Blue Owl Capital's Robust Growth and Expansion Strategies
2024-03-05
Blue Owl Capital recently held its Q4 2023 conference call, where key speakers Marc Lipschultz, co-chief executive officer, and Alan Kirshenbaum, chief financial officer, provided updates on the company's financial results and discussed various topics related to the business.
During the conference call, it was highlighted that one of the key factors contributing to Blue Owl's growth and financial stability was the predictability of its assets, which were generally permanent capital. This, coupled with the company's focus on delivering high-value results to investors, had supported its robust growth. Over the past two years, Blue Owl experienced over 75% growth in assets under management (AUM), adding over $50 billion in equity and fee-eligible debt, allowing the company to return significant capital to its shareholders.
The growth trend for Blue Owl had been strong, with the firm achieving over 80% growth in AUM since the acquisition of Oak Street at the end of 2021. This growth was attributed to the company's focus on core strategies and capitalizing on structural demand and secular tailwinds in the markets it operated in.
In terms of financial results, Blue Owl reported fee-related earnings (FRE) of $0.20 per share for the fourth quarter and $0.70 per share for the full year of 2023. The company also reported distributable earnings (DE) of $0.18 per share for the fourth quarter and $0.65 per share for the full year. Blue Owl declared a dividend of $0.14 per share for the fourth quarter and announced an annual fixed dividend of $0.72 for 2024.
The company's direct lending business remained strong, with no notable changes to the health of the portfolio companies. The annualized realized loss since inception stood at 6 basis points, which had been offset by realized gains. The portfolio showed robust revenue and EBITDA growth at low double digits on average.
Blue Owl's GP Stakes business was also performing well, with market share gains accelerating during challenging fundraising environments. The company witnessed consistent market share gains across asset classes, with LPs allocating more to alternatives, leading to impressive growth in partner managers.
In the real estate sector, Blue Owl identified opportunities in capital deployment at attractive cap rates close to 8%. The company's triple net lease strategy offered attractive risk-return for essentially investment-grade secured credit, with recent real estate funds heavily investing in the demand created by the onshoring movement, representing a $1 trillion opportunity.
Blue Owl was pursuing various growth avenues, including launching a strategy focused on triple net lease in Europe, having had a first close and committed to its first investment in the strategic equity strategy. Additionally, the company planned to expand its alternative credit strategy and institutional and wealth distribution.
Financially, Blue Owl achieved its 11th consecutive quarter of both fee-related earnings and distributable earnings growth, with FRE up 25% and DE up 25%. The company operated at a 60% FRE margin, considered among the best in the industry, having raised $6.2 billion in the fourth quarter and $15.8 billion for the full year, with total AUM growth percentage exceeding 80% since January 1, 2022.
The credit platform had gross originations of $8.1 billion and net funded deployment of $3.2 billion in the fourth quarter, with the credit portfolio returning 4% in the fourth quarter and almost 18% in 2023. Blue Owl's real estate portfolio had gross returns of 9% in 2023, outperforming the broader real estate market, with the net lease strategy protecting the portfolio's returns by insulating them from expense inflation and declining rent growth trends.
The expected effective tax rate for Blue Owl in 2024 was in the mid-single digits, around 5%, and for 2025, it was expected to be a high single-digit rate. Analysts during the conference call asked questions about the company's focus on generating high value-added returns, growth potential in healthcare and alternative credits, development of the European net lease product, and the impact of consolidation activity in the alternative investments industry.
Overall, Blue Owl Capital's Q4 2023 conference call provided insights into the company's strong financial performance, growth strategies, and focus on delivering value to investors. The company's robust growth in AUM, solid financial results, and expansion into new markets positioned it well for continued success in the future.