Alternative asset manager Blue Owl Capital, which has been at the center of a recent spike in redemption requests affecting operators of private credit BDCs and interval funds, reported strong first-quarter earnings and an overall rise in fundraising from its private wealth channel.
Overall, Blue Owl said it raised $3 billion in equity through the private wealth channel during the quarter, predominantly in products focused on real assets, GP strategic capital, alternative credit and GP-led secondaries. It also reported net outflows of roughly $170 million from its private credit evergreen vehicles, OCIC (Owl Creek Investment Corporation) and OTIC (Owl Tree Investment Corporation). (The two funds account for about 17% of its total AUM.) The firm raised about $1 billion combined across the two BDCs, partially offsetting the redemptions in both funds.
Regarding redemption requests, during a conference call with analysts, the firm’s executives said the funds are operating as designed, with the 5% quarterly redemption caps in place to protect investor capital, and that the current wave of redemptions is “headline-driven, not fundamental-driven.”
“Redemption requests were concentrated with 1% of investors representing a majority of tenders, and approximately 90% of the investor base elected not to tender at all,” said Co-CEO Marc Lipschultz during the call. “Generally, requests have been more investor-led than advisor-led, highlighting continued strong support from our partners and what we believe has been a headline-driven, not fundamental-driven redemption environment.”
Lipschultz added that the firm is well-positioned to continue meeting redemption requests, funded primarily by the normal operations of its BDCs. With OCIC, for example, pay downs on its portfolio were $3 billion in the first quarter vs. redemptions of $1 billion.
“So, we’re three times covered,” he said. “And that’s before we talk about fundraising inflows or the DRIP or liquidity at the BDC, drawing on committed debt or cash on hand. So, we’re just level setting on all this because of the anxiety around private credit. And we understand that the industry is going through another period of softer inflows and higher redemptions. But periods of softness in certain asset classes are natural.”
As for private credit as an asset class, the firm said its direct lending portfolio has generated gross returns of 8.5% over the last 12 months. It has completed $8.2 billion in net originations and collected $6.4 billion in repayments in the first quarter and $27 billion for the year.
The firm said it also has seen no meaningful adverse movement in firms on its watchlist, non-accruals, amendment requests, revolver draws or PIK requests. It reported average LTV ratios in the low 40% range across the platform. Its average portfolio company posted $320 million in EBITDA with maturities in three to four years.
“You don’t go from I’m a healthy company to ‘Gee, I have a tremendous problem,’ overnight,” Lipschultz said. “We have huge visibility on that. That’s why we have watch lists. That’s why we have conversations about amendments and other topics.”
In the software industry, where many concerns have mounted over the threat of artificial intelligence, Lipschultz said he also felt the firm was well-positioned to address challenges.
“If you took just one step back, you’d probably logically conclude that there is a set of companies that will actually be beneficiaries of artificial intelligence. … There’ll be a set of companies in the middle of that range that will probably be harmed in terms of profitability growth. … And then there’ll be some companies that get themselves in more substantial trouble,” he said. “And that’s where, again, our preparation and our work always come to bear. … We’ve had defaults before. We’ll have defaults in the future. And the key then becomes minimizing that number and then doing well in recoveries.”
Blue Owl’s non-traded REIT experienced net inflows of $1 billion for the quarter. The REIT delivered 11% returns in the past year. Its interval fund also posted an 11% return over its first year and now has an AUM of $2.5 billion.
“In particular, demand for real asset strategies has been solid with over $7 billion raised in wealth for real assets over the last 12 months, a 2.5 times increase from the prior 12-month period,” Lipschultz said.
Overall, the firm reported total revenue of $753.8 million and total assets under management of $314.9 billion, up 15%. It posted a profit of $15.5 million, up from $7.4 million a year earlier. Distributable earnings rose to $292.5 million. Fee-related earnings also rose, to $393.6 million, up from $345.4 million in the previous year.
As part of its earnings report, Blue Owl executives also stressed the diversification of its strategies. Overall, direct lending accounts for 37% of Blue Owl’s AUM, while real assets account for 27% and GP strategic capital is 22%. In addition, about 75% of the equity capital it raised in the past year has come from outside its direct lending business.
The firm added that the OCIC BDC has delivered an annualized return of 9.1% over about five years since its inception and has outperformed public markets.