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

Good afternoon. I'm Patrick Davitt, the U.S. asset manager analyst here at Autonomous. It's my pleasure to welcome Blue Owl's Co-CEO, Marc Lipschultz, to the stage. I think it's Blue Owl's first time here. So thanks a lot for coming, Marc.

Thank you for having us.

Privileged. As a reminder, if you want to try to get your own questions, you can submit them through the Pigeonhole app and they'll come up on my iPad, and I'll try to work them in as they fit. So Marc, thanks again. Given we have most of the major alts here at the conference, I'm starting all the conversations with similar high-level macro questions. So given your position as one of the largest credit managers in the U.S., I think it's best to start there. I sense there's -- despite the market recovery, increasing concern about stickier inflation, higher for longer rates, slowing economic growth and what that means for risk assets. What's your latest thinking on those issues? And do you agree with the concern that a lot of people have?

So we're in the concern business, right? Everything we do, credit included is about downside protection, stability, predictability, income orientation. So our whole reason to be and from inception today and from today until next decade ahead, I think our products will always be centered on, hey, look, what can go wrong and how do we deliver a strong result even if things are a couple of standard deviations away from the mean or the expectation. We've actually long had the view, and I don't mean this is a macro view because we're not macro investors, but long had the maybe informed view based on having 400 companies that we lend to here in the U.S. that inflation was likely to be considerably stickier than people thought. Now today, that's become obvious now 18 months later. Sitting here today, we have a new wave of it, the question, the uncertainty around stimulative fiscal policy and impacts of tariffs. All of which lead to a continuing overhang in this question. And I guess I'll say this in plain form and then we can unpack it. That's a good environment for us. I mean, to be perfectly candid, the environment where rates are higher for longer, the economy has some uncertainty to it, which tends to drive market uncertainty. Therefore, access to traditional markets are a little less clear, certainly less safe for people to count on. That all is good. And for our investors, this is exactly -- I'll use the term purpose-built. This is what we're purpose-built for in an environment where people aren't unidirectional or don't want to be unidirectional in their view and say, how do I make a really good risk-adjusted return through a range of outcomes. That's why we exist. That's what our firm is built for. And frankly, it's what our equity is built for. Our equity at Blue Owl is built entirely on fee-based income. It's based on permanent capital. It's based on balance sheet light, so no CapEx, high gross margin. So it's built to itself being highly durable through a wide range of outcomes.

So it sounds like no, but are you seeing any signs of distress or contraction that people are worrying about in the portfolio at this point?

No, not material. Again, I'm trying to -- we neither want to be sort of an ostrich with head in the sand, but we also don't want to be running around with our hair on fire. The facts are important for us. We're studying all the companies. Again, we have a very specific lens. We're primarily U.S. in our deployment. You can call that wise design or not as you wish. But of our $275 billion, 90% is deployed here in the U.S. And we deploy our, say, credit, to your point, we deploy with large companies with large sponsors. We focus on businesses like software and health care services and things that are indeed durable to those types of forces. So we're not unaware that there are a lot of companies struggling with the impacts of realigned global supply chains. We just don't lend to them. So it's just not our issue. So from the bottom up from a Blue Owl point of view, we share that, that concern and risk exists in the economy. We're not experiencing it and don't anticipate from what we see today, experiencing anything material on the portfolio in the near term.

So deployment is particularly relevant for private credit firms because a lot of the AUM turns on as deployed. And there's been this kind of tug-a-war debate between the broadly syndicated market and the direct lending market, which has been a little bit more volatile this year, but it still feels like direct lending is taking share. With BSL, the broadly syndicated market coming back in May, though there's still been some big deal wins in the last few weeks. How is that balance tracking now? How are you guys thinking about that balance? And through that lens, how is the pipeline tracked since we last heard from you on the earnings call?

So the interplay between the syndicated loan market and the direct loan market is -- I don't say it's nuanced, but I think we just unpack at one level. Of course, there is just the foundational, hey, someone's financing, they could pick one market or the other. But what's really critical about our business, and this, again, is sort of the origin, not a story, but sort of DNA of Blue Owl, and I think part of the reason we've been able to succeed as a preferred corporate capital partner is by going to people and saying, I want to like reassure you we are not the cheapest solution. And I want to assure you our loan documents are going to be a lot more restrictive than the public market and our due diligence will probably be measurably more annoying and invasive to which I would stop there and would say, well, that's quite the losing proposition. But what we've been proving to more and more people, which is important to understand in this interplay is that's all true, but it is also true that we will give you 3 Ps, predictability, privacy and partnership, and you and I have talked about this. So predictability of terms, it doesn't matter if between the time we started talking and we finished April occurred or it was February, we are going to sign up to a set of terms that we know are the right long-term risk-adjusted returns for our investors. And we are going to give you the privacy of -- it doesn't matter if Moody's changed their mind on their view of the overall economy. And so therefore, you're downgraded. Without any specificity to them -- wait a minute, I'm a domestic high-growth software business. Why did that really matter to me? And most importantly, partnership that you know who your lender is and your lender is with you all the way along that journey. And remember, these are big capital structures with gigantic equity checks. So with all that taken together, I say all that partly because it's the value proposition we get paid for. It's why we get to charge a premium, but it's also really how we compete with the syndicated market. Most, not all, most users are not really just trading back and forth between the 2 because that's a fundamentally different experience. If your highest priority is cheapest cost of capital, I don't really care where it comes from, you're probably going to use the syndicated market. If your highest view is, I -- yes, I'm going to pay some more for a couple of few years, but I really care about who gives me the capital. And I just want to know the day and I want to know the terms, that's worth something to me, they're probably going to use us. And then there's some stuff that happens in between. So all that feeds to the following. When the syndicated market is more active, of course, that person on the bubble will tip more to the syndicated market. When the syndicated market is not available, they'll tip more to our market. The one last difference I'll highlight is this. When they tip to the syndicated market, when the market closes, they'll be back, which is to say like we're an always-on market. The syndicated market is on and off. And this is a stark contrast. I started in alts 30 years ago. The public market was always available. The bank market is always available and alts were like the episodic participant that's reversed in direct lending and credit. So when I look at the market in total, when the syndicated market closes, people have no choice but to use the private market. When the syndicated market opens, the people that tried the private market, many of them, not all, conclude that the trade-off was good and they stay. And that's why the market share has been almost like this. It's kind of a stair step function. Something happens, a lot of people use the private market. It was, of course, originally COVID, if we look over the last 5 years, then it was rapidly rising interest rates, then it was Silicon Valley Bank blowing up, then it was maybe rates are coming down, then it was tariffs. Like there's no shortage of things that remind people, "Hey, you know what, I'm going to try this, I try it, I'm going to repeat it." And so we kind of get these step functions every time something gets a little funky in the world and we get kind of sampling, like giving out food at the grocery store, someone tries our cheese and likes it.

Makes sense. In that vein, a lot of investors are concerned that there's just so much dry powder in your business now that spreads will continue to tighten, which could be a headwind to the revenue yields you earn. What is that view missing? And more specifically, how have those new deployment spreads been tracking through all the volatility this year?

So let me answer the short-term and slightly longer-term version of that. So I guess the data defies that logic because in point of fact, spreads have widened back up from their bottoms, not a lot, not a lot. But as you know, they've widened back up 25 basis points, maybe 50 depending on the circumstance. So the actual on-the-ground data tells us it's not some directional movement. However, taking a step back and looking long term, really, at the end of the day, we are a premium to that public market at premium prices is maybe the value of those other attributes, so to speak. And so our premium, if you look over the last 10 years, has actually run pretty steady. It doesn't really -- yes, of course, again, it moves quarter-to-quarter, moment to moment, but actually, it's pretty steady. So it is true that if spreads in the whole world compress, our spreads tend to go with that. We don't live in a bubble and vice versa, right? Spreads widen, our spreads tend to widen. But the gap, which is really what people pay us for, has actually been pretty consistent. The last point I'll make is about the structure of the industry and the nature of the spreads as we see it and foresee it. There is a band that effectively is where this industry operates. And it, of course, doesn't have an absolute hard ceiling or an absolute hard floor. But the practical reality is the kind of almost the implicit partnership between the PE borrowers or corporate non-PE borrowers and all -- and the providers of capital and our investors is, listen, there's a certain spread below which it just doesn't meet the cost of capital for our investors. We're just not going to do it. And frankly, there's a certain spread on the other side that no sophisticated borrower is going to take the money on a high-quality credit. In an emergency, people do all kinds of things. But if I have a really high-quality credit, and I'm a high-quality PE firm, I'm just not signing up for LS plus 1,000 loans. This is not going to happen. So the reality is that over time, what's really happening is we purpose in between what amounts to these kind of like resistance on the bottom, resistance at the top and then the portfolios purpose even less because, of course, we have hundreds of loans made during all those times. So there's like this happening with probably the spread at the moment and then there's this happening with the spread of the fund, all of which works pretty well. It works for the users. It works for us. It works for our investors. So I actually have found it to be pretty stable. And can we describe circumstances that could destabilize it? Some. Sure, of course, we could. There's -- when markets close entirely, our spreads go way up. And when markets are wild and open, I mean our spreads come down.

One more on this topic in terms -- I think there's kind of a knee-jerk reaction to say, okay, particularly when we have volatility that we've had in the last couple of months that, okay, M&A is going to be lower this year, so that's bad for direct lending deployment. Why is that view wrong? And what are kind of the offsets to new deal deployment that can keep your origination activity steady or even growing in a less robust M&A environment?

Well, let's start with this. All things otherwise being equal, less M&A activity is negative, call it what it is. I think you'll find our approach is always going to be just start candor. And it's a negative relative an active M&A market. With that said, there are offsets, right? The offsets with a less active M&A market often, not always, will correlate with some of these market uncertainties that also will tend to limit -- I mean, there wasn't like 2 weeks where there was not a single syndicated loan launched in April. So these things don't -- again, they don't live in isolation. So that world with low M&A is a world of uncertainty, a world of uncertainty. probably not great for liquid markets, which pushes market share in our direction. There's less refinancing in a market like -- so part of the thing we have to all keep up with, of course, is by having permanent capital vehicles, money gets repaid, goes back to work. And we've had this where that our highest gross originations do not always translate into our highest net originations, which, to your point, is actually the measure of incremental deployment and therefore, incremental fees for our shareholders and for us. Whereas we had actually less in Q1, we had less deployment gross, but more deployment net than we did the prior quarter. So actually, for our business, the net deployment number will matter more. None of it's going to matter much for 2025 earnings because of the nature of our business. But on the margin, that actually is a net positive. So there's a few moving variables that would say to me, a tepid M&A market, it's -- I'd rather have an active one. But when you are all the other mitigants, it's fine.

Do you think because there is so much direct lending dry powder that you could start to see a situation where when you have these pullbacks, the private equity firms can still deploy, whereas historically, when they were more dependent on the broadly syndicated market, they were kind of hamstrung.

But decidedly, I think the whole alts landscape has changed as the capital market system around it, right, which is if you now have a really deep private equity market and a really deep private credit market, all of which has a longer horizon, a longer cycle, less impacted by the commotion of the day, plus and minus, then you just have more durable activity in M&A or just for the economy in general because there's capital available kind of through thick and thin. So absolutely, private equity firms are no longer closed out of the market by virtue of capital markets, frankly, at all. I mean, again, we can all try to drop extremities where nobody wants to do anything, but they won't want to be buyers in that market either. So any time private equity is kind of ready to be active, it's very likely to be in the top 40% with them 60% below us, we're probably going to be pretty open-minded too. And so yes, I think that's made a very, very big difference to the durability of our business and durability of just the capital system in total, and that's a good thing for the economy. And by the way, I can say one thing. You said with all the dry powder, and I don't want to suggest there isn't meaningful dry powder. But I also think we have to break down dry powder in this market a little bit into the pyramid of providers. So there's a lot have been over the last 5 years, a lot of new entrants at the base of the pyramid, $500 million fund, $1 billion fund. And I don't say this to be like dismissive or obnoxious, but they're irrelevant to offset. They don't finance what we finance. At the top of the pyramid, there's we and the same 2 people that were in the top of the pyramid 5 years ago. Now the big have gotten bigger. We're bigger. We have more powder, so today, but the addressable market is bigger and the PE firms are bigger. So of course, again, there's different balances. And today, I think it's fair to say we have -- we are more ready to lend than the PE firms are ready to buy. That's true. And that will move around, but I can tell you this with certainty. I did PE for 20-plus years before starting this business. The PE fund money will go to work. I can tell you it's not going back to the investors. And the I have yet to see someone say, Wow, what a pity, you couldn't find anything to buy, here's your money back.

Let's move to retail kind of staying on the macro theme. One issue that I think has factored into concerns on Blue Owl stock specifically is retail flows and their potential volatility around market volatility, given, I think, 50-ish percent of your flows come from retail. So could you update us on how retail flow and redemption trends have tracked through liberation day volatility into today? And in that vein, are you seeing any sign that the retail investor base might be starting to see alternative products as a port in the storm as opposed to something to redeem?

Yes, we're seeing exactly that phenomenon, which is incredibly encouraging. The actual behavior even in the kind of moment of April panic was extremely modest in terms of people -- in fact, we continue to have very strong net inflows, and they've continued to snap along really beautifully and continue even after that exceptionally brief kind of stutter step, if you will, by investors. And I think what you said is exactly the reason. It's the port of security. We're still paying out every month our dividend, and we're still making really good loans. And I think people are looking and saying, well, flight-to-safety, this actually is the flight to safety. This is the flight to quality to go, particularly to Blue Owl, right? Our space in the land of direct lending is particularly the larger cap. Our credit losses over a decade now run at 13 basis points a year. Like we are all about durability. And so back to the point, there may be like a slight pause because anyone gets scared in a moment of uncertainty. But I actually think it ends up ricochete back with ultimately greater results because now people say, well, where should I go now? I don't -- the public markets scare me, what if there's a bad tweet tomorrow morning. So I think I'm going to go do that. And I think that's our experience. And so I like this. Is it flawless? You can always debate the behavior of any group. I will proper this. I'm not convinced that individual investors are somehow more erratic or herd-like than institutions. In fact, institutions, I mean, look what's happening right now, endowments couldn't buy enough private equity if they tried. And now they're turning around selling it at a discount, all of them. So it was that some highly rational strategy. They all hug benchmarks. They all have these strict ideas of allocation, individuals don't. They don't have, oh my gosh, I have a denominator problem. Like that's not happening in an individual conversation. So I'm not so sure. There's different moments and different things in the world that would scare an individual into some erratic behavior that's different from an institution. I actually think marrying the both together, no surprise, like diversification is a really good thing because they are not, by any measure, perfectly core.

So since it is such an important part of your growth algorithm, and I don't think anybody would argue that it's better to be big in retail than not, given the secular trends. I want to broaden out on that opportunity. So you have 3 established flagship products just launched alternative credit product. Could you update us on where you are in broadening the distribution footprint for those products, particularly in the non-U.S. pipes, which I think you're earlier in the stages of than other players?

Yes. So the products, as you note, we have our diversified core income product, CIC. We have our software lending business, TIC, technology income. And then we have our triple-net-lease, our real estate business, ORENT. Those are the 3 existing products. And now we have just brought out and it's not even available for wide distribution yet, the interval fund, the alternative credit interval fund. So those 4. And in the order I described them is the order of kind of their relative penetration. And by the way, not surprisingly, reflects kind of the relative time of task. So core income is the most broadly available. And certainly, in the U.S., it would be available almost in any place you want to get it. Outside the U.S., increasingly, but we're more focused, and you are absolutely correct, we are underpenetrated to Japan, for example, I'm off to Japan next week, not coincidental, like we get that, that's now an emerging opportunity set, and we have a lot of what that market wants. We do a lot of business in Japan with the institutions, which gives us good credit and credibility. So yes -- so the expansion for something like a diversified lending is on these dimensions. non-U.S. In the U.S., we have the footprint. In the U.S., it's more FAs and more FAs with more clients. And by the way, that's the biggest white space at all. The biggest practical addressable white space is actually in the U.S. with FAs they haven't touched it at all. And with the FAs that have their clients they haven't used it at all. That's the biggest part of this. And so that's the juiciest center. The International is additive for sure, particularly in Asia. Europe has always proven just tricky with regard to probably in general, beyond insurance companies, certainly for individuals. But that will come along over time, too, I imagine. So there's that. Then you take technology income, a little narrower distribution, actually a little more international in that case, but just fewer people that had it than core income. ORENT, which is our fastest-growing product, this gets down to, hey, not all things are created equal. ORENT is a substantial net capital raiser, the only real estate product in the market that is a net capital raiser because it's a different strategy, and it works. We deliver great steady results, back to what Blue Owl does. It isn't just another real estate product. We won't go buy other properties. We do triple net lease. We work with a corporate. We work with someone like in Amazon, and we do a distribution warehouse and they sign-up a lease for 20 years. It's a really durable way to invest in real estate. And as a result, our flows at ORENT have continued to grow rapidly, and that has low distribution. That is not meaningfully distributed outside the U.S. It's not even fully distributed in the U.S. So it follows this tiering. There's the opportunity for global for some of the bigger products. There's the opportunity for just broader penetration for some of those less mature products. And for every product, there's just this reality, which is a small percentage of individuals use alts today. And not everyone is going to. And it's a long trip from 4% of individuals use alts to some gigantic number. But when you're dealing with and I have a different number for it, $100 trillion, $250 trillion, like whatever you want to apply it to, every point is a gigantic amount of money, right, relative to what's already in the system today.

For sure. The other side of the coin is obviously new product development. You mentioned the 4 products that are out. What does the pipeline look for new products over the year? And what is the sweet spot? Do you think how many products do you see needing in the suite now that you've added so many strategies, which we'll get to in a little bit.

So in terms of new products in general, do you mean in wealth or just in general?

In wealth.

Yes. So in wealth, the other product on the flight deck is our wealth accessible version of digital infrastructure, our hyperscale data center business. That's been an institutional-only product before. We just closed on an all-time record fund for that, not a comment you hear a lot in today's environment. That fund was nearly twice the size of the prior one, $7 billion fund. And by the way, the majority of it already committed and spoken for or earmarked. So the demand for that capital by the users is enormous, and we have a highly specialized capability to actually not just deploy the capital, capital married with the ability to actually design and deliver a data center that reliably to people like Microsoft and Amazon are willing to rely on. And -- or in this case, as you know, like the Stargate project, $15 billion project last year with Oracle -- last week with Oracle. So all of that taken together, that's an incredibly attractive area for us, but there has been no wealth accessible product. That's on the flight deck next for us to bring, which is essentially a little bit like TIC technology income was to our diversified lending. It's a little bit of an analog. ORENT, which is doing extremely well, is a broad triple net lease business. This is going to be focused specifically on these hyperscale data centers, which in this case, fortuitously and obviously not coincidental, this was the intent. The 5 people that matter in terms of building data centers have spectacular credit ratings in the case of one better than the U.S. government. In the case of others, pretty close. And every one of them, I think the smallest of the hyperscalers has a $0.5 trillion market cap. And then, of course, we all know Amazon and...

Yes, yes, yes. Do you think that will be the first product in the retail channel specifically focused on digital infrastructure?

I think it will be -- it will be the best product. First, I don't know. I mean people are running around. You could put together a product and try to introduce it. But the kind of first product that really works and scales, I feel highly confident we have a distinctive product capability with a distinctive track record and the infrastructure to deliver it. So I feel very good about being one of the winners, let's say, in that category, whether we're the first or not the first.

The other side of the retail or wealth opportunity broadly is retirement and 401(k), where you have less penetration. What are your thoughts on trying to attack that opportunity and if it's even that big of an opportunity in your view?

So it's theoretically a big opportunity. And if one just kind of jumps forward enough years, one I have to believe for good reason that alts will be a part of the 401(k) landscape. I mean after all, retirees are already depending on alts in a huge way. In fact, it's been part of the success of the defined benefit plans. So it's a slightly not artificial distinction, but it's kind of a curious one. It's already part of the retirement system, but just over here and if you're over here, you can't have it. And so I think jump ahead. Now whether that's near or long term, knowing the pace of things evolve, particularly when you have a lot of complex regulation, a lot of complex decision-makers, fiduciary duties have to be re-understood. I would take the longer end than the shorter end of that being a big deal. And so like when we think about our -- as you know, we did our 5-year outlook at our Investor Day, none of that was predicated on the retirement market opening up. But I then said to us, well, when we hear from you some number of years from now about the 5 years after that, sitting here today, I suspect that retirement will be a part of that. And our products -- I'm really sound like I'm trying to talk my own book here, but our products being income-oriented and more about NAV stability are the entry point for retirement accounts. I mean that's what you would logically first go into. If you're saying, well, I've been fearful of doing anything outside of traditional assets, what should my first thing be in alts? Well, it probably ought to be an income sort of structured product that's more protected because people, if their first foray was, let's take it the extreme, which it won't be, was venture capital and they're like I'm doing great. I'm doing great. I'm doing terrible. Like that's probably not going to be a great way to win in retirement.

For sure. So you've added a lot of new businesses over the last year, which I personally believe should better position you for some of the key super trends in alternative management. But it is a lot at once, and I think a lot of investors are having a hard time getting their heads around it. So I want to hit on each one for a little bit. Yes, please. First, we've teased a bit AI infrastructure with your acquisition of API partners, IPI partners. It's no secret how big the capital need is there. So how should we think about this new platform's ability to compete for those opportunities and then how it fits into your broader triple net lease assets platform?

Sure. And if it's okay, Patrick, let me say one thing about the whole underpinning methodology or strategy behind our acquisitions because it will inform the answer to that question. So when we look ahead as a firm, what we try to do is -- and you've heard us talk about this, we use the Wayne Gretzky skate to where the puck is going, not to where it was. And really like that imagery a lot because I think it is what we're constantly talking about, which is 10 years ago, we thought the puck was headed toward individuals becoming participants in the market. We thought it was headed toward income-oriented products where we even put more narrowly at that point, it was, look, you have this giant thing called private equity. Why wouldn't there be a corollary called private credit. And so that's our view of the puck 10 years ago was that's where it was headed, and that's brought us to this place. And then we said, well, we want to add to that because we think the puck is going with -- it turns out we were right about people's desire for more income-oriented strategies. What else looks an awful lot like that. And that brought us to our triple net lease real estate product, which is real estate because you own the asset and you get the depreciation. But let's be clear, it's a credit product. When we go and we say, here's a 20-year lease, that's a 20-year corporate commitment to pay us. And we get paid back, of course, return and essentially all the capital along the way, it's a lot like a loan, except it's to a far better credit than our typical lending credit. So these things are kind of built around an access or a DNA of our firm. So all that is a way of saying, when we look to where the puck is going, we still, of course, do see the individual investor market as part of where the puck is going. And we do see these more stable income-oriented products continue to be part of it, but to a different part of that rink, which is we thought data centers mismatch, available capital supply -- demand for capital, alternative credit, 5% penetration by the private solutions, just like direct lending was 10 years ago with a very comparable use of for certain borrowers, they're going to value the durability of having a partner like us, and they will pay for it. It's the same proposition. So -- but to do those, our view, and this now gets to the IPI, our approach, not everyone does this, there's the organic and the inorganic approach. Our view is any product we're in, we aspire to be the best or one of the best. And if that means it's organic because nobody else does it, then that's how we'll build it. So if you take like our Blue Owl Strategic Equity, our GP-led secondaries product, nobody did it. Still nobody does it the way I think it has to be done to win in that market just like direct lending. And so we built that organically, and it's a big product for us now. I mean it's not big compared to $275 billion, but it will sure matter 5 years from now back to where the puck is going. And it sure is an answer for locked up capital and LPs need for liquidity. So I think we were skating to that puck because we were talking about 2 years ago, like, I don't know, GP-led. And all of a sudden, you hear it. I don't know there's a private equity firm out there that's saying, why should do one of those because I got to get some liquidity, but I don't want to give up my trophy asset. So all that feeds -- okay, so we said digital infrastructure. Well, what is a data center the way we do it, not all data centers. Every earnings call this quarter, every single person in my seat will talk about data centers, every person, right, for obvious reasons.

For sure.

And -- but let me be clear, what we do and don't do. We build under long-term arrangements with a very strong counterparty just like -- not just like, in fact, exactly like we do in triple net lease. But to do this, you need a set of relationships that includes not just -- we already -- we've had a long-standing relationship with Amazon through the distribution centers and triple net lease real estate, but doing hyperscale data centers, that's a different competency. We didn't do business with Microsoft in triple net lease. They wouldn't have any interest in that, but they're doing a lot in data centers. So you needed the credibility, but also the capability. So we bought IPI because IPI not only has been doing this 10 years. You look at the chart for hyperscale data centers were not like on our minds -- I don't speak probably in this room, but certainly wasn't mind, I will bet for most people. Those words didn't cross your lips 10 years ago because the hyperscale data center market was this big. And -- but did cross IPI's mind because they said, every time we go around, people are saying, "Hey, what about that thing called Amazon Web Services? How are you going to compete with that?" And they said, "Well, I got an idea. Maybe I won't. Why don't I go to them and say, "Hey, how about we do this thing called like a sale leaseback basically?" So all we've done is say, who's the best in the business at building these pretty much more technically complex facilities. And we're already -- I don't want to say this arrogantly. We're certainly the biggest, I think, the best in the business at triple net lease real estate in general. Let's marry those 2. That's a winner for IPI and a winner for us. So now it's fully integrated. Take a look at Stargate. Stargate will actually be a part of both portfolios. be a part of our triple net lease real estate portfolio where it actually originated. And now we married in IPI, we have that many more capabilities and dollars to do a 15 -- it's the biggest data center project being built in the U.S. today.

On that, I think one of the more interesting takeaways from your last call is how the deployment works for these big projects, right? I think you said you had $3 billion to $4 billion of committed capital, but that will come into the fee earnings over, I forget at least 12 months-ish. Is that about right?

It depends on the project, depends how we get paid. But yes, these are staged in over time because we basically fund as we build.

So like a layering effect of the visibility on that turning on.

Each time you turn on a new Stargate or a new data center, there's a new upward sloping use of capital.

The second one, I'm going backwards is in alternative credit or ABF, you added Atalaya. This is a market where people are talking about tens of trillions of dollars of TAM. But many of your competitors have larger, much more established ABF businesses. So how does Atalaya fit into that ecosystem? How does it differentiate itself? And do you guys internally see the addressable market as big as what others are talking about?

Well, objectively, the addressable market is extremely large. I mean that -- again, we can always pick at what you want to include or not include, but it's at least as big as the direct lending market. It might arguably is bigger depending on how you calculate it. So when you correctly say other people -- we know who they are, a couple of people that are going bigger in asset-backed credit than we are. That is true because we hadn't been in asset-backed credit. Back to the point, though, there's bigger and there's better. Our view back to the point was a lot of people are launching alternative credit businesses. Some have launched them years ago, and they've built very credible businesses. I don't take anything away from that. But back to my earlier point, you'll see a pattern emerging, which I know you're drawing out. Atalaya has done asset-backed credit for 20 years, back to the point. 20 years ago, nobody thought that was an interesting idea. Now everybody thinks it's an interesting idea. But who do you want to do it with? Someone that's done it through tons of cycles, tried all the different product areas, structures, has data. We have data on 100 million different consumers and a couple of million different small businesses, all of which you have to crunch to decide it's not a direct loan. It's not here's one company make a singular 7-year decision, right? It's looking at thousands and thousands of pieces of data to decide, do you want to do it? And Atalaya has done it incredibly well, like incredibly well for the last 20 years. So we said, well, we want to be the best. The biggest merit may not end up being true. In fact, it might be hard to be bigger than an insurance company that -- because it's their balance sheet, right? So Apollo is likely to be bigger in alternative credit than we are, but bigger and better aren't identical. We're going to deliver great results because we have some of the best actual investors in it now scaling on the Blue Owl platform. And therein lies the same marriage you just heard about in IPI. People who are best-of-breed at the investment side, we marry them with our infrastructure and our kind of information sharing integrated into Blue Owl and now they can -- if a better term, they now play in the big leagues. And that's the marriage as I'm using that term, a purpose we're looking for. We don't acquire something someone wants to sell. If you are selling it so they can leave, we definitionally don't want it because our whole point is to buy the competence. I mean sure, you can buy assets, that's fine. You buy a CLO contract. I don't mean on the fringes. But if we're buying a strategy, it's good we want that team. Otherwise, we'll just build it ourselves. We didn't think they were so good at.

Yes. the last big piece is about a year ago, you added Kuvare's asset manager, Kuvare is an insurance company. So firstly, think it'd be helpful to get an update on how the partnership is evolving since the closing about a year ago.

Yes. So Kuvare is the asset manager part of Kuvare Insurance. And to clarify importantly, kind of our decision, not the only decision or definitionally the right decision for the industry. We did not buy the insurance business. What we did is we bought from them their captive asset manager, which allowed Blue Owl to now have a full suite mechanism capability to deliver what any insurance company might want across any part of their asset pool. Obviously, we already have the alts, and we were deeper on the alts and Kuvare Asset Management would be, but they have a lot of capabilities, including, of course, the technology around rating sensitivity and capital charges that associate with insurance strategies that was very additive. So what we were buying from our point of view with Kuvare was a skill set and an access to a channel that was the third piece we didn't have, right? We've been early in wealth early, normal in institution, and we were late in insurance compared to our bigger peers. But we're adding that third channel, and we're doing it through what would be the blue approach. We think we're good at asset management. We don't think we're good at insurance. I certainly know it's not my area of core competence. So we're trying to stay focused on what we're really good at, stay true to our model of fee-centric earnings, high margin, low balance sheet intensity. So that's how we've entered. So with Kuvare, we now have -- it's been very productive for us coming up on a year to now have integrated those capabilities so that we now have our asset-backed business really communicating and coordinating with our insurance business, our direct lending business, coordinating with insurance, our fundraising capability working with our insurance capability. So I think we are now in a place where we can start to see some of the benefits of that third distribution channel, which is the way I look at it. And I would distinguish it from the first 2. The first 2 were capabilities for what I'll call emerging markets. The third was really an ability to distribute to a channel that we didn't distribute to before.

And is it still predominantly distributing to fund Kuvare's growth? Or...

Mostly to date and now we're starting to add. We now we're in a place to have those conversations to say, here is now the integrated solution for you. And by the way, maybe some of you prefer an integrated solution from someone who's not also competing with you in your insurance business. It's not a crazy statement to say, do you want your competitor doing your asset management? Or would you like someone whose asset management business is doing your asset management?

That debate continues.

Have pluses and minuses. Listen, the ability to say that's what's happening with your insurance money, it's advantageous to the manager to be clear. I'm not sure I know why it would be advantageous to a big global insurance company to say, I really like one of my primary competitors to control my assets.

So after all these transactions, how should we think about your capital priorities now? Is M&A still a core part of that strategy? And what are the biggest areas of white space you see filling in organically, if so?

So we have what we -- I would need, I suppose, is need -- we have the couple that we really felt we needed, wanted to be positioned to continue dramatically outsized growth in a manner consistent with our strategy. That was all credit, Atalaya and IPI digital infrastructure. So when we said, where is the puck going? That was where the puck was going. We said we really want those solutions if we can find someone who's really good at it, that's a cultural fit, and we did. So great. That kind of not done and dusted because now, of course, always the hard work is building. But we've got that. We've got them integrated. It's working really well. There are other areas that we would view as additive but not necessary. We have a very active pipeline of M&A conversations. Most M&A conversations don't go anywhere, often because of cultural fit. Like we are not a collective of franchises. We are not a bunch of people running around doing their own thing, but once in a while, putting on a Blue Owl hat. We are one firm. We understand that every LP we have in every product, we all work for, and that's how we operate as a firm. And so that requires a certain kind of culture. Again, it doesn't mean it's only right culture. Our culture is all about teamwork and excellence and understanding who we work for at every moment and understanding our DNA. We're not trying to be all things to all people. We want to be a handful of things and be really good at those for the people. Big, I mean, we're a pretty big company now with $275 billion of assets and growing. but it's far more focused probably than some other strategies. So it's -- so are there other areas we would be interested in that? Absolutely. They're not as critical as having those 2 were. They aren't as central to where we currently define the puck is going. But would we add the right European direct lending capability? Absolutely. Like it's a perfectly complementary business. It's not a hypergrowth business the way Atalaya and digital infrastructure are. So it doesn't have that same, I want to go there because for the next 10 years, I want to pick up what I did in direct lending. But obviously, with the right culture fit, it would be a very logical thing to do. In infrastructure, we do digital infrastructure, that's the hypergrowth market, but there's other parts of infrastructure that will be extremely compatible for us. So yes, we will continue to look. It will always be, I'll say, opportunistic and it will always be predicated on a careful fit.

Between the firms. Makes sense. I don't want to leave without talking about GP stakes.

Yes.

It's not the biggest piece of the growth story. But -- and for that reason, I sense many investors are still kind of mystified and a little bit skeptical of it as an asset class. So maybe to start for those that are less familiar with your story and the asset class, could you give a quick overview of how that asset class works and why it's such an attractive asset class for investors?

Absolutely because GP stakes is a fantastic experience for LPs, and it's a fantastic business to manage. It's very long-dated it's perpetual capital by its legal structure. There's no end date to our funds. It's very attractive economically for us. It's very stable. So we like it and the LPs have had -- if you square the returns in that product suite against not -- there are almost no peers. In fact, there are really no peers for what we do. But squared against PE, it's clearly an upper quartile performer in every vintage. So it really works. All that said, let me -- to your point, just to say loud, GP Strategic Capital is our business where we raised funds to buy minority stakes in other alternative asset managers. Our particular specialty is large-cap asset managers. In that business, we are far and away the largest and I think best performing. But in that case, our last fund was $13 billion. I think the next competitor's fund is $4 billion. So we don't -- it's really -- it's kind of a market of one, which is a bit what probably makes it feel exotic to people. However, if you just unpack it for a second, all it is, is the other side of the alternatives equation. If you believe, as we all have and continue to believe alts grows as a marketplace, then there's 2 ways to participate. You can be one of the dollars as an LP, which almost everybody already is, but you could alternatively or additively, and this is, I think, important, say, well, wait a minute, I think I'd like to be a GP. Like I think it's great being in Starwood Fund II, but I think I'd rather be Barry Sternlicht. I mean -- so like that's the opportunity we're presenting, you really synthetically become a GP and in this case, these are actual examples, right? We own part of Veritas, part of Silver Lake, part of CVC, part of Vista. I mean these are incredible franchises. And as you all know, firms like that are very durable. So for the LP, you get -- to be a GP, you get a durable income stream that is much less dependent on the question of like what's the exact timing of what happens in one of these firms because you're collecting fee income. Now only one is crying for the GPs today even if they're not generating carry. So to get -- sit in that seat. It's a nice complementary additive strategy or replace, if you want, what people might call their PE allocation. We are seeing an uptick in interest and uptake in the product for that reason. People are starting to say, as opposed to thinking of GP stakes as its own allocation because, again, it's like it's sort of end of one in terms of what we do. What we are seeing more people do is say, "Hey, like I'm pretty full up on PE. Or PE is fine, but I kind of -- maybe it's not quite where I want to be incrementally today. But I like the alts market and I even like the PE market, I think I'll take a piece of this." And so we're seeing like registered investment advisers, RIA platforms show like an interest in this product. And I think in many cases, they're doing it in addition to or in place of what would have been just private equity firm #32, which people just don't have a lot of appetite for. I'll see if that emerges into a mega trend or not, but it's been -- it's a healthy overall.

That are you seeing the kind of broader concern around fundraising within alts and in particular, private equity impacting the growth trajectory of the portfolios that you have stakes in? And through that lens, has any of the recent volatility changed your confidence in the next flagship...

Yes. So this kind of consolidating period for private equity or we're going to call it, but we're clearly in a lowered overall fundraising period for private equity. That's a negative for anything in private equity. However, there is an offset. The bigger getting bigger, and we back the big. So as the middle, which is I think and I have informed opinions, I think the most vulnerable part of the private equity ecosphere is your middle-sized generalist because it's a little bit like what's my reason to be. the large firms with all the resources and they're kind of the -- you got fired for using IBM, there's sort of that category of usage. And then there's the super deep specialists. So I think people credibly believe there's alpha to be found somewhere in there. This middle is getting kind of squeezed out. That actually benefits the firms that we back. What's the net of that? Too early to say, right, in terms of the net of it. Right now, I think we're generally finding is people in the large end are still getting pretty close to their target fund size, but it's taking longer. Middle market firms, many are just -- they're done. They're just not raising any funds and some of the specialists are -- that's a mix but some are doing very nicely. But just look at the secondary sales going on in PE today, we're clearly entering a different era of allocation. I just was reading the update on New York City's pension fund selling $5 billion of assets, and it said they sold -- these kind of like mind-bending numbers, right? They sold stakes or LP interest with 74 different managers in 125 different funds like in $5 billion. I mean like it's just the proliferation of the managers -- and they just said -- and now they're saying we have 45 remaining managers who we're going to keep doing business with. Of that 45 odds are includes mostly the kind we back and the ones that got kicked out are probably mostly not the kind we're involved with.

Okay. Fair enough. And confidence on the next flagship?

Yes, doing fine. We do. In fact, we're -- I mean, technically ahead of the pace we were for the last fund, but it will be a back-end loaded phenomenon as we've been talking about, like you tend to get early closes and you tend to get last closes, but yes, all fine.

So summing it all up, we talked about a lot of pretty exciting growth opportunities in your recent Investor Day, you said this sums up to 20% plus fee earnings growth. As you think about all these different drivers across retail, infra, triple net lease, alternative credit, where do you see the mix of the business shifting? And which of those verticals do you think has the most potential to surprise most positively versus your already pretty punchy expectation?

The most upside exists in digital infrastructure because it's the least penetrated market with some of the most special attributes at a moment in time where best capitalized, smartest companies in the world are saying this is the place to be. So for the next 5 years, I think that just creates an awful lot of opportunity to kind of overperform. So that probably has the most overperformance as a proportion of the base case. The biggest absolute dollars are undeniably the continued individual access, just dollars, right? Because back to the point, whenever we talk -- if alternative credit is $10 trillion and if you need $1 trillion of capital for hyperscale data centers in the next few years, all of that is literally a fragment of $100 billion or $250 billion of retail investor assets in the world. So the biggest long-term pie is here. And the sweetest combination, right, and we're not here to sell people on outperforming. Our job is like perform because we're already setting expectations and doing something steadier than most. But our -- but the way you get outperformance, and it's not like a corner case is, well, when I marry individual investors with a hyper-growth market like alternative credit or digital infrastructure, well, that's growth on growth. And that's where if either one of those levers moves the right way, the whole thing tips up. So that's probably the room for net outperformance. All that said, our business, again, we like to call the straight. What we do now doesn't matter for 2025. Our business was built to not matter what we do in 2025 or 2025. But what we matter do now will matter, some for 2026, more for 2027 and beyond. And that's the kind of durability of the heart of the business.

Thank you.

Thank you, as always.