BLUE OWL CAPITAL INC. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strong growth across investment platforms, with over $14 billion in new capital commitments in Q3, bringing 12-month capital raise to $57 billion (24% of AUM).
• Direct lending: $11 billion gross origination, $3 billion net deployment in Q3; 12-month gross and net originations at $47 billion and $12 billion.
• Alternative credit: Deployed ~$5 billion over 12 months, focused on small business, equipment leasing, etc., with forward flow agreement with PayPal.
• Real Assets: Massive data center pipeline, including $50 billion+ investment announcements, partnership with Meta and Oracle.
• GP Stakes: Closed two investments in Q3, completed large strip sales, funds distributed over $5.5 billion in 18 months.

Segment Performance

• Credit: Fee-related earnings reported, direct lending gross returns ~3% in Q3 and 13% over 12 months; weighted average LTVs in high 30s for direct lending and low 30s in software lending portfolios. Q3 credit fundraising was $5.6 billion, with $3 billion in direct lending (including $2.4 billion from nontraded BDCs).
• Real Assets: Raised $3 billion in Q3, with $1 billion from ORENT and $1 billion from the 7th vintage of Net Lease strategy. Gross returns in Net Lease were ~4% in Q3 and 10% over 12 months.
• GP Strategic Capital: Raised $2.7 billion in Q3, with the latest vintage of large-cap GP stake strategy at $8 billion raised towards $13 billion goal.

Guidance

• Expect fourth quarter fundraising to be similar to Q2 and Q3 levels.
• Anticipate acceleration in management fee growth for Real Assets, with mid-single-digit growth in Q4 annualizing to ~20% and further growth in 2026.
• FRE per share and DE per share growth expected to accelerate, with acquisitions thriving and contributing to growth.

Risks

• Concerns about idiosyncratic credit issues, but Blue Owl has no exposure to Tricolor or First Brands. Vigilance required in credit investing, but credit portfolio health remains excellent with low realized losses.

Question and Answer

Q: Glenn Schorr asks about FRE growth and margin improvement.

A: Alan and Marc respond on expected acceleration in FRE per share and DE per share growth, with acquisitions thriving and management fee growth expected to accelerate.

Q: Patrick Davitt asks about retail flows.

A: Alan and Marc discuss strong retail flows in ORENT and OCIC, with resiliency in the channel.

Q: Brian McKenna asks about misunderstood perceptions of the business.

A: Marc responds on executing and communicating, with the business being an incredible value and tracking well with Investor Day goals.

Q: Craig Siegenthaler asks about Meta lease termination scenarios.

A: Marc explains lease design with flexibility and make-whole compensation, ensuring great returns for investors.

Q: William Katz asks about digital fund performance and fundraising absorption.

A: Alan and Marc discuss short-term mark-to-market noise in swaps, strong IRRs, and high demand for capital in digital infrastructure.

Q: Benjamin Budish asks about operating leverage.

A: Marc emphasizes investing in growth for long-term outperformance rather than optimizing short-term margins.

Q: Crispin Love asks about digital infrastructure pipeline and structures.

A: Marc details vast pipeline, different structures (development, ownership, partnership), and Blue Owl's ability to serve all types.

Q: Brennan Hawken asks about fundraising expectations and Real Assets fee acceleration.

A: Alan clarifies fundraising expectations for GP Stakes and explains Real Assets fee acceleration with upcoming growth despite quarter-over-quarter step down.

Q: Steven Chubak asks about forward flow agreements.

A: Marc discusses high credit quality, subordination, fast duration, and appetite for more partnerships with prime originators.

Q: Alex Blostein asks about credit fraud risks.

A: Marc addresses strong credit ecosystem, Blue Owl's credit quality, and thorough selection of originators and servicers.

Q: Christoph Kotowski asks about data center financing impact on AUM.

A: Marc explains multiple strategies participating in data center financing, gaps between commitment and deployment, and long-term AUM benefits.

Q: Brian Bedell asks about fundraising strategy for digital infrastructure.

A: Marc outlines four entry points (horizontal real estate, vertical data center, drawdown, continuously offered semi-liquid) to match different investor preferences.

Q: Wilma Burdis concludes Q&A, Marc provides closing remarks on strong quarter and positive future outlook.