Blue Owl Capital Inc. (OWL) Earnings Call Transcript & Summary

Hi. Welcome back to our listeners. As a reminder, this is Ann Dai, I'm Head of IR for Blue Owl, and we're continuing our limited series that leads up to our Investor Day on February 7. Today, we have Ivan Zinn here with us. He's Head of our Alternative Credit business and Founder of Atalaya. Ivan, welcome.

Thank you.

Let's start here. It's been a busy year for you. I don't think it's slowing down anytime soon, by the way, just based on what we're seeing ahead for the business. I want to start with a little bit of a background on Atalaya, what this business is because it's brand new for our shareholders. First of all, you started a credit business in 2006. So we have a lot to talk about there. Secondly, we know that even today, private alternative credit is fairly early innings. So you were really this pioneer in the space, and it was a totally different space back then. So I'm kind of going off on a tangent, but there's a lot to dig into here. We'll circle back to this. But Ivan, maybe start at the beginning for us. Just take us through the early days of the Atalaya. What was the market? Why did you start this business? What was the thought process?

Sure. Yes, having a long-oriented private-ish business in 2006 was a challenge for sure. I started doing private credit or at the time we didn't call it private credit, but effectively private credit investing in 2002, really when joined at that point, business of [indiscernible]. And at that point, there was a couple of people doing what now would be defined as private credit and a couple of funds largely focused or structured as hedge fund-like things and then prop desks. And so that was really the stage of private credit at that point. Now at that time, sponsors didn't really use private credit. They only used it -- maybe they couldn't get it elsewhere from a bank or GE Capital. And so the market was not by any means defined. And I think when you look fast forward to 2006, the goal is to really take advantage of the opportunity set that was to go out and make opportunistic credit investments, largely private, largely originated, could have been corporate, could have been real estate, could have been what we now would call asset-backed, we would call specialty finance or otherwise then. And the market was radically different. The providers of capital were small. There was no billion-dollar deals. A $100 million deal would have been large for the market at that point. Sponsors were just kind of getting their hands around it. The unitranche or what now people think it was unitranche business has kind of gotten started. And really, in 2002, for example, you could do a LIBOR plus 1,000 deal, LIBOR was 5 and 15 felt like a pretty nice return, and you didn't have a lot of competition, and that was the first dollar and it was unlevered. But pretty quickly, you had banks -- a couple of banks, a couple commercial finance companies otherwise coming in and doing the first out effectively in that added LIBOR Plus 3. You still got to make a LIBOR 1,000, but it was junior. And ultimately, if you didn't realize that it was becoming a unitranche business, where you needed to be the first dollar to the last dollar and you could finance a pool of these loans much more efficiently than LIBOR Plus 3 with GE Capital or otherwise, it really -- you became a mezz business. Essentially, you're kind of a dead business over time. And I think that's we observed in the corporate world, and we'll get to this later, but fast forward to now with respect to asset-based, that's where we look at the state of the asset-based or alternative credit business, which is if you don't have an ability to speak for that whole capital structure, what today in the corporate world, we call a unitranche, you're going to get essentially a disintermediated business and you're going to become really a mezz-like player, which over time, probably die the way that mezz funds did in the corporate side. So that's how I'd analogize what the market was then versus now. We managed to survive 2008 and really out some of it like repurposed our focus on opportunistically becoming like a buyer of assets today come out of the GFC. It was coming from FDIC, banks, anyone who essentially ended up with a bunch of assets that they didn't know what to do with was really our opportunity set and really became a much more, let's just say, an opportunistic buyer of those. And in some cases, buying things that we used to lend against, which was fun because we could pick the closets of banks and say, we'd prefer to buy it back at $0.30 or $0.50 versus the $1 we got taken out of when you refinanced us. In other cases, it was new asset classes or I should say, new because we hadn't bought a bunch of truck leases before. And you couldn't service those from Midtown Manhattan, you needed to know what they were, what the servicer looked like, why they were servicing, how you're going to get your money back, but when we're buying them for $0.30, $0.40, $0.50 on the dollar, you could, 1, make a lot of money; and 2, you had room for -- effectively for error in figuring that out. And so for a long time, there was this kind of opportunistic bent, albeit increasingly over time in the asset-backed or asset world, realizing that as the growth in the corporate credit landscape took place with private corporate lending becoming a thing and getting an allocation and the growth of BDCs, we chose to really focus on the slightly less trafficked areas, where you weren't calling on financial sponsors, you were financing things like credit cards, consumer loans and small business loans and equipment leases and asset classes that were largely harder to find. Certainly, they weren't calling on financial sponsors, but also took a totally different analytical perspective. You needed what later, we would call data science, but you needed some much more sophisticated tools to be able to both find it, but also to be able to understand it. And as a result, you could make a lot more risk-adjusted return because there were just fewer people doing it. And that was true when we were financing, call it, the businesses and the consumers and small businesses coming out of the ashes or the rubble of 2008, where we kind of got to go and grow with them where they were pretty good at lending to consumers or small businesses. They were willing to pay any price for capital in 2011 because no one was willing to give them capital. Banks were certainly not directly providing capital to consumers. But they also weren't indirectly providing that. They weren't lending directly, but they also weren't financing companies that were lending to those companies. Pre-'08, they did some of that. But pre-'08 GE Capital, CIT, Textron, commercial finance companies would do that. And so post '08, you saw lots of need for the capital in the consumer finance space and small business and other areas that we've now been experts in for a long time and not a lot of people financing it, and that smelt like opportunity for us. So over time, post '08, we really deepened our focus on that and built out having different cost of capital to address those opportunities as they went along. So I compacted a lot into that particular answer, but I tried to cover, kind of the, before '08 and after '08, at least the beginnings of the after '08 story, clearly, it's ramped up and changed since then, too.

That's really helpful. I mean I do want to dig into some aspects of the evolution of the asset class. But maybe before we do that, you touched on this a little bit, if I just for this audience, asset-based finance, alternative credit can mean a lot of things. So let us start with what they're familiar with, which is our direct lending business. I'll describe it as senior secured lending, typically to a company backed by a sponsor, large bite sizes. We as Blue Owl are increasingly doing deals above $1 billion. But across the portfolio, we probably have 400 or so portfolio companies. What you do, asset-based finance or alternative credit, we can use that interchangeably, but it's a completely different business. So you touched on some of the asset classes. You touched on some of the counterparties. Maybe let's just kind of go through those categories and describe what your business looks like.

Sure. I think that's one of the exciting parts is to help define that business in terms of what are the major food groups. I think it does get a lot of maybe attention today. It hasn't gotten a lot of attention over time. It felt like we were out there trying to describe it and people would look at us. And if they hadn't done corporate credit yet, which was true in 2012, for example, we finally realized that if you hadn't done -- if you're an investor and you hadn't done corporate credit yet, we were barking up the wrong tree. We need to wait. But now obviously, people have largely adopted some form of flavor of private credit and largely corporate. So what does that actually mean? I think that's the opportunity. And we define it in a way that's not radically different than others. We would really define it as financial assets. So financial assets being streams of cash flows, largely things like consumer finance, small business finance, where there's contractual payments. Sometimes they're secured, sometimes they're not secured. There are streams of cash flows that are typically relatively shorter dated by nature because these assets pay off principal and interest on a monthly basis and amortize over somewhere between less than a year and a couple of years. So financial assets being one. And admittedly, those are complicated, but a very large opportunity set. We'll come back to size in a moment. Then there's hard assets, hard assets being railcars and equipment leases that are against trucks and lots of other things that we finance, including digital infrastructure, servers, software, other assets that are more tangible. We've done a lot of that. Obviously, I just mentioned buying them out of the FDIC and now originating and there's a really interesting opportunity set to talk about that. So financial assets, hard assets. And then really 2 other major, call it, food groups, if you will. One is soft assets, soft assets being things that are fun to talk about, Taylor Swift music Royalties always gets everyone's attention.

Do we own some of those?

No, no. In fact, that made headlines for her recording her own version, as everyone knows, Taylor's version. I'm sure that's what you listen to. That's what my daughter listens to. But fun to talk about small opportunity set includes royalties and things like litigation finance and some other asset classes, again that get attention from a time perspective, but not something that we spend a ton of time on just given the size and nature. And then finally, the largest single asset class in the world, which is U.S. residential assets. And there's, call it, traditional regular way conforming resi assets that we largely don't spend a lot of time in because it's well priced and well understood and price is very tight. And then there's what we have defined as alternative residential. And that's really everything else. It's home equity, it's non-QM mortgages and lots of other flavors essentially of financing that is not a regular conforming government backstop effectively mortgage. And so those are the 4 flavors that we've defined. And if you read other people's pitchbooks or otherwise, it's same rough categories. And that upshot is it's a large opportunity set that is -- each of those things is a little bit complicated, which is both the blessing and the curse and the blessing being there's not a lot of people that do it. It's hard to talk about. It's hard to understand, et cetera, et cetera. The curse being it's all those things and sometimes hard to explain to investors. And it takes time and attention and takes somebody to really want to dive into it a little bit more.

Which is why when we talk about internally and we're thinking about ways to make it more accessible, maybe there's this idea of we're financing Main Street, right? It's a lot of different types of assets or businesses, but bundle it under Main Street.

That's exactly right. And that's certainly the moniker that we're using to make it because all these things do sometimes hide in plain sight, right? The credit card is always one we go to because effectively everyone has a credit card. No. People don't understand necessarily what happens after you swipe at Starbucks. But there's a lot that goes on behind that and depending on who issues it and the financing. And the small business that sells you the pizza in New York City for $1 a slice, there's a lot behind that, too. How do they borrow? How do they pay their bills, how do the swipes work. So yes, Main Street being how do you shop? How do you travel, the plane you travel, the buy now, pay later for a trip you're taking, the consumer loan you're taking out to do a home improvement against your house. So how do you travel? How do you shop? How do you live? All those are things that maybe some people take for granted, but they need to get financed just it may not be owned by pick a private equity sponsor that Blue Owl is calling on. In fact, very little of what we do fits in the, call it, sponsor-backed, if you will.

And as we think about counterparties, so you're not actually financing the person that has the credit card, there's someone in the middle, right? And that's our counterparty. It's B2B.

Yes, we're not going to consumers and saying, and here's a credit card. We're partnering with -- let's keep on the credit card analogy, the credit card originator, who's trying to get you to take their card and they need to finance that when you go to borrow, pay for whatever you're buying that -- that month, somebody has got to actually come up with the money, credit card originators come up with the money. They may come to us to borrow from that. Essentially, it's what otherwise looks like at the end point, an asset-based securitization that would show up in, for example, an insurance company's bond portfolio or a bank portfolio is a essentially CUSIP bond. We're just going and making that privately, going to the originator saying we understand it, we can analyze your data. We're going to set up an SPV the same way that essentially a trustee would for asset-backed securitization. And we're just doing it privately, negotiating it privately, analyzing privately, monitoring it privately and providing, we think, call it, a better flexible partnership with that credit card originator because, hey, maybe they want to add a new product, maybe they want to upsize it. And this is the reason why we've had such a long-term repeat business in that asset class is because if they're good at it, they need more capital, and they're all going to continue to hopefully partner with us to do that. And so we're lending against those or we might buy those from the originator, who is also needs to essentially free up some of their capital to do other things with. And so think of our business as either being a lender against these assets or a buyer of them, but we're not out issuing Blue Owl credit cards and don't plan to be.

So in thinking about the counterparties and the drivers of the growth in the market that we've seen, it strikes me that there's kind of 2 big things going on, and maybe we can go through each. One is we've talked about bank retrenchment, bank disintermediation, whatever you want to call it. It's clearly a driver. Banks are pulling back. There's less capital available, and there's a space for private market providers to step in. And then you mentioned the word unitranche earlier, which is interesting because we talk about this within the context of direct lending. It's part of what's driven the advent of direct lending because if you can go to your counterparty with a solution that is not, "hey, you have to go to the banks for one piece of your cap stack, [ IDPs ] or an insurance company, then you have to go find a hedge fund or someone else to finance the rest. We can offer you something one-stop shop. That's what we're talking about here, and that's also a driver of the trends we've seen in this market. So maybe just talk a little bit about what you're seeing in that regard? And where are we really -- like I assume we're early innings, but you're so close to this. Just tell us what you're seeing.

I think the unitranche analogy is properly used here in the sense that we need to be able to -- in the Atalaya days, we had a higher returning opportunity fund and a lower returning income fund. It was really almost a graduate program where they were, let's say, earlier, smaller, riskier, whatever it was, we could get higher returns from them as they graduated to a lower returning full capital, we wanted to have that too. In our case, that was kind of a teens return target. And I think...

It's pretty good for the lower return.

Pretty good for sure. But I think the opportunity set is much broader than that in the sense that -- and the same is true at corporate world, the opportunity is to do those -- as they grow, they're going to be bigger because the winners get to run here and you might start at $50 million when it's high returning or opportunistically buying something, but it is going to be hundreds of millions of dollars if it grows. And it could be billions of dollars if it grows to that. Now they probably won't take your capital at [ $13 ]. It'd probably be lower than that. But they also don't need it to be at $6 or maybe a little more today, but in terms of it to look like an ABS, the headline on an ABS deal because banking fees and ratings fees and this fees and that fees is not truly $6, it's more than that. The headache factor, also the flexibility is real because we've seen this. We lived through COVID, we've through GFC, where people have problems. They have changes. They come and go, "Oh my gosh, I got to add this collateral. I got to change this, I got to pay that down." But if you have a bond deal, you don't have flexibility. You have much more flexibility, especially in the case of having a single counterparty you can call up and make changes the same way on the credit side, the direct lending side, sponsors like that flexibility. They know they're good for it. They know they can call essentially one person to make changes or talk about those opportunities to make an acquisition or otherwise. Same thing and the same reason why the analogy applies. So what inning are we? That's a good question. We just -- I think it's early innings. I don't know how long the ball game is. And the reason why I say it is because we talk about a $1 billion deal on the direct lending side, and that's pretty common these days. But not that long ago, very rare. And for our own business, for alternative credit and asset-based world, we didn't do anything that was $1 billion until probably late '21. And then it's not that we've been doing them all the time. We've done a couple of things, including we announced a transaction with Upstart, and that was multiple billions. But that's the beginning, and that's, I think, the tip of the iceberg of the opportunity set. And the natural question is, okay, well, why now? And it's not like consumer credit isn't new. In fact, it's quite old. So what we're doing is existed Visa going back 75 years at this point, longer than corporate direct lending. So it's not new, but it's the new provisioning of it, right? The technology, the pipes to consumers, the being able to borrow on a phone radically different than walking into a bank and filling out paperwork. You can slice and dice payments in a totally different way. If you're a small business, you can walk in and borrow against that specific thing and pay it down in a certain way that technology allows you to split those payments in a way that nobody would have let you do because it wasn't practical before. And so there's certainly been, one, a bank retrenchment. And I think it's the easiest way to think about it is called the Phase 1, Phase 2, Phase 1, largely being corporate post-GFC, banks not doing a lot of corporate direct lending and private markets stepping in to do that and really being a better provider of that.

It's interesting because we -- I'm hearing like innovation in here. One was just people have new and different ways to pay and new and different ways to access financing and the next is then when you look at the structure of the deals themselves, they're changing and becoming more "unitranche in nature." So all of that is kind of pushing things in our direction. One question I have...

But it's really the same public to private or convergence of public and private markets, right? Corporate it's happened. The direct lending does, I think, today, the majority of the sponsor finance. And over time, I think the majority of things in the asset-based world will be done by private capital. It could be insurance-related private capital, it could be fund-related private capital, it could be combinations thereof. But if you're an originator of credit cards, you need stability. #1 rule, don't run out of money, right? And look, we saw people either run out of money or banks would call during COVID and say, you know that, credit agreement, you can go ahead and tear that thing up. It is not good for it, get a call from your European headquarters and say, no more. And what they realize is that you can't run out of money, you may pay us a little bit more, but you're paying for certainty and flexibility. But more importantly, as you look down the road, the ability to do that unitranche in an effective way where you're delivering that full solution as they grow, not the $50 million thing, we should do that, too, and grows to hundreds and then hopefully grows to billions. And also the ecosystem works that we're going to be able to lend against these assets, buy these assets and ultimately be a long-term partner with the right counterparties. And in fact, we could point to a handful of things in our portfolio, where we've been lending to them for more than a decade. And so we have dozens of these repeat partners, repeat relationships. And as a result, we also have had to build out things like data science and efforts where we need to be able to be as smart as them and be able to keep up with them.

And do really want to dig into the data science, but 2 quick questions before we get there. So one is, I imagine, as you're growing with these partners, having access to whether it's wealth or insurance capital, something that's not looking for the opportunistic return, but just something south of that and in insurance's case, IG, that's helpful for you in growing the business long term and establishing those relationships further, right? And from everything you described, I think the answer to this is no. But just as we think about the administration, there's -- we get the question, well, if some of these cap requirements are less in the future and banks don't feel quite as much pressure, why wouldn't they get back into these businesses? So what's your thought there?

Well, I think there's been a one-way trade in terms of banks direction of travel. And rarely have we seen people come back into the market and corporate direct lending, meaning a good example. It's not like they're coming back into the market. They might try to do it through the securitization like BSL machine, where they get paid fees, but they're not coming in to lend against that asset class in a real way. Our expectations are same here. And it's a couple -- for a couple of reasons. One is a lot of the talent, the desire to go do that is not there. It wasn't there really a lot post '08, but there was a willingness when, for example, rates were very low and you were paying your deposits effectively 0 and you needed to do some things, you went and bought consumer loans from LendingClub, from public or private originators of credit because you weren't doing it yourself. But what we saw during '22 and why there's been a radical shift because of '22 because of rates changing, inflation, banks getting even pared back further is you saw the bank, who is the Southeast bank buying loan -- a consumer loan in California, they had no relationship with that consumer. They didn't have another. They didn't have a deposit relationship. They have no other relationship. They said, we don't want to -- why would we be in this? We shouldn't do more of this. In some cases, they sold it. Maybe they sold it to us as a price that we liked. In the other case, they just said, we're not going to do any more of this. And so the vacuum that's been created banks and other capital providers exiting post '22 in the same time frame, where you have, again, fintechs, let's use that in the broader sense, needing capital to grow and innovate. And in some of these things, there's modest innovation, something that is not that new. Buy now, pay later is a good example. Everyone looks like it's this new -- totally new thing. And I think the answer is it's been around for a long time. The store credit card that use tried to get selling, if you're shopping at Macy's a while ago, same thing. Obviously, different flavor, different format, but the same general idea as you're selling to a point of sale or financing point of sale and paying over time. And so bring it up because banks have largely pulled back from these things that were, let's just say, marginal asset classes for them because they had no relation to the consumer. They're growing meaningfully because the long-term, call it, releveraging of consumers and small businesses has happened. There needs to be a more flexible solution than Bank of America wants to provide. If you're a small business owner and you say, "I need a pizza" and you walk into BofA, they're going to say, "Hey, great, here's a credit card," which is a horrible solution for you because you have a long-dated asset and a short-dated liability, it's probably pretty expensive, but setting that aside for the moment, you need something that's, I don't know, a couple of years of ability to repay, not every month, not at the same rate, not take away your revolving credit capability. And so there's lots of products that have been basically products and lending that's been created to better basically solve that problem. And we're seeing that time and time again. And it's coming out of fintechs, coming out of others that are providing that. It's not banks.

Yes. Makes sense. We mentioned data science earlier. I know it's something that really not just supports your effort, but in a way, is the backbone of your business. It's a data-intensive business, right? So just educate us a little bit on what you have and how it works within the system.

Sure. We started the data science effort about 9 years ago now, which seems like a long time, certainly in the eyes of private credit, incredibly early. People are now just getting around to thinking about it because in large part, you don't -- even with 400 line items in a direct lending portfolio, you don't really need it. But if you're getting a file with -- where literally, we were running out of rows, probably not relevant for most people, 1 million rows is the max of Microsoft Excel.

I didn't know that actually.

And it's actually slightly more than that. But the point is you really can't do the work in Excel. And so for a while, we kind of knew enough Python to be able to extract the data and do the right analytics, but that we knew was a short-term solution, and we want to be able to speak data science at the same level of our counterparties. We don't want them blowing stuff by us kind of waving their hands and using some fancy words to convince us that they were good at originating credit. We want to be able to speak that language with them. And so it took us a while admittedly to understand what is it we actually need. And we finally have really gotten our head around that data science isn't just, call it, better math, right? There's a software engineering component to it. There's analytics. There's a business solution there. All that has to work together. And so we really started some almost in a defensive way where we need to make sure it was kind of right. And now we've turned it more into an asset management tool. So every night from the vast majority of our portfolio, we're getting essentially data feeds that allows us to see how it's going. And the software engineers have built something that kind of allows you to look at it and say, it's going well or it's not going well or here's the analytics that we see. And more importantly, for something that you can truly measure on a daily basis, you can actually look at it and say it's going well, it's going as planned, whereas in the not that-distant past, you really were waiting for a borrowing base report that came every month and you knew it was wrong because it was backwards looking and you needed -- in this case, we get real-time data because it's there and it's relevant, but you also can't do it with Excel. So that's how we started really almost as a -- we thought at the time, kind of a discretionary is interesting. We know that we're going to get some use out of it. Today, it's really an important part, deeply integrated with our business. They sit inside of our investment teams, but also built lots of tools on the asset management side, i.e., the monitoring and surveillance side. And now we're moving into the, call it, offensive side in terms of being able to find opportunities and say, hey, because we're more right about how to model credit card portfolio, for example, we feel better conviction about lending at this level or buying it at this price because Excel is kind of we know is a little bit rough. And we should acknowledge there's a little bit of uncertainty of Excel. And so we shouldn't bid to the last dollar or lend to the last kind of part of margin of safety, we should acknowledge that it's a little bit rough. But when you, one, have dozens or hundreds of models that we built or hundreds of data sets that we can stare out and say, we're highly confident that within the x-confidence interval, it's between this and this because of the data science capabilities, we obviously get a lot more excited about buying or lending against those assets. And as a result, we've been able to do a lot more on the, call it, offense side, where our data science team likes come in and says, well I know you going to hate this, but because I may be predisposed or the team may be predisposed to think X, but Y is actually true and the data science team is the one that can convince you with the analytics.

The data doesn't lie.

Exactly.

So now as you look across the universe, I mean, you have this data science effort that's informing some of your decisions. You also have the -- the hindsight of having been through GFC, which not many businesses in your realm can say they've done. So first of all, that's just -- it's great to have that track record. I'm really glad you're on board with us...

That's why there's so much gray hair. That's why we're doing the webcast.

That's right. No video here. As you think about how you would describe your underwriting to the average financial investor, who -- this is an equities crowd. So maybe just what do you look to? Do you underwrite to GFC? What type of levels do you think about as taking loss? I think it's probably hard to distill into that one type of data point, but just give us what you think of it?

It's a good question, and it's hard to answer because it's a little, let's say, investment specific. But in general, you nailed that we do stare at the GFC and say, what happened then? Now a lot of these exact assets didn't exist, but assets same, let's say, credit score, same type of format, we can look back and say how to do. And so we can look at that as a proxy. But that's been our general, if you were to look at sort of in our investment memos otherwise, you'd see version of what's the loss sensitivity? How much worse could it get? And if you look at that, you'd see us benchmark to does this do well or get our money back in the GFC. If the answer to that is yes, it's something that we should at least seriously consider. And so that's how we would frame it in terms of -- we think -- well, we don't actually think there will be another GFC to be clear. We think we're building portfolios that couldn't withstand that type of stress. And the reason why a long time, I think we probably didn't take enough risk coming out of the GFC because all of us were scared of it happening again. But we have that model, and we have that sensitivity that we run through, and we're staring at that as a proxy and trying to build that as our essentially downside case. And it's a little surprising when I think when we say that to people and to get to the real nitty-gritty part of the answer, you really have to get to at least the heart of some of these assets, which pay back super frequently. They're short dated, the amortization, the principal and interest that's getting paid on each of these loans. It's widely diversified. We're talking about tens of thousands or more than that in any given, call it, line item that we have. And so all those streams of cash flow or asset-backed cash flow is coming back and a lot of bad things can happen when you're getting back money every month.

Can someone be in the alternative credit business today without a robust data science effort? Like are you just kind of shooting blinds?

I think there's probably esoteric parts of alternative credit-based credit you could find without -- if you're doing certain kind of maybe litigation finance for royalties, you wouldn't need a data science effort of sorts. But to be in consumer credit and small business credit and residential, we think those cannot be done in Excel. Now that doesn't mean you have to have a full-blown integrated data science effort like we built over a long period of time, and we're excited to put more resources into and we're in process of doing that now. But it also means your conviction level should be a little different. So we think you really need it to be good at it, and it's built over a long period of time. This is not something you get to go hire a bunch of people and throw at it because a lot of what we're doing has been informed by monitoring and having hundreds of basically data sets going back over a long period of time.

Yes. And having all that historical data, incredibly important. I mean when I think about that aspect of it, when I add in all the different types of asset classes you look at sub-asset classes, I mean, it's resource intensive. It kind of makes me feel like this is maybe a higher barrier to entry business than direct lending, which we love. It's an excellent business. But it feels like you have to -- the resource intensiveness of it is just off the bat much higher.

It's definitely a harder business, and it's harder to find it because largely, we're finding it directly, either at the company level or repeat relationships that we built and started directly many years ago. So we're finding it differently. We can't call a financial sponsor and just stay in front of them. The deal sizes highly variable. As we mentioned, there's sometimes the $1 billion opportunities. There's also -- you got to plant a lot of seeds and some of themes those seeds don't go anywhere, and they don't grow to even the $50 million size range. So you got to do some seed planting. You may not know of things that sound good on principal, but don't grow, you've spent a lot of time on it. The resources to basically put it in place, for sure are harder. There's a lot of monitoring resources that are required from our operations and accounting business solutions team here, that we, in fact, we literally had to get a patent for something in order to basically make our process more efficient on the business solutions side many years ago, which we're proud of doing, but it is a testament to this is hard stuff. And I think you're right, the moat is real, which is why when you go back in time and say, gosh, why doesn't everyone do this more? Because this is hard. It's harder to find it, hard to monitor it. We would think the return opportunity is much better as a result of that because there's just fewer people to do it. It's also harder to find people that want to raise that capital or willing to give you that capital. So that was a barrier to entry as well for a long period of time. And that's still true. People think they want to do alternative RAS-based credit now, but not necessarily understand what that means, at least for the investor side, the limited partner investor side. So it's definitely harder, but it's also got a bigger moat to it. And I think today, we can absolutely look and say it's the beginning of that pretty meaningful growth opportunity.

And so with those moats, you built your business to $10 billion. That's scaled in the space, right? But I imagine -- and I'm putting words in your mouth now, so say yes or no. But I imagine you ran into some barriers of your own in thinking about how this business is going to move to the next level. And maybe that's private wealth access, maybe it's just speaking for bigger and bigger deals. But how do we think about your thought process in going out? And also how did you select Blue Owl?

Sure. I think we looked around and acknowledge that the world and certainly the private credit world evolving rapidly, the asset-based and alternative credit even more so. And for a long time, this was us out there educating people or walking in the door, my point earlier about walking in and saying, have you done Blue Owl, if you have not done Blue Owl, we'll come back when you've done Blue Owl, and then we can have that conversation because you needed the corporate first in order to then do the -- at least the harder to understand flavor of it. And so I think it's fair to say we were concerned about getting run over by people with lots of capital, lower returning capital, not being able to be the full-scale unitranche provider. And I think we watched it take place in the corporate direct lending world where this radical evolution kind of pre-'08, post '08 and then -- and Blue Owl has been absolutely a driver of that growth in terms of the unitranche, having the right cost of capital, being a great partner to the financial sponsors. And we really looked around and said, we're going to get run over at some point. And yes, we were proud of getting to $10 billion and saw a nice path to continue to grow. But in the scheme of the opportunity set, that seemed like a drop in the bucket. And it felt like we were not capitalizing on the opportunity, if we didn't have the ability to go and do not just $1 billion deal, but a bunch of them over time, assuming the opportunity set continues to go that direction. And if we didn't have an opportunity to partner with insurance companies in the right way, and we had very modest -- we basically had hundreds of millions of dollars of capital raised through the private client side, but we didn't have the right delivery vessel. In other words, it was a draw down subscription, go through the process, hard to sell, hard to talk about. And we had success in the one person that was doing it, but that's a drop in the bucket as well. And so I think we needed the right essentially delivery vessel, which we're excited to work with Sean and the wealth team to be able to deliver that. Obviously, the BDC delivery vessel for corporate lending, REITs for real estate and some other hasn't been transformative for those asset classes. And it's the way that if you're a private client or even smaller, that's how you should consume those. It's easier. You don't get your K-1 in October and your tax filing is 9,000 pages long. I think that is absolutely the way that should be delivered. And then the insurance partnership is real. We had a modest amount of success doing some -- basically partnering with insurance companies, but it was a challenge and not having any scale or anyone that spoke insurance, having to figure out ourselves was a challenge. And we looked around and said, we're okay at raising money on the institutional side with a small subset of investors, but of the 3 legs of the stool, that's not enough. And we really felt like we built this incredible business with a lot of repeat opportunity, a lot of potential, but at the same time, we're not going to be able to really realize that potential with not having the right partner. And we knew Blue Owl incredibly well, having done a transaction with [indiscernible] now, the stakes business a long time ago now, 2017, and feel like we had a really high degree of conviction that cultural fit, business fit that there is an opportunity to do what we were going to be able to capitalize on. It was not too big, where we were going to get lost, but also big enough to have the resources that we didn't. And so that we're excited to be part of Blue Owl and be fully integrated, and we're doing things together already. We've already gotten a handful of things done with the insurance solutions and really excited about all the stuff to come.

Actually, can you go into that a little bit because we do get the integration question a lot. It just feels like there's been a lot of activity, a lot of M&A this year. And how can you be fully integrated? Like what -- when you say that, what do you mean? Are you saying your teams are plugged in, they're creating deal flow, everything is already as it should be on day 300?

Yes, it's happening now. And obviously, different parts are plugged in at different levels. But we got a transaction done with the Insurance Solutions something that on the residential side, we have been doing for a number of years. It was a modestly novel or new asset class, something that's not pricing to the tights, if you will. And we said, well, it's something we know really well. We can help you figure it out because we know it really well. We're going to do a portion of it, you should do a portion of it, and we partner up with them and delivered it, we think, a really great solution with some other insurance folks as well. And that's just an easy example where we had something we knew they, of course, over time, could have figured it out, but we got them speed much faster. And we were out there originating these types of assets for a long time. So it gives a whole new breadth to the origination, when you can essentially chop up different parts of it or eat the different parts of it. And so that's happening both there in the direct lending side. We've teamed up with them on -- in the real estate side, even on some digital infrastructure efforts. We've a long time been in the financing varying apart from the leasing business that we have inside of the data centers. And I think there's a really large opportunity to really finance the insides of the data centers as opposed to what IPI or the real estate team would largely be focused on the outside, i.e., the real estate. And so we're at the tip of the iceberg. We've done a little bit of that. Some of that will be relevant for the alternative credit business. Some of that might be relevant for the broader business. We're at the very beginning stages of really of capitalizing that opportunity set. And those are working in hand in hand. There's calls going on, deals going on, things getting approved the process. And look, we're here. We're sitting in the Blue Owl offices, got Blue Owl Jerseys on, and we're excited to be part of the team. And I think we absolutely opted into that. In other words, while we're proud of Atalaya and proud of the brand and the reputation that we've built and sad to see it go, the opportunity is to be part of a winning team going forward, and that was an important part to us. I think that's the way it works the best. We have not seen the multi-brand asset manager or there's a 51% owner and everyone is not growing in the same direction. We've seen that from the outside. We do not think those things will work. Everyone has to be in the same team or incentives have to be aligned, and you have to pick the right partner.

You said earlier, you don't see GFC coming. Do you see any kind of real consumer stress? Because it's actually something we get asked quite a bit as well. There's headlines. So you have 1 million data points, tens of millions of data points.

Yes. Actually more. So the quick answer is we don't see anything stressful in the consumer small business portfolios. They're operating largely as expected and as they have been. The headlines are, I would say, misleading at best. And if you read the FT, Wall Street or otherwise, I think that unfortunately, the article that says it's pretty good, doesn't get a lot of reading or clicks. There was one that we were talking about that our team was talking about over the weekend because we got asked a question from somebody on the private wealth team about, "Hey, there's an FT article that says that record charge-offs in credit cards from -- since the last 14 years", the number was something like $42 billion of charge-offs in the fourth quarter. And that's right. That was the right number, and it seemed to say the sky is falling. But what it did not say was, well, if you look at the revolving percentage of debt of like consumer income, revolving credit divided by disposable consumer income, it's at 6%, which is lower than it was for the 10 years up to COVID, which is 7%. And for 2008, it was at 9%. So what does it say? You have to look at the whole picture. You actually -- the GDP has grown dramatically. Consumer debt has grown. But as a percentage of GDP, it's actually dramatically down. Consumers are in a much better spot. So if the article says, "Hey, the delinquency is 3% and historically, it's been 6.5% at the peak and 4.5% average for a long time." That's a boring article to read that says it's pretty good. And really, that's the answer. It's pretty good. We're actually doing some work to build an internal dashboard that has a lot of metrics from our portfolio and publicly available with the largely Fed data and be able to share that at least across our firm. Some point, if you're lucky, we'll get that to a format that's shareable more broadly. But I think the point is that we stare at it and see nothing. And it's a complicated discussion topic because if you read the FT over the weekend and you go, oh my gosh, gosh, credit cards are revolving debt is really in a bad spot, the record charge-offs, not in any metric that anyone cares to count, but it doesn't say that part of the answer.

Yes, shock value sells. Well, be careful what you offer because our shareholders will try to take you up on that. But Ivan, thank you. This is a really nice conversation. I think we went through a lot. This is the end of our regularly programming. I actually don't know if your team told you about this, but with Marc Zahr, we did something called sip and tell. And so I was thinking...

What did Marc have to drink?