Blue Owl Capital is aggressively emphasizing its transition to a multi-strategy alternative assets manager as it grapples with investor withdrawals from some of its direct-lending vehicles and investments in software businesses.
The firm helped pioneer the private-credit industry over the past decade, but now direct lending accounts for only about 35% of its total assets, from nearly 50% two years ago. At the same time, capital managed through its business focused on real assets has grown from $12 billion in 2021, when the segment was formed, to $89.4 billion at the end of June.
Over the past 12 months, nearly 75% of the capital raised from outside investors went into non-direct lending segments, including real assets and general partner strategic capital, a strategy that backs other asset managers. The firm's direct-lending vehicles include business development companies that back midsized borrowers, such as in the software industry.
Concerns about disruption threats posed by artificial intelligence technology that arose last year helped generate a surge in withdrawal requests from BDCs and other credit vehicles across the nonbank-lending industry that have backed software makers.
Overall, BDC investors sought to pull nearly $30 billion from widely held private-credit funds in this year's first half, including $15.6 billion in the second quarter. One Blue Owl BDC, Blue Owl Technology Income Corp., received redemption requests for roughly 41% of its shares in the first quarter alone.
But Blue Owl executives said the trend in withdrawals appears to be easing, echoing comments from Blackstone leaders last week that they had seen a material dropoff in such moves this month.
"We think that the strong, fundamental performance of our products has played a role in the decline of redemption requests to the non-traded BDCs, which we continue to view as more sentiment driven and led by individual clients," Marc Lipschultz, Blue Owl co-chief executive, said during a call Thursday to discuss the quarter's results with securities analysts.
Blue Owl raised $7.8 billion in the just-ended quarter, or about 29% less than the $11 billion brought in during the previous quarter and 37% less than during last year's second quarter. In the most recent period, credit accounted for just $1.8 billion of new capital, falling 56% from almost $4.1 billion in the previous quarter.
However, funds flowing into the real assets segment ticked up 10% to $4.4 billion from $4 billion in the first quarter. Overall, the firm ended June with assets of $319 billion, up 12% from a year earlier.
"Fundraising was particularly strong in real assets this quarter, with about 60% of our equity capital raised originating from this platform across a number of strategies and products," Lipschultz said on the call. Investing in real assets will continue to be the fastest-growing business for the foreseeable future, he added.
Growth of the segment is largely due to improving sentiment around real estate and a surge in demand for digital infrastructure and data centers. Blue Owl holds over 140 data centers that are operating or under construction, Alan Kirshenbaum, chief financial officer, said during the call.
Discussing credit operations, Kirshenbaum noted "a modest reduction" in redemption requests from the firm's nontraded BDCs. during the just-ended quarter, with all such requests coming from just 10% of the BDC's investors. At the same time, cash flowing into the firm's credit-focused evergreen vehicles rose more than 50% during the period that ended July 1 compared with a low point reached during the period that ended May 1.
"In wealth, we believe we have seen a bottoming of evergreen inflows in the May 1st close," Lipshultz said.
Overall, Blue Owl's second quarter results saw a rise in distributable earnings as revenue increased and fee-paying assets grew.
Distributable earnings, a closely tracked metric for publicly traded investment firms who pay dividends, climbed 9% to $351.2 million, or 22 cents an adjusted share. Analysts polled by FactSet had expected distributable earnings of $343.9 million.
Fee-related earnings, another metric watched by analysts, also rose 9% to $392.2 million, or 25 cents a share, from the same quarter last year. Total revenue increased 7% to $753.1 million, but the firm posted a 35% drop in net income to $11.4 million, or two cents a share.
Blue Owl shares rose as much as 6.7% in trading Thursday after the results were posted. But the stock is down more than 33% so far this year.
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