not performing well. They're the first line of defense. I really think it's the best place to be in direct lending. But it's very important to cover a large group of sponsors. If you are a small platform and you cover a small group of sponsors, maybe it's obvious, but you feel pressure to do all the deals of those smaller number of relationships because those relationships are critical to your business. So when you get that marginal deal for a sponsor, it's very important to you, you kind of want to try to find a place way to do it. We don't have to do that. And we don't do it. We just do the deals we like because we cover so many we can afford to just say no, and we do all the time. We cover today 665 sponsors. I'm not going to pretend that the last 140 of those we bring the same rigor as the first 140 but we have a wide net. We've done deals with more than 130 and that number is growing each year and creating a great incumbency base. You're going to hear this on the sponsor panel. But we believe strongly, as I said a minute ago, the sponsors want to work with us. They tell us that. I believe it, and that gives us the flexibility to try to pick and choose the deals we want. We have to go chase them. They call if they want to work with us. Funnel, more than 8,000 deals. This is an outcome directly of that origination effort, the scale, the capital, Marc touched on this. I think it's very important. There's 1 funnel at Owl Rock. Any deal -- anyone on our team is working on goes through one process, one committee process, one mindset. We really don't even talk about what fund it's going -- going into it until very late in our process when we decide we want to do it. And importantly, any investment that we make anywhere in Owl Rock, if that investment is appropriate for a fund that we manage, we will put a piece of that investment in that fund. Basically based on available capital and building each portfolio's construction priorities. So you don't have to ever worry if you're in this fund, am I getting a good stuff, it's all getting shared across the funds. Alexis will talk more about the funnel. This is a simple chart. We're an upper middle market lender. Marc talked about this. I just want to make it clear. We can invest in every deal out there. We get called on the middle market deals. We get callid on the lower middle market deals. We have plenty of capital. And believe me, every private equity firm would be delighted if we would invest in their $18 million EBITDA business. We are choosing to say no because the credits are not as strong. And by the way, you do not get any additional economics. It's actually worse economics. The documents are no better. So I believe strongly that the upper middle market offers the best adjusted risk return. Upper middle markets are more resilient. Marc talked about this, to serve the upper middle market, you have to commit and hold a very large check. This has been a transformation when we started the business. When we started the business, we could write a bigger check than anyone, but that bigger check was $150 million, maybe $200 million. And that was a game changer. And we said we could hold $150 million, $200 million, that was mind-blowing because at that time, most firms couldn't hold more than $100. Today, to really do this well, you've got to be able to hold $400 million, $500 million per name and more is better. And there's really very few firms that can do that. And you should ask them. And then when they say, I can hold $500 million and say, how many times have you actually done that? And you're going to get mumbling because very few firms can do that. But that's what makes us a great partner. Now I'm not talking about the multibillion dollar unitranches that you're reading. I'm not talking about the $2 billion or $3 billion deals. For those, even if you hold $400 million, $500 million, you still need a large group. I'm talking about the bread and butter $750 million, $800 million deals that you're not reading about in the newspapers, but they're the lifeblood of the direct lending firms right now. If you're a financial sponsor and you're trying to raise $800 million, you don't want to talk to someone that can only hold $100 million or $200 million, just think about it. If you do that, you have to line up 8 different firms at the same set of terms. It's not efficient. So they want to talk to us because we can do $500 million or $800 million. We can set the terms. They can work with us and then they can fill it in with these smaller folks, huge competitive advantage. I just want to make one more point here because I've been asked this a lot in the last 6 months or so. We love the multibillion-dollar unitranche. These are some of the most important companies in America. They have massive equity cushions. They have the ability to withstand whatever recession is coming our way. And we will do them, and we will do them all day long. But that is a small portion of our portfolio. I just looked at this the other day. 90% of our portfolio are companies that are financing $1 billion or less, where we own 50-plus percent of the loan with 2 or 3 other lenders. So we do the bigger deals, they get spread around. There is some overlap toward the bigger lenders. But if you look at our portfolio, the core of it are those $750 million unitranche deals, we control, we own half of it, and we are $400 million of the exposure. I hope that there's lots of multibillion-dollar deals. I think they're terrific. But we're a long way away from ever being at a point where all the lenders are in the same deals and there's complete overlap. It's not even close. Our investment philosophy, we'll talk more about this later on the underwriting platform like lending into good businesses. I know that sounds simple. When you look at 8,000 companies, you see a lot of businesses that just aren't terrific. The team will go through this. We like noncyclical businesses, we want predictable revenue streams and won't steal the team's thunder, they're going to go in deep. But we also want diversified portfolios. We do all the work in the world, and we do more work. I wish you could see -- I hope you get a sense of the amount of work. Sometimes my biggest concern is team does too much work, right? But things happen to companies, things happen. There's industry changes. So there is no substitution for diversification, no matter how much you like to deal or a sector. We'll sacrifice economics to invest in a good business. There's not one deal in our history that we really loved it, but 25 basis points made a difference. We'll give the 25 basis points. But we won't go in the other direction, there's really no price that we'll put on a deal where we think the credit is going to have some issues, like we're just not interested in that proposition. That's been our philosophy from the beginning. If you've been hearing us, it's a broken record. We're not going to change. This is what we do. It served us well and we're going to keep doing it. We don't consider ourselves top-down macro investors. People ask me what's our house view, there's no house view. Our house view is we underwrite bottoms up, and we plan for the worst case. We never making a bet on, oh, we think the economy is going to get better, let's zig in the cyclicals. We're just going to assume it's going to be a lousy economy, and we want to have companies that are going to prosper in that environment. And yes, we're going to give up some opportunities. There's probably some great -- if you're willing to take a contrarian view on where commodity prices are going, you could probably earn some extra premium. That's not our business. That's not we're in to. Very consistent approach, companies we like. Upper Middle-Market, [ toss ] $180 million of EBITDA, primarily First Lien. Most of that's unitranche, most of that sponsor-back. If I would pick one number, we got to walk one number, what describes what we do, loan to value, 45%. 45% loan to value, that should be an impressive number to you. That means that the private equity firms have written a check bigger than our check drew to us. And if we don't get all our money back, they get 0. It's really that simple. That means the business has to lose more than half its value and we still get par back for us to have a substantial loss, it has to lose substantially more than half its value. It doesn't happen very often, especially when we talk about $180 million businesses. The sponsors are writing a check for that amount. We're not making it up, we're writing it. When we write our check, they put their money in at that time contemporaneously. So these are real value. This is one of the main reasons why we're so confident over the next 12 to 18 months, which I think will be a tough economic environment, the sponsors are going to keep supporting these businesses because they've written those checks, and they're not going to have something short term, modest recession, higher rates impact their willingness to keep their businesses. Portfolio construction not to [ belabor ] $70 billion, 400 deals. We'll talk about this in great detail. We've only had 5 realized losses since inception. We'll go through those later. It's a tiny number. We own our positions in all of those companies today. So we have a chance to do better. We've only had 5 nonaccruals since inception. Our annualized loss rate is less than 10 basis points. Don't underwrite 10 basis point loss rate for us, write 50, but we've been running at 10 and our goal is to keep it at 10. Today, we only have 3 names marked below $0.80 on the dollar. Despite our high bar around credit selection and the qualities of the deals we do, it's diversification, keep coming back to it. No matter how much we like it, we're going to manage that deal size. I think it's a tricky moment. Rates are high. Companies are paying more. I think we're going to have a recession later this year. So what are we doing? We're being super cautious on credit selection. Only our bar is very high in credit selection right now. Our teams are coming to investment committee, with projecting down and can these companies survive, assume rates stay high. We are trying to drive spread higher in our portfolio. We're having success at doing that, not only when there are new opportunities, but we are the lender to these companies, and they frequently need something for us. Maybe they want to grow. They need additional capital. Maybe there's an amendment. When they come to us, we're requiring them to add additional economics to our loan to make sure it's mark-to-market. We're adding additional credit protections, covenants. When we make new loans, we're building in call protection, call protection is extraordinary today. We're getting 3 years of call protection, premiums for 3 years. Right now, it doesn't seem like much. In 2 years, if the market comes roaring back, that's going to be incredibly valuable to us and to you. So lastly, we built our rock to capitalize on what we believe would be an institutionalization of the direct lending market. We built diversified defensively positioned portfolios. They're performing extremely well. We believe we have differentiated sourcing and relationships. I really look forward to having a better understanding of that during the day. I just want to spend one second because it's my chance. I don't know if I'll be able to say it later. It's a huge lift doing this event. I mean when I threw out the idea, hey, we should have an Investor Day. The team was like frowning like really. Folks on our team that did this Kaitlin Howard, [ Amanda Shimmel ], [ Connie Zhang ], [ Melissa Callahan ], he'll see outside, [indiscernible] and of course, Dana Sclafani. They did a tremendous job. I hope you all have a great day. I'm going to introduce Nicole next. So Nicole -- Nicole was an example, I think one of the great examples of the team that I talked about earlier. Nicole joined us in 2016, Nicole had worked for me at Goldman. Nicole started at Owl Rock before I started at Owl Rock. Nicole, what employee number were you?

Maybe 2, 3.

Nicole was employee #3, Alexis -- all right. One of them was first, but Nicole has been with us since the beginning, we've worked together for 15-plus years. She's the epitome -- Nicole is epitome of combination of our credit culture, everything we talked about, but also having a number of our most consequential relationships on the private equity side. So with that, I will turn it over to Nicole.

Okay. Great. Well, thank you all for being here. I really appreciate it. I'm going to spend a few minutes talking about our origination strategy and how we kind of generally approach it before we have a chance to speak some of our leading private equity clients and have a chance to hear their views on the current market environment. Maybe starting on the next page. Generally speaking, our approach to financial sponsor coverage has really been centered around these core pillars. We believe this allows us to pick the very best deals without an overreliance on any one sector or any one sponsor. Maybe most importantly, we have a long tenured and experienced team with really substantial domain expertise in certain directors. You'll hear from this team later this morning, but we believe this sets us apart from our peers and allows us to make well-research decisions. We aim to be true partners to the financial sponsor community based on deep and very long-lasting relationships. Our originators are in constant dialogue with our accounts, regularly meeting to discuss both new and existing investment opportunities and to better understand their strategic priorities. You'll be able to test this summary in a few minutes by asking these guys directly, but our team believes that financial sponsors like working with Owl Rock for several reasons. Our substantial capital base combined with our flexibility of financing solution allows us to be a one-stop or near one-stop call for them. This is even more valuable and volatile market where hold sizes amongst lenders could be constrained or when bespoke customization, certainty and flexibility and deal structure are required. We also have a highly efficient originations and underwriting process and are able to deliver timely and definitive feedback to sponsor clients even when that answer is a no. We believe our coverage model facilitates breadth and depth of relationship across the financial sponsor community. Since inception, we have evaluated transactions from close to 700 sponsors and closed deals of approximately 130 of them. Our goal is to target repeat deal flow, while -- year after year, and our deep -- our 10 deepest sponsor relationships are generally consistent year after year and are with the largest, most sophisticated counterparties. As you can see illustrated from this chart, on average, close to 2/3 of our newly closed transactions come from existing sponsor relationships, which leaves ample capital for the development of new relationships as well. Over 40% of those sponsors that actively show us opportunities have shown us over 4 transactions, further highlighting the value of these consistent relationships over time. The growth in our deal origination pipeline has largely been driven by both an increase in deal flow and an increase in overall transaction size. Even in more muted deal environments like the second half of 2022 and the first half of 2023, lenders in the private credit ecosystem financed over 80% of the LBO's that were completed over the time as banks stood down in the face of market volatility and the significant overhang of previously underwritten deals. This development -- developing market plays very well to our core strength of scale, certainty and customization. Moving to the next slide. In 2020, there were just $3 billion-plus transactions that got done in the direct market. This grew to over 24 transactions in 2022, evidencing significant taken share from the syndicated loan and high-yield market for transactions of this size. Since 2021 as a platform, we've evaluated over 100 investments with facility sizes in excess of $1 billion and committed to roughly 1/3 of them. Just for comparison, this compares to a roughly 5% typical hit rate on our pipeline overall, demonstrating the very strong credit attributes that these transactions typically embody. We'd now like to turn our attention to our extremely distinguished panel. We are thrilled they can join us today. Starting with David, David Musicant is the Managing Director and Head of Business Development and Capital Markets at American Securities. David is focused on deal sourcing, relationship management and capital markets activities across the platform. Prior to joining American Securities, David was with Bank of America Merrill Lynch for 15 years, most recently leading the middle-market financial sponsor coverage effort. Prior to that, he held positions in the retail financial advisory businesses at Lehman Brothers and Alex Brown. Carolyn Wintner is Managing Director and Head of Capital Markets at Charles Bank Capital Partners. In this role, she oversees all capital markets activities across new and existing platform investments, including leveraged buyouts, add-on and recapitalization. She also manages the firm's relationship with leveraged finance providers and advisers. Before joining Charles Bank in 2019, Carolyn worked at Bain Credit -- Capital Credit for 9 years, most recently as Director in the Private Credit Group. And Jim Bonetti is the Managing Director and Head of Capital Markets at GTCR. In this role, Jim leads the firm's capital markets activities as part of the transaction teams and manages key financing and banking relationships. Prior to joining GTCR in 2017, Jim as the Managing Director and Co-Head of the North American Leveraged & Acquisition Finance Group at Morgan Stanley.

So to start it off, we've been talking a lot about the deal environment, certainly in this kind of market of volatility. Maybe kind of broadly speaking, how do you think about debt capital -- riders of debt capital for new transactions and maybe very -- more importantly, for this group. Have there been any major changes in how you think about accessing the public debt markets versus the public -- private debt markets over the past 12 months? Maybe, Jim, I'll start with you?

Well, so first, thank you for having us. I would say our firm's history is really -- really started in middle market private equity. And so as a baseline, most of our investments for many years have been with direct lenders but on a much smaller scale. And I think the change obviously in the market is just the scalability of solutions that we can do from a direct perspective. So from our vantage point of the world, we do lots of M&A as part of our investment thesis. And so we've always said as a firm access to capital with really great partners is more important than actually the cost of the capital itself, right? Having access to be able to do a deal when maybe somebody else can't provides more value to us than any 8th quarter along the way in execution. And we always felt like maybe while you could get a little bit better -- maybe better pricing in the syndicated market, the direct markets are kind of where we want to have our relationships for the long term. And so over the last many years, obviously, the change is in the scale of what you can get done. And we definitely have -- always had a preference for that type of execution. So we couldn't be more excited as we see the direct market get larger and larger. And we're probably now at this point, 2/3 of the deals that we're doing by number are going into the direct markets. In the last several months, I think just things that we've seen have changed. I think you hit on it. The banks are obviously having a difficult time underwriting credit. And candidly, their ability to underwrite is based on secondary levels, right? If secondary syndicated loan levels are in the mid-90s, they can't own risk anywhere other than the low 90s. And that leaves financing holds and gaps in our sources and uses. And we really don't want to take risk on behalf of our LPs in having those financing gaps. So the direct lending market has been really the only place to be for us for the last 6 to 12 months. And I think that's going to continue for a bit longer. And like I said, our bias is going to be to continue pushing more volume into the direct markets on the margin just because of the access and availability of capital.

Great. Yes. I think Jim said it well. What I'd add is, if you look at our portfolio, roughly 2/3 is syndicated on a dollar basis. But if you look at our deal count in the last 2 years, we've only had 2 syndicated deals or transactions just because of the value that Jim mentioned on the private markets. And I would say, particularly in the last year and the last 6 months that lack of ability to -- for a bank to price capital, it just creates so much uncertainty in our process. So they call most of the relationships who have [indiscernible] capital and the ability to price capital with certainty is really where we've been driving our [indiscernible].

Not to reiterate what Carolyn and Jim said. But also if you think about the evolution of what can happen in our deals, right, we've lived in a an environment for 15 years of 0 interest rates and 60% of private equity returns have been by multiple expansion. I think that easy game is kind of over. So you think about the evolution of companies, whether it's acquisitions or transformative operational changes, having partners, right? We talk about the convergence between intellectual capital and financial capital and having partners that understand what we're going to do with the company and having expertise in sectors and understanding what we need to accomplish through the lifeline as a partner is much easier done in the private market than kind of managing 100 lenders in a deal.

Do you think that has accelerated either during COVID or kind of current, obviously, access to liquidity right now? But has that kind of share shift do you think taken or accelerated in any meaningful way recently.

Definitely. I mean what these guys said, just the banks don't have an ability to price risk. So I mean, we look at every deal. I'm sure we all do the same thing, whatever we have. 3 live deals that we're looking at new acquisitions, and we have 3 transformative deals in our portfolio, which I kind of think of transformative $1 billion-plus acquisitions. And you look at one of the companies that you guys participate in Learning Care Group, which was we need a liquidity deal with the second largest early education company in the country, we have 1,200 early education centers. And we needed acquisition financing. We did a an incremental, that's not going to get priced in the liquid market. We did it directly with a couple of relationships. But yes -- no, I think that is absolutely going to accelerate. And what we're doing now is the B market, the distributed market is kind of like [indiscernible] , right? So you actually have -- if the new 12x deal is really like an 8x deal now, we look at other banks, which the banks are open for term loan A. So do you do a term loan A and then think about taking that out 12 months later because you recycle money, banks basically are underwriting term loan B's where the caps are kind of where the private bid is and then you have the private market. So I think it's completely accelerating.

And the one thing I would add is just -- and this may be a soft word for analysts here, but the importance of relationships. And I think COVID and the dislocation in the markets in the last year just further emphasize that. In our syndicated transactions, I would say it's very transactional. When there's a problem or a need, everybody looks to the dock on both sides, what can we do? And with our private transactions, it's 2 stewards of capital who are good fiduciaries and partners and solving a problem together efficiently in both firm's interest. And that has shown it's colors to us throughout the dislocations in the market. And it's to Jim's point, incredibly more valuable than the cost of capital at the outset.

So to add on to what Carolyn said, it's very easy to have a conversation with one or two parties and they need to have nice to have, right? So you have these -- I don't know if there's any lawyers in the room. But you have these big bad lawyers that are always call. I thankfully get the sound of you guys, get to pick lawyers, I don't get to pick lawyers, but you have lawyers say, "I got this deal for them. You can squeeze these lenders on this term in this, "and I'm like, it actually doesn't matter. So like MW Industries for example, which we just closed a couple like weeks ago. There is the potential we need flexibility to carve out a division of MW. It's a small kind of call 15% of it, to sell it into another one of our businesses. And you can have that conversation versus that's the need to have, right? That's within the investment thesis. We have roles, right? We have different roles and we have expectations and there's transparency, and it's very easy to build that trust when you have a direct relationship. And you built that relationship. I'm proud to say that I think our first investment is one of our deals, right? So that's why I got -- that's why it triggered me because I'm like a guy with mommy issues when you said that -- you say no to me all the time. Anyway, but it's building a relationship and having the needs to have versus a nice to have if you can build that rapport over a long period of time, and they see how we act, when I was joking about this, say, on a panel we've never had a company that's hit budget ever, right? Half of them beat it and half of them don't. But if you can build trust, where you can actually have the transparency and you can figure out how the [indiscernible] , it makes our jobs a lot easier and more ...

So not to believe your model cases?

[indiscernible]

So our first deal that we did on that platform, a chain manufacturer. I still don't know too much about chain [indiscernible] . Maybe to Jim, why do you believe Blue Owl has been a consistently strong lender across your transactions? What are some of the things we do, right? Or what are some of the things you'd like us maybe to do better?

If that question was in the list, I definitely didn't see that. Smart and good-looking credit professionals.

This is -- we've said this, but this is a relationship business. All of us have been around for -- in this industry for a long time. And ultimately, you want to call people who give you really good honest feedback who are in the kind of game with you for the long term and treat you like a partner. I mean these are -- ultimately, these are partnerships. And what I'd say about credit, what I think people miss is the worst thing that can happen to an investor in credit is an absence sponsor, right? Because the documentation is the documentation, which we all know has kind of diluted for many, many years. And so what really protects you is real relationships where you have good insight into what's going on in the businesses, the sponsors treating the credit provider like a partner and you have -- and they have insights and they're at the table as you're making decisions, trying to drive a great outcome for an investment together. So we're constantly out looking trying to figure out who are the best partnerships. And for instance, like if a deal has to come a little bit wider to get the right people in it, that's the way we think about it. And so we're not focused on the 8th in the quarter [ execution ]. We're focused on who's on the other side of the table. And so we've got a small list of probably 20-ish people that we consider our best relationship. We can call Craig, our senior members of our partnership, know Craig and the team here, and they want to spend time with them. I want to make sure that they have access and feel like they're part of our organization. And so there's a lot of folks out there who are really transactional. And at the end of the day, we just don't need to do business with those type of folks. We want people not in way -- we want the 6, 7, 8, 9 deals. And that's what creates a long-term relationship. So that's -- when this platform was started, we were super excited because we knew the high quality of the people in it, and we've known them for many years from previous lives, and it was some -- firm that you kind of go out of your way to try to show deals to be candid.

And we thank you for that. David, maybe it's you?

I have a lot of thoughts here. So I run origination, too. So we -- when I got here, we were a generalist firm, it was a $3.65 billion fund. We're now raising. We're now 4 funds later and we're $7 billion [indiscernible] everyone into industry groups. And what I love about Owl Rock and Blue Owl now with the liquid business is this convergence between how we think about sectors and having that early dialogue around what is -- how we're thinking about sectors. And when we actually proactively when -- when we onboard, we probably scream 12 -- if you guys want to talk about deal flow, like I'll explain like how -- like where deal flow is and how many deals are out there and all that kind of stuff, which is why I had a cheat sheet which I'm holding because I forget stuff. But -- and when we onboard a deal, we call them pursue ideas, we have 62 of them now of deals that we think we will bid on in the next 18 months. We then look at who's lending. And when you're a BDC. All the BDCs, is public information. So we do a scrape and we look at who's in the credits, who's in the comparable credits. I know who posted for the cover bid of the deal when it last traded, right? So they have conviction. And the ability for -- and Nicole are advocate internally, to be able to have that dialogue really early and the importance of -- and I just wrote the notes myself, the no, I'm getting over this -- the no actually in all -- kidding aside, is almost as important as the yes, right? Because what they do is they give you a why, right? So there's a lot of credit firms, oh, it's just not enabling some kind of macro environment. But when we get into specifics of like what we need to prove in our deal or what is some of the triggers that they said is not creditworthy, right? Because a lot of deals are good equity deals, but they might not be good credit stories, understanding the why actually forms -- because I run M&A, like our sell-side business do. In forms what we have to do with the company to transform it to make it easier to sell to the next person? So that level of transparency is like really critical. And the other thing is they partner well with other banks -- excuse me, other lenders. So the ability to have people to actually play well in the sandbox together when everyone's like they have their own form of credit agreements all the kind of stuff and the ability to actually we have a little bit of a smaller group that Jim referenced. But to be able to have that where there's commonality of mindset, they're just good partners or the people besides us.

That's great. I mean I think you guys have covered it. But I would just add on to, as all of our firms have matured the sector expertise. So when I'm based in Boston, so -- but when the Blue Owl team is -- the health care team will come by and we'll have our health care colleagues speak with their health care colleagues, and we'll talk about our portfolio, what they're seeing trends. And that is incredibly value add. So when we get the yes, more frequently the no, we're learning something, and it's informing how we make our investment decisions.

That intellectual capital is actually switching from banks to lenders. So we go through a planning process. We do a planning process of what we think is the forward pipeline of deals. And we interviewed 32 banks or some of this -- and we now do it with lenders and it's amazing how the lenders actually have more insight to what's happening in sectors -- the other thing is the originators here -- there's a lot of firms out there that are just smile and dial originators versus people actually have industry expertise and credibility on the credit side. So that switch of intellectual capital is moving from the banks to the credit firms.

Yes. I mean I'm proud to say it, but we'll often talk with some of the Blue Owl team on our portfolio companies. And they will have very insightful questions that we haven't thought about and again, help us manage our portfolio. So maybe shifting gears a lift. Can you maybe talk about a portfolio company generally speaking? But it's maybe taking a little bit more time to put success? And how do you think about kind of managing that process or helping your team manage that process for any kind of challenges?

I've started in...

I can do that. So I'll quote Dave, no investment is linear. No company hits budget every year, and we've had a few of those in our portfolio. And so how -- and how do we think about that? Where we are always focused is been good stewards of capital and making sure our portfolio companies have adequate liquidity and duration to get back on track. And that often intersects with the capital structure. And so it is very important for us as we manage our portfolio to be good communicators of where the investment is in its performance. Make sure our lenders around that are fully up to speed. So when there is a discussion about that performance, they have the most information and are not surprised. So the discussion with the investment committee is really informed and that's really where we prioritize it. It's liquidity and duration. And we will work in partnership with our lenders to address that, again, in the fiduciary way for both of us, that solves problems.

Yes. I think the most important thing is just keep the communication open, right? So Conair is a perfect example, right? So Conair was -- it's an interesting business. It's been around for -- everyone uses it. If you're in a hotel tonight because you're in town, I wouldn't feel bad if you dropped your hair dryer. But it's squeeze in our -- Conair, but it was -- Mr. Rizzuto built this business for 50 years, and we're the first owner. And it's a complicated business. And we had to remake it. So we have a CEO who's been in the seat for 40 years, who's -- we had a CFO that didn't have the right controls around managing inventories and pricing and kind of the working capital and stuff like that. So we have a 55-person operations team, strategy team that kind of goes in to help our companies, but that was a business that -- and we had -- they owned a bunch of real estate than we had obviously COVID. And so it's been challenging. And the thing that we have is we accelerate conversation with companies aren't coming out of the box well, just because we think -- a, we think, as partners we owe it to everyone, whether it's our LPs, our lenders or et cetera. And I think that was a business that we kind of worked through it and ORCC is a, they're an investor in it. They're also an equity co-investor. So we just we think about the transparency, and we're happy in our operations group. So we have in this 55% group. We have everything from data science to IT, to procurement stuff like that, avail those people to say if we think we're going to have $50 million of procurement savings, if our lenders, our partners in the deal, want to talk to that team and say, "All right, give me visibility to actually hold -- I'm like a big KPI guy. " We hold our people to like -- there's all these adjustments in the market. I want our partners to hold us accountable for what we ask them to believe in. And so we have that dialogue even when companies aren't going well.

You're going to hear from our underwriting team in a second, but this really is the value of incumbency and the value of the agency position, it's the direct dialogue, the direct dialogue with the management team. Oftentimes, especially with a lot of these businesses where there may be a partial syndicated deal, we're doing free calls with the management team to kind of prep them for their kind of broader lender calls and to the value that incumbency and to be able to control the dialogue, I think, is incredibly important, really helps our credit decisions in many ways. Okay. So 2023, I would say, a little bit of expansion of the deal environment or at least it feels that way potentially to us. What are you most bullish about for the rest of the year? On the deal front?

I'll draw out mine. I mean, we are -- I mean, this is -- the last 10 years as an investor, like capital has gotten a bit commoditized. If we're honest with kind of what the world look like. And we've been investing defensively for the last many years and probably investing defensively a little bit too early to be candid. But now we're finally there, right? You can kind of see the cracks, you can feel the economy slowing rates are a real headwind. They made a great point, right? There's been a whole bunch of pretenders out there who have been making money, not doing a lot, just [indiscernible] capital structure and getting multiple expansion along the way. That's not for our DNA, that's not the best market environment for us. This finally feels like there's real opportunities where our capital is meaningful and we can create real excess returns in a market environment like this. We're not -- from a capital structure perspective, we don't need the last dollar of leverage to make things work here. You never count on multiple expansion on the way out, but we know we're going to be buying at kind of more mid-cycle or better multiples. This is, honestly, we think, one of the best times to be an investor in private equity. And so then it's just really a question of do you have access to the capital. And this all goes back to this entire conversation, we've been focusing on trying to build relationships for the last 10 years and not being nitpicky about little things to really develop meaningful relationships so we can be on our front foot in a market like this. So for us, we kind of see this year, next 12, 18, 24 months being a great time to get capital into the ground. We think the syndicated markets have a lot of headwinds ahead. I think ratings are a massive issue, any industry that is fully structured around ratings, which are third parties making decisions that around your creditworthiness of your business and probably not quite as steep in and knowledge around some of the industries as our direct investors. We think that market is going to be choppy and be windows driven. And so we kind of feel like this next period in front of us is an opportunity to get capital to work and it's probably going to be primarily the debt cap is probably primarily coming from direct lenders. So -- but we're pretty bullish on the opportunity to invest.

Yes. And I'd echo that. And what I'd say we're particularly bullish is an add-on opportunities for our portfolio companies just because if -- with multiples coming down particularly add-ons typically are smaller, so may be held by a family or not a formal institution. And so having those holders of assets haven't seen the market dislocate, just they're willing to transact and accept an offer at a more reasonable price, we've just seen much more willingness to transact despite the market uncertainty. So we're pretty bullish for the portfolio. Our portfolio has been highly acquisitive in the last 2 quarters, and we expect it to be. On new large LBOs, we haven't seen too many that really get us excited to deploy that amount of capital. But I agree with Jim. I think the market opportunity is coming. And now that rates are settling, I think I do think the market is sort of settling on a price, we're going to see some attractive opportunities.

Yes. I do think there's still a bit offer, and I can give you some statistics. But if you think about from 20 -- so I think we all concentrated kind of over $50 million. So I mean you might do some more buy and build a little bit, but say $50 million as -- but deal flow from '21 to '22 of books that we saw went from [ 454 to 269 ] in the year, so obviously down pretty substantially from Q1 to Q1 this year was down 72%. So I think it's quieter. I think you have better assets that can sell. I'll let you know we have a company that these do yesterday, but I haven't been in the office yet to see and it's a business that has secular tailwinds versus kind of economic uncertainty. But I do think that bid offer -- that bid offer spread of where people thought their businesses will work, where people want to buy things because I think we're right, we'd probably all be net buyers in the next year because we think it's a good opportunity. And when you think about where capital -- debt capital is prices have to come down, but there's an interesting phenomena. People are -- and congratulations to GTCR, just had a really great fundraising close. It just got announced, which was up, which is unbelievably awesome in this market. And so congrats, but the fundraising environment is hard. And if you look at how much is deployed and what -- some of the challenges of rising interest rates, people haven't returned money. LPs will not give you money if you haven't returned money. So I think that plus the new normalization of like reality of like what the bid offers really will come together. I think you're going to start seeing the back half of this year really high -- so track banks that are hired and that number for processes that haven't launched it is really starting to move up.

One point we didn't touch on the public markets. There's for many years, last many years, valuations markets have been overpaying for growth candidly for the last many years. And we're finally seeing some real pressure in the public markets, and that's kind of an ideal environment where you see the real carve-outs and really attractive because not everybody can do them. There are a lot of sweat equity to be candid. But I think there's going to be a lot of pressure inside public boardrooms, right? We're definitely going into -- we can talk about how deep you think the recession is, but there's definitely going to be an earnings recession going on because of all the pressure from whether it's labor or interest expense and other things. So people are going to have to -- boardrooms are going to have to make on what's a strategic asset, what's not. And I think that's going to -- and just candidly, stock prices, there's a lot of -- going to be a lot of interesting take private opportunities. But that come out of this type of market environment. So that's something we haven't really seen in the last 5 to 10 years. But that -- the BD people that become public -- it's real.

Okay. Great. And we'll open it up to any questions from the room.

Jim, you talked about the rating agencies and that's something you and I have talked about a bunch. Can you maybe just spend another minute? I'm not sure this audience really understands why you would be focused on that, just tease that out a little bit.

Sure. Sure. So for broadly syndicated transactions, they all need credit ratings because the CLOs are probably depending on the year, 2/3 to 3/4 of the buying capacity in the market. And those are all structured around ratings, right? And so they need -- they're very focused on what is kind of the return profile they're getting for a rating profile. And so S&P and Moody's being the 2 primary rating agencies. And for years, private equity firms have been kind of -- if you're trying to maximize leverage kind of the minimum rating that's acceptable to a CLO is a B3, B minus rating. And they -- all the rating agencies, they have -- they're divided by sectors, and they cover all of our companies. And we're trying to solve for like what's the right place to land the leverage in order to be able to kind of achieve those ratings and maintain those ratings. And I think what ends up happening is the agencies are -- I'd say they're not as sharp in their underwriting as a direct lender would be. And they are -- and they also only have downside, right? So if markets feel like they're headed the wrong way, we've seen times where we get phone calls from the rating agencies where they say, "Hey, we're going to downgrade you. "And we said, nothing's changed in our performance. And they said, well, we just have a view on the sector. We're nervous about the sector. And if we get downgraded from that B3, B minus, we basically lose access to capital. Once you're at a negative outlook or even worse a downgrade into a CCC space, the CLOs effectively get frozen out of buying your paper, these are all kinds of other implications which we don't need to go through. But that can really -- if you have a performing company and you lose access to the capital markets, and especially for us, we rely a lot on ongoing M&A. So getting frozen out of accessing the markets is a really major issue for us. And it's really difficult to be -- we cannot talk to the agencies and try to convince them to do anything or make a different decision than they're deciding to make, it's not a relationship. It's a service provider who's only really got downside if they have the ratings wrong in their opinion. So for us, like that rating is a real liability. And just for context for this group, right now, B3 issuers, if you look at true B3s that were underwritten over the last several years, probably 2/3 of them, will they'll be basically barely covering interest at the end of this year, which basically leaves all the rating agencies in a very difficult position. And so you're going to see a big wave of downgrades come through. And that's going to shut out a lot of people from the public markets pretty quickly. So I don't know if that answers the question, but it's a real consideration.

If you want to hear a funny end of the agencies, I spent a ton talking with the agencies. So in this deal, they change our company. So we transformed this. It was a public company. We transformed this business, take out tons of costs and really made it better. So we were going to do a dividend. We did an all First Lien deal because we don't want to be capital constraint, and we want to go do a dividend, and we had such good reception that they -- we can upsize the dividend. And they said -- so we went to agencies, who was a B2 at the time, and we said we can upsize this -- they said, all right we're going to downgrade, we said, okay, we won't do the upsize. And they said, "Well, your intent was to do the upsize." I said, "No, my intent is to keep the ratings the same, " And they said, "But you're just calling us means that you intended to do a bigger dividend. " I said, that's not true. So we didn't do the -- so I said, so we're not going to do the upsize. They said, we're still going to downgrade you. And I was -- so we end up doing the upsize but we had no choice, but so I spend an important amount of time with these people. Have you guys been called by their -- yes, I know this is like on tape. So getting this [indiscernible] getting this tape. So I'll just let Jim like hang out there.

You did say you had mommy issues. I just want to make sure we got that.

So she knows. But -- so they have these like business relationship development people, right? And so I have this bizarre call with them, right? So I'm like if you think about it, so I'll just give you -- we all know each other like extremely well. Charlesbank was one of the first people I covered when I was -- when I started the middle market sponsor business. But like you guys do a bunch of add-ons, right? There's likely a tracker. We do a bunch of carve-outs. And we have like unbelievable data of adjustment realizations. And so I asked them, I said, so how do you think about sponsors when you think about, well, I call it really [indiscernible] like of realizing adjustments, like there's some that are really good at it, there's some that are really poor at it. They're like, we don't know. I'm like you don't have any detail, like your realization of acquisition synergies is probably unbelievably different than most people. And then the other thing that we do is we have -- I have this like, [ DAC ] I have a rating a [ C-DAC ] on every company, and we go every 6 months and I call it a comp company analysis. So think about Learning Care Group, right? There's drivers in Learning Care Group. One is employment. So someone that covers the staffing businesses and how their macro outlook on the labor market versus just this person who you said they weren't as smartest lenders. I'm not going to say that on camera. But who's covering education, those people don't talk and so what we have -- so every company, we have a comp, so before we go to the agencies, I ask them to get their rating agency view. So we own the largest distributor of replacement truck parts and service centers. And there's a view of their -- and this is different. Like that's an industrial analyst. There's a transportation and logistics analyst that talks about trucking miles and they have a view of that. And then there's a person that talks about their -- the outlook for truck manufacturing, Class A trucks and age of trucks. Those people don't talk, but they will opine on our business. And if they're very bullish on like the aging of the truck fleet or miles driven, that should be unbelievably positive for ours, and we force them to have that conversation in their eyes spin when we ask them to do that.

For Jim, you said that this is one of the best times -- you said this is one of the best times to be an investor in PE deal. But the [indiscernible] criticism of private equity is that to a hammer, everything looks like a nail, that it's always one of the best times to me. And we -- every panel I've been on that has been a comment, how would you respond to that criticism? And then for David. Has there ever been a lenders know that was so compelling, it caused you to back off or rethink a deal?

So I'll answer I'm sure everybody -- I'm sure a lot of people say a lot of different things. I think from our perspective, we viewed the investing environment over the last several years as just a much more difficult environment to deploy capital. And our deployment had slowed down during kind of the higher markets because we didn't view some of the multiples, the entry multiples as sustainable over the long term. And so what does it take? We were still deploying capital. But what it takes to make a model work if you assume that you're going to have multiple compression on the exit, you add in increasing interest rates, the things that you need to assume and the certainty you need to have around those assumptions goes way up. And so it was a difficult time to get capital to work. And I think my comment is purely that we see an environment where cost of capital is way up. We see multiples in the public markets coming down that usually is in front of private multiples. Sometimes it's months, sometimes it takes more than 12 months to get there, but we're anticipating multiples to come down in light of some of this. And there's -- and capital is less successful, right? There's a lot -- I mean, if you look in the last many years, we've had a bunch of companies that are being funded by growth style investors that actually can't turn a profit and generate cash flow. That's not natural. In most environments, if you can't turn a profit or generate cash flow over time, it's probably not a reason for you to be in business, but you can name many companies over the last 10 years that have been continually sustained by just a rush of capital that's happy to support future growth initiatives, which are top line growth but not at profitability. And that's just not a natural environment. I don't think for the long term. And so that's what kind of drives our opinion that this is a good time to put in capital to grow.

So have we ever changed? There's always someone that the majority of people say no, right? Or half say no, half say, yes, or it just doesn't fit their model. So I don't think we've ever said we're going to buy this company and this person had this insight into it. So it's going to tell us not to do the deal. How lenders view risk and specific to the company might price us out of the deal, right, there could be a bid offer of what we're willing to pay and what someone's willing to sell and where credit views are could make it uneconomical for us to do? But we put -- we're doing one, they're not in this deal. It's a chemical company where we were able to take private. Where we were from a coverage perspective when we bought the company, where we would have to reset leverage and how much equity we have to buy and how they think about, what this means for the overall path of the company, like price us out of taking this company private. So I would say it's a component of it, but it's not the absolute determinant if we're going to do the deal or not, to no. But the why in the no is like super important to us.

Yes. What I would add to that is, particularly if a lender we work with a lot, have a great relationship with, is an incumbent on something we're bidding on. And their read or leverage support for that is off market or below market. That's going to tell us something. So we will listen and learn to that, and it may change how we bid, but I would agree once you're down the path. I want to -- there is [indiscernible] available -- it's just -- but you do learn a lot.

But it is amazing, which you'll see, there's a situation I'm going back 6 months where there's 2 companies kind of [ co-comparable ] in the industry in a consolidated industry. And the junior capital on one was basically talking because he wanted to get taken out. And then when I looked at what his view was on the comparable company was like, oh, so yes, I know you're very bullish on the one that you're in because you want to get your money back. But your view on the bigger company is kind of like a little bit more pedestrian. So it's like, oh, see, you basically don't like the business. So there's a lot of insight that you can get from these conversations with lenders. And also they live with these companies forever like talking to people that have been in the -- we looked at a deal together, which we had a handshake on and the founder and it's an ORCC, did not transact with us.

Only -- you're the only one.

Yes. We were not the only one who [ dated ], but whatever -- but we had a handshake and -- but like that insight of like you've been in that credit for how long?

7 years?

7 years. So we end up buying a smaller company in the space. So that's kind of the intellectual capital that you get from people that have been steeped in an industry and have seen like going through cycles is like so unbelievably helpful.

Yes. I mean a really great direct lender is like a whole separate line of diligence happening simultaneous to us during our diligence. I mean we like lenders who push us hard, right? Because we can't answer a lender's question then like how we're going to answer the question in front of an investment committee or in front of our LPs. So there's just so much insight that comes out of great lenders. The person who just says yes or no, quickly. That's not valuable to us, we'd rather be pushed on the diligence front from people who have many years of industry experience.

And what you guys all should be thinking about? This is my ORCC commercial? Sorry. I don't know if I'm going to do that. Because I do a ton of reference. I'm sure we'll do a ton of reference calls. I'm an investor in Blue Owl and a bunch of different things personally. And you always have to just push yourself to understand who has credit judgment, but who's playing the game of positive selection? So we have a saying inside our firm, which is you need to buy the companies you want to buy, not by the companies you can buy and there's a lot of lenders out there. And there's one big credit firm out there that we haven't done business with, I said to the name partner. I'm like just you should never do a deal with me. And he's like, why? Because that means like the other 10 said, no, right? So that's a game of negative selection. So you should push them on why investing with them is a game of positive selection because of the relationships they have with the sponsors and the insight that they have in sectors.

I think we're going to take one more.

It's Robert Dodd, from Raymond James. There's a lot of talk about all the dry powder in the private equity industry, but how much of that is locked up, so is [indiscernible] new investments versus actually in the funds where you already have a portfolio of companies that might struggle more over the next year? I mean how much capital is actually available to support versus new acquisitions?

I mean I think it depends very specifically on the sponsor and the fund. But I would say for I would expect the sponsors that Blue Owl is working with. Those sponsors are very focused on reserves and capital available to support portfolio companies. And I would imagine it's a part of -- I know you're going to add -- it's a very big part of our diligence on the upfront investment set up, not only understanding the thesis around the particular investment but understanding what the dry powder reserve -- remaining is in any particular vehicle that they're investing out of not only to support potential problems, but also just support a thesis, which, in many cases, is going to be one that's going to be acquisition-driven. And so understanding that liquidity reserve is incredibly important for us as well in the setup.

Yes. And I would say just when we make an investment, we allocate reserves in the fund for the investment. And that's the typical diligence question that we talk about and manage over the life of an investment.

So we -- I'm sorry, I'm so comfortable on this whole Blue Owl -- like promotion thing. So we keep 10% to 15% of our fund for excess capital. The other thing is that Blue Owl now has, which is there's other ways to access capital in the funds. So our latest fund is a $7 billion fund. We've probably returned $3 billion. We have $4 billion still invested, that's marked at like $9 billion in like 10 different companies. There's like NAV loans that they can do. So the more critical thing of the -- it's not a linear answer, but when you think about who's your credit -- who are you doing diligence on the credit, then you look at the sponsor, do they have excess capital? And then the familiarity we have in the portfolio, like they understand our portfolio. And so if we need an extra $200 million that's going to be secured by $5 billion of capital, like they actually have access to that. So as they're building out their business, not just direct lending, but liquid credit and fund NAV credit, they're actually becoming a bigger one-stop strategic solution to sponsors.

On that note, thank you very much, and we're going to take a short break before starting again at 11:15. [Break]

Good morning, and thank you for coming. We are a scaled direct lender with an investment team of over 100 people. We have a dozen originators. We have 75 underwriters aligned by industry focus and domain expertise, including technology, where teams are aligned by subvertical domains, including cybersecurity and PayTech, and you'll hear more about tech a little later, health care, food and beverage, et cetera. And 15 or so focused on portfolio management and workout. The underwriters are overseen by a very senior leadership team. Jeff, Meenal -- Jeff and Meenal are co-heads of underwriting for our diversified strategy. Jon ten Oever is responsible for our technology business. Before joining Owl Rock, Jeff was a senior analyst at Guggenheim and Apollo. Meenal spent about 18 years at Antares, where she oversaw their underwriting team. And JT Oever joined from Goldman, where he oversaw the leverage finance, TMT and health care businesses. It was really important to Craig and me when we set about building the team to have a senior layer like these 3. They were handpicked, are very experienced, and I believe this is a level of seniority, expertise and investment in leadership that our peers have not made. They give our investment committee significant comfort that sound and thorough diligence and documentation negotiation is taking place in a consistent way across the portfolio. They interact daily with the investment teams in all manner of company diligence, transaction structure and documentation negotiation, prep for IC as well as post closing portfolio management. We focus primarily on sponsor-backed investments and institutional quality founder-controlled businesses. The portfolio is highly diversified and as a byproduct of our investment philosophy skews defensive. We like really large companies, frankly, above the middle market, which is usually defined as $20 million to $100 million in EBITDA. The average EBITDA of ORCC is close to $200 million. I think you will find this to be well above the averages of even our largest peers. We see companies that have stable operating histories, have no or low cyclical exposure. We never are trying to time a market and have only modest exposure to commodities and raw material inputs. We try and avoid any kind of concentration, product, customer, region, et cetera, and we don't want anything which has meaningful regulatory risk. Basically, nothing that can cause any kind of step function, adverse impact on the business. I believe this is why we have had very high recoveries in the few instances where we have had a problem investment. So as you can see, with the largest slices of the pie chart being software, insurance, food and beverage, distribution, parts of health care, et cetera, as a direct result of this underwriting framework, the portfolio skews meaningfully more defensive than the broader market, and I believe the portfolios of our largest competitors. And I would like to point out that our approach to credit selection hasn't changed since we started investing. We haven't had to pivot for COVID or because there may have been a change in the broader economy. I know that you might want to gloss over a funnel slide. Everybody shows a very curated funnel. What I want to call your attention to is not the percentage of deals we closed on or rather the small percentage of deals that actually even make it to IC, it's less than 10%. We have made a very significant investment in origination because we want to see a lot of deals. Our job is just to cherry pick the very best ones. The implication of the sharp narrowing of the funnel is that our originators and industry heads are actively weeding out deals very early in the process that they know just aren't going to be a good fit for us. Almost as important, and you've heard this before, to a sponsor as a yes is a quick note. We don't want to waste their time and we don't want to waste our time. This is a differentiated approach versus other lenders, especially at smaller platforms where they are going to be more inclined to look at everything that they may get called on. So we are one team. Originators are generalists. As I mentioned before, they are empowered to self-screen their deals. Once they think an opportunity may have merit, they are paired with the industry expert for that business plus generally 2 junior investment professionals. The team then owns the deal from screening through underwriting, IC, closing and portfolio management. There is no handing off a deal. There's full alignment. No one's getting paid by how many deals they originate or what percentage of the portfolio is theirs. It's entirely the same process for everyone on the investment team, and it's based on the overall success of the fund. I'd like to emphasize our underwriters have a real voice. When we set up the business, we knew we needed to attract quality underwriters, and they are empowered to have a view. So in sum, our large team of originators drive meaningful deal flow and our underwriters are largely working on actionable new investment opportunities and portfolio management of our existing deals. This is a very busy page. The point is that we have a very rigorous underwriting process. We like to lead our deals and be admin agent. We do rigorous private side diligence, obviously, completely differently than the BSL, which only uses publicly available information, but also differentiated from other smaller direct lenders. We take weeks or, in many cases, months to diligent an investment opportunity. It is important to understand that not all lenders in the club deal get the same diligence access. Smaller lenders to the right do not get the same access that we do. We are not leveraging someone else's work. We have access to the sponsor's deal teams, company management, all third-party work and any other diligence we deem necessary. If we need to commission our own QV, we'll do that. We certainly get detailed legal and accounting diligence, and we have even commissioned our own surveys to get our own understanding of a given market or product. For example, on a food and beverage transaction, the deal team commissioned a survey to better understand consumer preferences and consumption trends. We surveyed 517 qualified respondents and included 62 questions to help inform our independent view. Because of the large funnel that I mentioned previously, we are not beholden to any particular opportunity. We make investment decisions based on our underwriting work and not because we are worried where the next call will come from. So I have touched on these themes already, but if I can leave you with anything that reflects our approach to credit and underwriting, it's this page. We like large companies that are low vol and have low or no cyclicality. Our portfolio companies demonstrate strong competitive positioning and generally should be in markets where they enjoy meaningful barriers to entry. We like large companies because in addition to not having concentration risks, they have multiple ways out. They can sell assets. And if it comes to it, there's almost always a strategic bid from a larger competitor. It's hard to find too many 200 million EBITDA businesses that disappear. It's very easy to find 15 million to 20 million EBITDA businesses that have disappeared. I could spend all day talking about why we turn deals down. I have already touched on many of the themes discussed here, but let me highlight a few that haven't been covered. We like businesses with predictable recurring revenues. We are very cautious on businesses that have any retail exposure or are tied directly to the health of the consumer. It doesn't mean we won't do any, but the bar is very high. Similarly, we generally avoid businesses that are particularly capital intensive, are turnaround stories or don't have good quality of earnings. What I mean by that is we are hyper-focused on the quality of EBITDA and the level of adjustments. You can't pay interest with adjustments. Someone told me. If you were to look at any of our credit memos, you would see both the sponsor EBITDA and our own view of EBITDA as well, giving credit or not to the various suggested adjustments, and we make our investment decisions off of our number. And that's not enough. You have to then be able to negotiate the EBITDA definition in the credit documentation to match how you underwrote it. And lastly, we also have our teams every quarter, post closing, go back and do a reconciliation of EBITDA to see if the company is actually earning into the adjustments that they had indicated. So we are recovery focused in our underwriting. What that means is that we need to get our money back. Generally, the best we will do on any investment is par plus accrued. No one deal in the portfolio will subsidize another. So when something goes wrong and, occasionally, they do, we need to be getting back par or very close to it. We do that through asset selection. First and foremost, we want to invest in good companies and then through highly negotiated credit documentation and active ongoing portfolio management. Individual lenders in the syndicated market owns small pieces of large loans and generally don't have the clout to negotiate high credit documents. They essentially risk manage by selling the loan if something goes wrong with a credit. We don't have that luxury. We hold large illiquid investments. So credit documentation is critically important to us. We actively negotiate our credit docs with a strong focus on protecting against impairment. We prevent the movement of assets around, restrict cash or asset leakage by restricting dividends, restricted payments, et cetera. And importantly, we like our deals to be well capitalized. ORCC is below 50% LTV. This compares very favorably to the broader market where you can regularly see meaningful -- meaningfully higher LTVs. We believe, over time, you will see that our recoveries for problem credits are much higher than those typical in the industry. Given the quality of the businesses and the low LTVs, and you'll see more detail on this when Brian Finkelstein speaks later, you'll see that we think our platform will have higher-than-average recoveries. If I could give you one characteristic that describes the type of investments we like to make is that we like to lend the companies with annuity-like revenue streams, especially for our larger investments. That is probably most obvious to you in the software space, which Erik will talk about later. But we find annuity-like revenue streams in lots of areas that might not seem obvious. I just want to highlight that oftentimes given the simplistic nature of industry classifications, the industry and the brief business description do not allow you to really appreciate the annuity-like revenue stream of the underlying companies. So let me give you some examples. Associa, in our list of investments, it shows up under buildings and real estate. Most people would interpret that to be a volatile cyclical market, but Associa is a highly recurring revenue business. They provide outsourced management of homeowner associations. They get a very regular fee to do fundamental tours around the HOA. Things like overseeing landscaping and collections, et cetera. It's a very stable annuity-type business where they have 80% revenue visibility year-to-year. TROON, one of our longest investments, provides outsourced golf course management. It may also seem somewhat volatile consumer, it's not. They get paid effectively a flat fee for operating the golf course and also have over 80% revenue visibility year-to-year. Then I'd like to highlight SONNY'S, which shows up in manufacturing. This may be perceived as cyclical, but it's a very stable razor -- razor blade-type business. They provide equipment for the building out of conveyor carwashes. But really, they're supplying the ongoing chemicals and disposables and ongoing parts and servicing. And lastly, HORIZON, which shows up under household products, is a very scaled HVAC business. It's basically acyclical. So I will now turn it over to several of my colleagues to give you a deep dive on some of our larger sectors, including health care, insurance distribution and food and beverage. And with that, I'll turn it over to Luna McKeon, who runs our health care industry underwriting.

Thanks, Alexis. Health care is a large and attractive industry for debt investments due to it's non-cyclical nature coupled with secular tailwinds. To give you a sense of size, the U.S. health care spend topped 18.3% of GDP and $4.3 trillion in 2021. Health care companies span a wide range of subsectors, but all operate in a highly complex and regulated ecosystem. The complexity of health care makes it really important to have a fully dedicated team that understands the nuances of the various subsectors and how they're impacted by changing reimbursement, legislative or regulatory framework. Because regulatory change is a key risk when investing in health care, our thesis is to invest in health care companies that reduce overall costs, expense access, while delivering positive patient-centric outcomes. This guides us in investing in durable business models that are not beneficiaries of outsized profit margins and those with staying power in a changing environment. You might be thinking that really sounded like every business in health care. So let me walk you through an example. To pick a common area for private equity investments such as physical therapy within physician practice management, from a high level, there's a lot to like. Physical therapy is preventative in nature, and it's a much lower cost when compared to alternatives such as pain management related surgery. Physical therapy also lends itself very well to value-based arrangements. For example, it is often bundled with knee surgery and has been shown to improve overall outcomes. That is all to say, we really like physical therapy. But even in subsectors we like, we're very selective when we're thinking about making an actual investment. To give you a sense of what we focus on, one of the key diligence areas, as Alexis already touched on, is the quality of EBITDA. This is especially important not only for physical therapy, but all physician management. And this is because the growth strategy often rests on add-on acquisitions or de novo newbuild. This type of growth strategy translates to a marketing EBITDA that often includes add-backs that are pro forma maturity adjustments, which is a forward assumption of future EBITDA 2 to 3 years from now rather than what cash is available today. Marketing EBITDA also tends to include typically considered nonrecurring, but cash add-backs such as start-up losses, M&A costs and integration costs. We view these adjustments as reoccurring if the growth strategy relies on M&A. This means when we propose debt structures for these companies, we're stripping EBITDA down to the Owl Rock number, and we are applying a debt multiple to our EBITDA, which often leads to a lower debt quantum than what might be available in the market. This is one of the main reasons why we don't have any physical therapy investments today and only 5 physician practice management investments in our portfolio, despite there being over 2,000 completed private equity buyouts over the past few years in physician practice management alone. Another key criteria we look for is diversification. This means diversification in office locations, number of physicians, payer mix as well as CPT codes. This focus on diversification means we're selecting really scaled players who are best-in-class and thus much more insulated from changes in reimbursement in a single market or labor challenges locally. And lastly, we always identify a normalized outsized reimbursement arrangements. In the case of physical therapy, this is often workers' compensation. We're able to identify these pockets of profitability because we have a fully dedicated team with subsector focus. And our platform enables us to see a very large number of transactions, which powers our internal health care data set so we can benchmark new transactions in each subsector. I hope that gives you a flavor of how we think about investing in health care. Now Adam Casella will discuss our approach on investing insurance.

Thank you, Luna. I will now spend a few minutes on our investing efforts in the insurance sector, which is one of a few areas within the broader financial space where we specialize. Insurance is a large sector that impacts almost all businesses and consumers regularly. Last year, the top 25 P&C carriers wrote almost $900 billion in premium. It's a complex and broad ecosystem that extends from policyholders to providers of risk capital. We spend our time in a subsector, insurance brokerage and distribution, which is really the bridge that connects complex insurance products to a vastly dispersed [indiscernible]. It is a large but very specific part of the much larger insurance ecosystem. Insurance brokerage and distribution is a subsector that exhibits numerous credit attributes: revenue predictability, recession resilience, inflation prediction and market and regulatory maturity, among others. Importantly, it's a sector that's been identified as a core investing priority by many within the private equity industry. Today, there are greater than 50 private equity-backed insurance brokerage platforms with valuations that range from less than $150 million to greater than $20 billion. And private equity-backed brokers are very acquisitive, completing more than 500 discrete transactions annually in recent years. Most large private equity firms already own a scaled platform and many smaller and midsized PE firms are actively investing. It's a very big pie that sets up well for our investing capabilities and, importantly, provides for consistent opportunities for us to deploy additional capital in credits that we know and that we like. So large sector and large base of institutional capital committed to it. And amid this backdrop, we have built an investing thesis around the value proposition and durability of independent agent-based insurance distribution. These brokers are not captive to certain carriers, and they offer choice and non-biased advice to end customers. And for carriers, they offer reliable market access and customer product fit. This distribution channel really works, and it has consistently demonstrated greater than 90% customer retention on an insurance premium basis over a long period of time. So within this subsector, there are 2 pillars to this thesis for us. One, retail insurance brokers who own the end customer relationship and really occupy a last-mile position in the sales process. And here, we like platforms with scale and durable local market share and which have a product and customer profile that is insulated from direct marketing practices by carriers. And second, specialty insurance. These are product specialists that provide market access to carriers and education and tools to retail brokers. These are product-first, capital-light wholesale brokers that carriers rely on to bring their products to market. To date, this thesis has worked well. Across almost 20 investments in the sector, the weighted average EBITDA today is more than $360 million, 60% higher versus when we initially invested. And we have consistently supported these businesses, which, on average, have expanded their debt facilities by 50% to 60% since our initial closing. On the right side of this page, we're showing some deal characteristics that make us cautious. But what we aren't highlighting here is our ability to evaluate and benchmark around more nuanced topics that on the surface -- in deals that on the surface within our criteria. So examples are alignment in incentive structures; hidden P&L exposure to underwriting risks; and M&A strategy, how these companies actually integrate and what the go-forward capital intensity is likely to be. In the last 6 months alone, we've declined nearly 10 deals in this subsector, and those were all financed by other direct lenders. And we've committed new capital to 3 deals in addition to continued investment in the portfolio. Reasons for declining range from pricing and structure to questions around quality of add-on M&A, to product capacity and/or market concentration. We know this market really well, and we get out and interact in the marketplace. For example, we attend almost 10 industry conferences or events each year. We have a broad network and a well-defined view on nearly all of the existing sale brokerage platforms in the market. And this knowledge base supports a differentiated ability to benchmark correctly and to diligence a specific question with the right targeted questions in mind, and we keep building on this base quarter after quarter. And so for me, the result is that in a sector that credibly includes more than 100 target opportunities, we have chosen to invest in a meaningful way behind fewer than 20. And now I'll turn it over to Meenal Mehta to discuss some of our investing capabilities in the food and beverage space.

Thanks, Adam. Let's start off with the food and beverage sector provides an important pillar of stability within the broader Owl Rock portfolio. Owl Rock's food and beverage investments benefit from stable and defensive positioning, which is supported by largely nondiscretionary and noncyclical purchases of food and beverage products. Just to give you a statistic, during the last downturn from 2008 to 2009, food spending was flat to prior year and actually grew about 2.5% in 2010. The resiliency of the broader food and beverage industry was highlighted again in 2020 as large portions of the industry were able to successfully navigate through the COVID-19 pandemic and the associated downturn. 2022 was another year where the industry faced unprecedented challenges from the Ukraine war, which impacted weak prices as well as the continued supply bottlenecks, which drove inflation in freight and labor costs. Even with all of the above, our portfolio companies were able to navigate the macro headwinds by increasing prices, improving efficiencies and better managing their supply chain. We are selective in the subsectors where we invest within the food ecosystem. Our food and beverage portfolio has been constructed to focus and capture assets in primarily these subsectors. The first one I'll highlight is branded food and beverage. These tend to be companies with strong brands, which are durable and have pricing power to offset increased raw material and operating costs. These products are generally recession resilient and benefit from increased at-home consumption during downturns. As an example, we lend to a company that has a portfolio of leading brands that sell into the grocery channel. They include pasta sauce, Greek yogurt and other brands. These are leading brands in their categories and have taken share and have a proven ability to raise prices. This particular company went public in 2021 and today has a market cap of about $2 billion. Moving on to the second subsector, which is contract manufacturing. Contract manufacturers play a very key role in overseeing the production of food products for large food and beverage brands. They're actually critical to the outsourced production capacity, which allows CPG companies to focus their resources and capital on brand marketing. And they typically have contractual price pass-throughs of raw material costs, which insulate them to the volatility of agricultural commodity input costs. Just to give you another example of a borrower of ours, we lend to a co-manufacturer of salty snacks, potato chips, pops, crackers. And the company has a substantial scale advantage in salty snack. It's about 5x larger than its nearest competitor and the only company that has a national footprint. This particular company is a co-manufacturer for brands like Frito-Lay, but also has a large private label offering. And both of these sectors provide nice offsets to each other. Finally, I'll touch upon direct distribution. Direct distributors play an important role in linking product manufacturers with customers. Assets of interest here tend to be route based and they touch the end customer on a frequent basis. We financed 2 of the largest pure-play distributors of food service packaging and janitorial sanitation in the United States. What we like about these businesses is they have the stability in revenue base, which is supported by disposable and onetime use oriented product portfolio. They are very highly diversified across their customers. On average, 90,000 to 100,000 customers; a product base of over 140,000 SKUs; very diversified by end market and suppliers. Moving on to things that we are cautious about. Within the industry, we've adopted a cautious stance with investing in business models that are undifferentiated or have limited pricing power, particularly those with the following characteristics: Anything -- any companies with elevated exposure to volatile agricultural commodities; fresh food exposure, which typically correlates with increased food safety risks alongside operational and execution risk; and finally, casual dining restaurants whose large store footprints carry characteristics consistent with retail. With that, I'm going to turn this over to Jeff, who will take you through our concluding remarks.

Great. Thanks, Meenal. I'll take a few minutes to go through some concluding comments summarizing our key underwriting principles. We want to invest in sizable companies that have a history of consistent, long-term organic growth. They need to fill an important role in their industry. If a company could be replaced easily by its competitors, it's not a good fit for our portfolio. These companies need to be healthy and performing well 5 to 10 years from now. It's pretty easy to think about and analyze how a company is going to be performing in 1 year. The secret to our success is predicting how that company will be performing in the medium to long term. We're long-term investors. Our core focus is on free cash flow, and it's important to note that not all EBITDA is created the same. We avoid revenue add-backs and large pro forma cost savings. Cash is king. We avoid capital-intensive industries and focus on the cash that a company is generating and what it costs that company to sustain it. It's why historically, we've invested in industries such as software and avoided heavy manufacturing that continually needs to upgrade their facilities. We avoid volatility. It's a bad risk to take in credit. We own the risk on the downside but have limited participation in the upside. Credit investing is not supposed to be particularly exciting. We do not speculate on commodities. We're not in the business of trying to forecast the price of steel or oil a year or 2 from now. If a company has to care and their performance depends on whether oil is at $50 or $100, that's not going to be in our portfolio. We avoid binary risk at all costs, and this can come in a variety of forms. It can be a company having one very large customer or a critical supplier where there's limited alternative sources. It could also be a company that operates out of a single manufacturing facility. Regulatory factors can also introduce binary risk. As Luna went over in health care, if there is a health care company that has a very significant concentration in one reimbursement source. We also avoid industries that are subject to rapid technological change. Artificial intelligence is particularly topical right now. And we have a separate team analyzing its broad application across every one of our portfolio companies. There will be winners and losers, and we're very focused on positioning ourselves correctly. These core investing principles have led us to avoid several large sectors in fixed income landscapes, including upstream oil and gas, medical practice roll-ups, consumer discretionary and casual dining among others. These sectors have been particularly problematic for the broader private debt industry. We have a team of over 75 people in underwriting, dedicated solely to the private debt markets. Our 40 most senior underwriters are long-tenured sector specialists who have deep industry experience. Our entire team is aligned on the same incentives. From junior underwriters to senior originators, we follow credits for inception to repayment. We have an in-depth underwriting focus where we're spending weeks, if not months, on each individual deal. It allows us to understand every nuance in the underlying industry. We focus on companies with durable competitive advantages in stable, attractive sectors that have long-term solid organic growth trends. We partner with top-tier private equity firms who are contributing the majority of the capital on the deals that we do. They have to lose all their money before we see $1 of loss. We have a culture of conservatism and value preservation. This drives the way we structure our legal documentation and covenant protections. The majority of our deals have financial maintenance covenants in addition to strong broader covenant protections. We have a dedicated internal legal team in addition to the decades of structuring experience that our senior originators and underwriters have. And with that, I'll open up to some Q&A.

Robert Dodd, Raymond James. Not that I want to be short term-ish, but on Slide 41, I just kind of curious that not the 1.9% of deals that were closed in the first quarter, but the percentage of deals that closed versus reaching final investment committee, right? Normally, that's very high. If they make it to final investment committee, they end up closing. But in the first quarter of this year, it was only about 1/3. So can you give us any color on what -- 6 out of 17, right, versus 12, 14 [ nearly ], is anything shifted in the market? Is this you holding the line on spreads and some people getting more competitive? Is it that...

It's 2 things or maybe 3. So one is, those are the discrete closings in the quarter. So some of the 17 that made it to IC just haven't closed yet, so they may close in the future. We have deals that are approved, but our tree and the deal may not be the ultimate winner. So the sponsor some more backing may not win the option. It's -- that will be the 2 drivers there. I mean putting aside those 2 particular numbers in general, we -- something may get the final IC and we don't approve it if some new important diligence has come out that causes us to rethink either the deal altogether or our leverage read. But in general, things that get approved at IC, but don't close means that our tree didn't win.

Got it. Got it. If I can one more on. The talk, obviously, is capital preservation, et cetera, et cetera. I mean in some situations, it can be an issue that you end up taking the keys of the business. It ultimately has happened on a couple of instances. How much of that potential and like does this make a potential equity story in the event of a recovery, very small probability event? But does that -- is that part of the credit underwriting upfront as well? Or is that just whether you take the keys, at the end, it becomes -- is it a separate process in recovery underwriting? That might be a question to the workout team to be fair. But...

Well, we can certainly cover that. Brian, I'm sure, will cover that. I'd say we definitely focus on that, as I mentioned in my remarks. So in our general underwriting, we are recovery-focused that speaks directly to our ability to recover value in any workout situation. So we said this all morning. We like -- we do large companies. Large companies have multiple ways of solving their problems. That's definitely part of how we underwrite the deal in the first place. Does the company have flexibility to solve its problems? Do they have other assets or divisions that they can sell? And if the ultimate exit value -- so when we underwrite a deal, if you were to look at our memo, the multiple that company -- that the sponsor may be paying for today, maybe, I don't know, 15x. That's not the exit multiple that we underwrite to. We take our own view of what an exit multiple may be, especially in a distressed situation. Maybe 8, 9, 10. We've been doing this a long time, multiples contract. So we look at what will our recovery be in that distressed situation and how much of the debt is covered there. So we are highly focused on what the recovery may be and what our path may be to that recovery throughout the underwriting process. Does that answer...

I think to your point, the same things that are going to drive a strong recovery are the same things that drive our underwriting -- our core underwriting process, right? So competitive -- strong competitive positioning, good organic growth in the industry, stability. So it really drives a lot of the same analysis.

We're also looking at what the strategics could be that could potentially buy a particular business. We're talking about that upfront. We have downside cases that we are not just doing our own underwriting case, we have a full downside case that we're putting together to see how this particular business will look in a stress environment. And so that all helps to basically make our underwriting and actual investment decision. So it's right at the front.

Why wouldn't your underwriting funnel become more efficient over time, okay? Your sponsors would understand what you're going to automatically say no to and not even bring those deals to you. So why wouldn't that funnel become more efficient over time and your close rate actually become higher?

We want to see everything. Even if we're going to turn it on, we want to see everything.

We're not trying to solve for the most efficient process. We want to see everything. You heard multiple times from the private equity firms. They like balancing the deals off of us. We want to have those conversations. And we're -- it's not going to get -- we're not solving for really high hit rates. I don't think that it always comes across how early we get involved. We get called when they're just thinking about looking at a business. They may not have even met with the company. They don't know the issues yet, right? So they're coming to us very early. They haven't done their work, having an initial discussion about a sector. It's only over time. We work with them for 2 or 3 months. Sometimes they drop out. Sometimes we drop out. We're also expanding our coverage model, add more sponsors. I don't -- I think that it's really healthy to just see everything, but we're really efficient. I don't keep beating a dead horse. So our originators, we not only empower them, we insist that they say no really quickly because you can't afford to see -- look at all these opportunities and spend real time on them. So they just say no quickly like on the phone or the next day...

I'll add one thing that I'm sure Nicole would like. Nicole is not just answering the phone when a sponsor has a call, like we're fully engaged on a regular basis. We're out visiting, meeting, not only just covered, but like our sector heads are out engaged with the sponsors. So they're hearing about deals in the normal course. It's not just when the sponsor has a deal and [indiscernible].

We also might have a little bit of a depreciated view because of our industry expertise. And so sometimes we're talking about deals that they're actually at the same place, the sponsors and diligence assets, but we might have a view that is different from other direct lenders as well, just earlier on. Others will get there after they do their diligence, but because of our industry expertise, we're just -- we're getting called on those deals as well.

And maybe last comment is, in the second half of last year, actually, our hit rate was higher because there were fewer deals and only the sort of better deals we've been trying to get done. So our hit rates actually did go up because there were just much better credits trying to get done in the first place.

Ken Lee, RBC Capital Markets. For the underwriting process, it's necessarily like a bottoms-up process. You see certain deals and then you've got through them, do the due diligence. Maybe you can just talk about -- a little bit more about the interplay between like a portfolio allocation but from a higher level. How does that interplay to ensure you have a diversified portfolio overall? And does that mean if you're getting certain sector overexposure that the marginal investment is going to have potentially a higher margin or return or other factors there? If you just talk about the interplay there?

Sorry, I'll -- look, we are a large and growing platform. So when we're looking at a transaction, we have the opportunity to look at where that could fit across multiple funds depending upon where they are in their life cycle. And we care about portfolio construction from a variety of different metrics: economic, industry, first lien, second lien, sponsor concentration and the like. Financing is a really important component, how we finance, different of our funds have different financing profiles. Jonathan will talk about that in a lot of detail later. So we're very fortunate because of our large pool of capital. Generally speaking, if there is a credit that we like with economics that generally fit our platform, it's more a question of bite size than it is whether we have a place for it. And so we have those conversations during the process, early -- when we know enough to be intelligent and early enough that it matters. So I talked about this earlier, how important the bite size. So if something opportunity comes in that is going to work for all of our funds, we're going to make it known early that we can be very sizable. We want to lead it. We want to take all of it. But if something comes along, insurance brokerage is a great sector, but there have been times where as much as I love Adam and he does great work like we got, we got enough. And so we'll say, okay, we can do some, but it's only $100 million because it's not going to go into ORCC, it's going to go into these other funds. And so it's a multivariable equation, but one where we have, I think, a high degree of flexibility and more than others. It is something integral to how we interact with the sponsors because we go to great lengths in the quality of that feedback early so they can count on it. And that's hard. It's a lot of extra work for us to figure that out. But that's one of the things that hopefully came out in that discussion. We don't say, yes, we really like it. Well, we can do half of it, and then we get to our IC and then it turns out, well, we don't have that appetite. And I -- again, not to keep comparing us to others, but I will tell you that is a bit of an endemic to this industry. Why? Because Alexis, myself, Patrick Linnemann, who helps me manage the portfolios, we're involved early. I see we don't get to until late. If we just waited until IC, which a lot of firms do, then they get the actual input from the decision makers, it's sort of almost too late to really reflect that back in. So I think we go to great lengths, and that's deliberate. It's how we build our business. It's how we built all this trust that these folks talked about. Does that help?

Great. So you've heard a lot about our diversified strategy. Now we're going to switch to tech. I'd like to welcome Erik Bissonnette, Co-Portfolio Manager for our tech strategy.

I don't get anyone on the stage and it's noon. So I'm not sure this is the best setup. But thank you all for coming. So we have a dedicated group of approximately 30 investment professionals focused exclusively on technology. This is a substantial investment, and we built out this large and talented team and it's split between New York and Menlo Park. The team has diverse and complementary skills with backgrounds in fields such as private credit, private equity, venture capital, investment banking and others. These varied experience and specialist knowledge are a key differentiator in our strategy. So we organize ourselves around key subsectors that we think are the most important and actionable today. We have dedicated teams focused on cybersecurity, health care information technology, fintech and many others. As I said, the majority of the team is here in New York, working on sponsor-driven direct lending deals. And complementing that group, we have a group on the ground in Menlo Park. They focus on direct corporate structured debt and equity investments, typically for later-stage pre-IPO opportunities. So before we dive a bit deeper into the strategy, I want to take a moment to clearly articulate what we do and, more importantly, what we don't do. Consistent with all of the Blue Owl funds, we are credit-driven, downside-oriented investor. We assemble portfolios in a defensive-minded manner by focusing on large, stable, recession-resistant software assets. And for the avoidance of doubt, we are not focused on early or mid-stage opportunities nor are we focusing on [ benchtop ]. So turning the page, technology can be broadly broken up into 4 major subsectors: software, IT services, technology hardware and semiconductors. There are certainly investable themes across all of these categories, but our focus on Blue Owl is on software. So why is that? And what are the attributes that we find so compelled? We believe that great software businesses provide mission-critical solutions for their customers. They enhance productivity, they drive efficiency, they replace manual and error-prone ways of conducting business. Once these solutions are adopted, they become deeply embedded in the workflows of their end users. Business outcomes are driven by these investments. The next set of characteristics concentrate on what we call quality of revenue. What does that mean to us? Quality of revenue has 3 major components: sustainability, predictability, profitability. So what is high-quality revenue? It is recurring. Our portfolio companies had 80% to 90% or higher contractually recurring revenue from subscriptions or maintenance. It is predictable. Pension rates average in the mid-90s on a gross basis, well over 100% on a net basis. And that's measured both on a dollar and a low bill perspective. It's diverse, highly granular customer bases and minimal to no concentration and is high margin. Strong unit economics create substantial operating leverage. So as I said, these companies have high-quality revenue and strong margin profiles. Just as importantly, they are also capital efficient. They drive working capital from upfront payments by customers and they require minimal CapEx to support their operations. So let's put that all together. High margins, plus customer-funded working capital, plus low CapEx equals a high free cash flow conversion. A typical portfolio company for us converts 80% to 90% of its EBITDA to cash. Not adjusted EBITDA or adjusted anything, cash and the bank account. So the combination of these attributes lead to stable, highly visible operating performance, with best-in-class free cash flow, which, of course, as a lender, is exactly what we should be seeking out. So moving on. We've laid out a set of investment characteristics that I believe any analysts would consider highly attractive. But there is another important factor as to why we believe software to be such an amazing asset class. And that is that software is not in an industry, but rather an enabling technology that services almost every sector and company in the world. This slide says software touches diverse end markets. I believe it is more accurate to say it touches all end markets. We believe that digital transformation is one of the most important secular trends in the business world today. As we construct our portfolios in addition to position sizing, we therefore are focused on industry and end market diversification. And this is the key. Our investments are therefore inherently uncorrelated with the ultimate drivers of their success driven by their competitive positioning and differentiated product offerings. There is simply no underlying risk that affects all of our companies in the same way at the same time. So that's a nice framework, I think, but what does it look like in practice? So we'll break this up into a few parts here. Think of software as having 2 major categories: horizontal and vertical. What does horizontal software mean? It simply means that it can be used by a wide range of businesses regardless of their industry or size and is not custom built for a specific end market. So let's go down another level and discuss applications and systems. Applications are programs that perform specific tasks or workflows and often function as a system of record. Categories you might be familiar with are enterprise resource planning, so think SAP; our customer relationship management, so salesforce.com. An example in our portfolio would be Anaplan. Anaplan is a cloud-native platform that allows large enterprises to perform planning and budgeting functions in a single centralized environment. This is a business that has well over $600 million of revenue, is growing at 40% and was purchased for over $10 billion, $10 billion. We provided a $2.5 billion loan or 25% loan-to-value for an asset with 95% gross and 120% net retention, 90% recurring revenue and 3- to 5-year subscription contracts. So a very compelling overall profile. Next up, as we walk through this page, is system software. These are the foundational elements on which other software can be run, managed and accessed. An example of this, very prevalent in our portfolio, would be our cybersecurity assets. These products can provide a variety of tasks from protecting networks from authorized access and use to managing digital assets, data and infrastructure. An example in the portfolio here would be SailPoint. SailPoint provides enterprise identity solutions to roughly 2,200 customers worldwide. It ensures that the right people have access to the right applications and data for the right reasons. This business has well over $400 million of revenue, was growing roughly 30% and was purchased for over $6 billion. And we provided a roughly $1.6 billion loan or 26% loan to that. To wrap it up on this page, we have industry verticals that we find attractive on the bottom, clear market leaders. These vendors are providing differentiated solutions, but they are custom-built for their specific industry and end market. I won't go through specific examples here, but what you will see are multiple investments in less cyclical sectors with solid growth and stable demand such as health care, government and financial services. Benchmarking. We've heard a little bit about this in the last presentation. So I want to talk a little more about analytic tools and benchmarking. As you've heard today, we have deep origination capabilities across the platform and putting some metrics around this for tech specifically. We have reviewed approximately $520 billion of opportunities across 1,800 deals since we launched the platform. And we've been very selective in deploying that capital, with roughly $30 billion invested across all of the funds over the past 7 years. So this significant footprint produces a tremendous amount of data, which we can leverage to our advantage. We have built a massive private database that benchmarks potential opportunities across a variety of key performance indicators. Amongst other things, we can measure the scale, diversity and granularity of customer bases, dissect the quality of revenue, analytically review the go-to-market motion and underlying sales efficiency of the business and quantify the attractiveness of the deal structure. Looking at this example. This is a cybersecurity go-private we've reviewed recently. That N of 92, those are deals that we took to investment committee, right? Those are not deals we spent 10 minutes on. Craig, obviously, wants us to look at every transaction, but we won't have the level of detail to populate this database with the quality of data we want unless we really spend time. So it's important to realize that we are benchmarking against a data set that's very enriched and fulsome. So it's probably obvious, but I think this is a huge competitive differentiator and I hope Craig agrees because he's sitting right there. But every time we go to investment committee, we come armed not only with our qualitative view on a deal, but also a nonsubjective analytical framework. I think this discipline is vital in producing an investment process that is replicable, consistent and transparent. Moving on. So how do we think about asset mix in portfolio construction? Our focus, as we've said multiple times today, as we get closer to you eating lunch, is focused on top line revenue stability and downside protection. So unsurprisingly, what you will see here, the vast majority of our investments, roughly 80%, in our portfolio are senior secured. On the top right side of this page is a brief description of this strategy. First lien unitranche, second lien loans, you've heard this a few times now, with a focus on directly originated sponsor-backed LBOs. In addition to this sponsor-oriented direct lending platform, as I mentioned, we have a team focused on structured debt and equity. Given the material dislocation in public equities, venture capital and weakness in the IPO market, we believe we have an exciting opportunity to provide downside protected capital solutions to these companies. These investments generate contractual current income with the potential for meaningful upside through warrants, discounted conversion rates or other similar features. Most importantly, they have structural protections and negative covenants designed to protect our invested capital. So moving on to the next slide. It certainly wouldn't be a software conversation in 2020 through '23 if I didn't get to talk about recurring revenue loans. So here we go. Recurring revenue loans have become a very meaningful part of the direct lending landscape but often a misunderstood one. So what is the recurring revenue loan? It is a loan made to a company that is not currently generating free cash flow because it has made a strategic decision to postpone profitability in favor of acquiring customers that it believes will generate a high lifetime valuable, well in excess of the acquisition cost. Question I hear the most and by order of magnitude is "why would you lend to a company like this? Will they ever produce real free cash flow?" And hopefully, I can prove to you what we believe to be true. These loans tend to be the best companies we review. Scaled revenue, efficient growth and large open-ended market opportunities. In exchange for that, we get lower loan to value, better pricing, better structures and cyber covenants. So why is that? Certainly not intuitive that better quality should generate better yields and structure. Touched on this a little bit in the last presentation, but there's some underlying dynamics around regulatory lending guidelines. So side banks have a tough time underrating these types of assets. On top of that, CLOs who make up a big part of the purchasing apparatus that [ Jim Binani ] was referencing earlier, are subject to rating agency constraints, which often preclude them from being involved in these deals. So there are real structural limitations that we think artificially reduced demand that is completely unrelated to the quality of the opportunities. So here on the bottom, just to put a few metrics around this in the top 10 positions we have in our recurring revenue book, the weighted average revenue is $600 million with a $5 billion equity cushion and a 27% loan to value. So what do we look for in a recurring revenue? criteria identical, right? So this stage look very similar. But we have a narrow focus along some of the dimensions, like companies with rapid organic growth, but this is really [ in temp ] companies with solely organic growth. This is not really a place where we spend any time for roll-up strategies and strategies focused primarily on cost-cutting exercises. Highly recurring revenue. This is predicated on contractually recurring revenue streams. The companies might have perpetual licenses or other professional services revenues, but we don't count those inside of the metrics. And then we talk a little bit about unit economics and underlying profitability. That's vital here for these borrowers because they are making a strategic decision to take cash flow and reinvest that cash flow into sales and marketing that only makes sense if those investments have a very strong ROI. So one other important thing that we talk about, we have these borrowers commit that within a specified period of time, they will go from a recurring revenue loan to a traditional cash flow mode. And that sometimes can be typically between 2 to 3 years. But I want to be really clear about this. For some period of time, we are allowing the company to reinvest cash flows into acquiring new customers. But within 2 to 3 years, it has to comply with a regular way EBITDA covenant. And if they don't comply with that, it is a default. That means the business is still doing well, still growing, and that's a real big problem for the private equity firm, but not really a big problem for us because we're still looking at businesses growing 10%, 15%, 20%, the strong underlying growth drivers and profitability. So to wrap this up, we're very proud of what we've built and the technology platform and obviously, and the results. As I said, we've deployed about $30 billion in the strategy. And since inception, we've had only 1 investment on nonaccrual and 1 realized loss. That's roughly $16 million, and we own that company. So I think the recovery can be in excess of that. I don't know how to do math that well, but $16 million divided by a very large number, might be below 5 basis points, Craig. Just for our conversations later in the year. Portfolio continues to perform exceptionally well. 96% of the assets are at or above our initial underwriting models. So with that, hopefully, I provided you with some thoughts and deeper insights into our thesis, framework and focus areas, and thank you for your time. Glad to take some questions from the audience. I know Robert asked. I'm just waiting for Robert to ask a question, so might as well will start that.