Blue Owl Capital Inc Class A Aktie

Good morning. My name is Patrick Davitt. I'm the U.S. asset managers analyst at Autonomous Research. It's my pleasure to welcome back Blue Owl's Co-CEO, Marc Lipschultz. As a reminder, if you want to ask any questions, you can do it through the pigeonhole portal, and they will show up on my iPad here, and I'll try to work them in. Marc, thanks for joining us.

Great being here. I appreciate the opportunity. .

So as I usually do at this event, given we've had most of the major alternative manager, CEOs, I want to start a little higher level. It's obviously been another crazy winter and spring. It feels like every year we're here. It's been a crazy winter and spring this time, particularly acute for you given the private credit freaked out, but also concerns around sticky inflation, higher for longer rates, slowing economic growth, kind of a toxic mix, it feels like for levered risk assets.

So maybe -- but potentially incrementally positive for private credit. So do you agree with the concerns that are out there? And what is your current thinking on inflation rates in the economy and how Blue Owl is positioned given this kind of macro overlay?

Yes. Well, it's great to be here and the gathering you all pulled together here over the last few days, which obviously credit to autonomous and to you. And it does, of course, give us all a chance to hear from lots of folks. Yes, look, it's an uncertain environment. And at some level, the markets are behaving like it's not an uncertain environment, and that combination is always disconcerting. And that's not a directional point of view.

Look, we don't trade in the public markets as we don't invest in the public markets. And I think importantly, to your point about that combination, whether it's a toxic combination or at least a combination that would lead you to think, geez, there's a lot of paths from here that we could be on, to me, which I might frame it a little more in the latter, is actually kind of what we're purpose-built for.

So on the one hand, I'll say, I'll share some perspective based on the ground up of the 400 companies and real estate assets and GP stakes and the businesses we see through, but we make it our business to not be in a business of having to have a directional view on something like what will rates be in point of fact, of course, as you know, in the credit business, the whole purpose is to be insulated from that. In fact, for years, it's been up the rate cycle is about to turn and it's been wrong every single time.

Now from where we have sat over the last several years and said this, I think, last year when we were here, we thought higher for longer was the likely reality. Now that's not because we saw war in Iran. But we did see a continuing strong economy, and we continue to see that. We continue to see cost pressures on companies. And maybe the AI innovation will start to roll over some version of productivity. But in any case, sitting here today, there's definitely a lot of upward pressure.

We could certainly, I think, probably all agree, there's not a lot of easy downward pressures on rates. And so that does play well to the direct lending and credit business. But more to the point, as I said, when I think about course of economy of again share of view, we see continued great strength. Our portfolio average performance of a company, high single-digit revenue, high single-digit EBITDA growth, even better than that, perhaps we can call it ironic or not in software.

We'll come back to that topic, I'm sure. But in any case, great underlying strength and a lot of obvious macro pressures on rates. So put that together, I think that's why we have tried to build a firm that's all about durable performance through a range of outcomes. And that applies in the most mathematically obvious sense to credit. But actually, I would say something like triple net lease is the most durable possible strategy, which is, frankly, right now, a place where we see enormous opportunity. And again, it's built to be really attractive and predictable through a wide range of different paths forward on rates, on the economy, on the dynamics in that case and the dynamics in tech, of course, has a whole different dynamic around it.

So I think I start with a view of I'm glad we don't have to take a view to make our strategies work, but we certainly would land on economic strength looks good, outlook looks good for the U.S. economy and rates are likely to be sticky.

Yes. On the higher for longer conversation, it's obviously more pertinent now in my investor conversations. And I think there's a little misunderstanding on how your portfolio in particular works. So maybe help us understand how we should think about refinancing risk in the portfolio in a higher for longer environment.

So the thing about the credit business writ large, Blue Owls, but it applies to all of our peers. Look, we have very, very large diversified portfolios with a wide range of different maturities. And so we've been through all the last -- you just paint the point every time we sit down here, we seem to think, "Wow, look at what's going on" and it's true, take a 5-year trip to the world, starting with the pandemic and then 0 rates and then hyperinflationary rates and then a trade war and then an actual war, we forgot to run on the banks in Silicon Valley Bank.

I mean this has not been a calm time, even if I took a step back, it kind of has this directional semi- up and to the right look to it, certainly in the equity markets. So I think when we look at our portfolios, our purpose is to be durable to a wide range of different outcomes with multiple businesses. We have a real assets business, our fastest-growing business.

That's ultimate in predictability, durability, 20-year leases with investment-grade parties and now in, frankly, extraordinary growth mode because of the digital infrastructure build. Credit will obviously, again, spend more time on. But here's a business where we have hundreds of loans to get to your point. And they've been maturing all along for the -- I love the term the freak out, by the way, saying that's probably pretty accurate.

It's not because there isn't a worthy conversation to have, but no one to have a worthy conversation. People just wanted to just start sort of lighting their hair on fire and talking about -- which I can't do and talking about like, "Oh, it's '07", I mean just kind of the -- honestly, these kind of crazy comments. And it did create a hysteria, which is pretty unhealthy.

But remember this, that very same time this last quarter, we had $6 billion of loans repaid. So what was supposed to be like the end of the world in credit is a time where we're getting lots of loans repaid. So you hit these maturities all along the way, and there's a lot of ways they get addressed.

Remember, we're the lender, not the equity owner. These maturity wall comments are sure. Of course, we're part of that conversation. We're a partner with these companies, but they're not -- to put it frankly, it's not our wall. It's the owners' walls. It's the private equity firm's walls, it's the corporate wall. They're the ones that go over the wall. If you don't go over that wall, well, then we're going to own the company. It's not our preferred outcome.

We do it successfully. So I think that it's not to say that the idea of a wall is miscast, but especially in private markets, there's a lot of ways to address maturities, including if a company is performing, then you just extend the loan. And I don't mean that in the -- everyone likes to talk about like the extend and pretend part. That's not what I'm talking about.

So if you have a performing company and a performing partnership, then why wouldn't you carry forward? And we often have new loans are actually people buying a company from another sponsor, and they come to us and say, well, you know this company, and we know you, why don't you finance our purchase? So there becomes this sort of internal almost captive audience -- and a lot of our financings are actually now captive into our system.

Got it. So the other issue that's been, I think, particularly acute for you guys is retail flows. And it looks like the gross flow picture, particularly for direct lending products is tracking much lower in 2Q versus 1Q. So what are you hearing from distributors on the demand algorithm for those products, for your direct lending products for your broader retail suite through this ongoing volatility?

So maybe I'll start with a bit of a metaphorical image that I find helpful and actually accurate, I believe, in the context of the whole retail wealth channel topic. If you think about this sort of -- again, I'll use your term, the freak out around private credit.

What really -- what that translated into was picture like taking a rock and tossing it into the middle of a pond. And where it splash, it was a pretty meaningful splash. And then you have these ripples of rings that have come out from it. And there's a lot to like about what I'm out to say, which is actually the splash was pretty abrupt.

And to your point, fundraising for direct lending across the board is clearly down in Q2, we don't see the monthly numbers versus Q1. And I imagine will remain in some depressed fashion for some period of time. It just takes time to heal just like that splash. The splash is quicker than the ripples all disappear. But the ripples are pretty accurate.

As soon as you moved away from that center of gravity, the effects were quite dissipated. So we saw much less of this, for example, in alternative credit, asset-backed credit, move a ring out and get to something like real assets, real assets is thriving. I mean, sure, there's a ripple everywhere. Wealth had a tough first quarter writ large because you just had current months because people are just saying, "Oh, I wonder what this all means."

But if you take a product like ORENT, we have, by far, the biggest net fundraiser in all of real estate. And it took a modest dip down in monthly flows and very modest. And redemptions, in fact, were the lowest we had in 6 quarters. So the ripple, even a couple of layers out was already meaningfully dissipated.

And we're already seeing, and I think now to cover both -- the whole ripple pond, we're actually already seeing it dissipate and a total change in tone. Now nothing happens fast. Again, the splash is bigger than the time it takes for the water to settle, but we're already seeing a total change in tone. We are -- people are interested in investing again across the board.

Certainly, we've already seen the recovery in products away from direct lending. But direct lending conversations are now, "Oh, I'm interested." Again. It's not the same freakout conversation. And in fact, we'll come on to I'm sure the redemption topic.

A lot of people have -- we're already seeing a change in tone there, too. It's not about I can't wait for the next redemption window. I'm sure that we should all logically conclude that there'll be elevated redemptions for pick your period of time, the rest of the year, there'll be moderated inflows for the rest of the year. But actually, I think the super cycle is already behind us.

So to that point, it sounds like when you're talking to the CIO level, people at the [ Merrills ] of the world that there's no kind of I guess, concern around allocating to Blue Owl products versus someone else's product?

No. And again, I think there's also an element of sophisticated more than one might expect delineation between different kinds of products, product that people are -- again, we get it. People are got induced into anxiety, falsely, by the way, I mean we just turned in our April returns for that very -- our main products, the core product in the wealth space. And guess what?

The returns in April were 120 basis points. Again, remember, supposed to be the end of the world, positive 120 basis points. The number of new nonaccruals in the first quarter, 0. 0. Now 0 is as maybe anomalous a number as if it was 4. I mean there could be some like that's normal in our business, but 0. We are the only major BDC that has declining nonaccruals. Our nonaccruals are way below 1% in CIC.

So it's just the facts don't comport with the -- and people get that. And I will say this, the institutions, the FAs, the CIOs, just was with one of the CIOs of a major platform yesterday, they -- that's not where the freakout happened. They totally get the way these products work. And they're telling people, you shouldn't be redeeming. In fact, you should be investing.

You're only going to fight that so much down at the FA level with a client, as I understand. But so again, the credit and the stability of the ultimate trajectory here, the platforms get it and so do most of the clients. Remember, if you look at the redemptions and that -- again, I'll keep coming back to this core income product that's really our one main wealth product in the credit side, the continuously offered version. Remember, in that product in this last quarter, half of the redemption requests were from 1% of the investors.

So it's not a broad-based phenomenon. It's actually -- and that itself turns out to be explicable and why was that 1% what it was. So I think actually, the platforms feel very good about the product, the products. They feel good about [ Owl ] and our peers. And again, there's more similar than different. I'm not here to talk about how fabulous the blow credit product is and what immediate neighbors aren't, generally, the sector is in a healthy place.

Yes. So the other side of the coin, to your point, is the redemption requests. Everyone is, I think, basically assuming that will be more than 5% for at least the rest of the year. But like you just said, it sounds like the vast majority of those requests are coming from a very small group of the shareholders. So if that ratio kind of maintains, like how long will it take to get below 5%?

Look, it's obviously speculation, and I don't have a direct answer. So what I try to do is frame a couple of inputs to that outcome. So I am with you, look, why wouldn't we all logically assume that it's going to be a 5% level for a period of time in these products that just seems like a logical way to proceed for the short term in any case. But the tone actually is healing faster than even I would have expected.

I think it's partly explicable in this regard. Well, part of it is performance. There never was a performance problem. That's a big difference. And in fact, performance is strong, not even like performance is okay. Now we've got 5 years in this product and the performance we delivered over a 9% return and you get it every month.

So there's a couple of inputs for people to think about when they're trying to figure out where the inflection occurs. Well, performance is strong, that accounts for a lot. People get to see that and experience it, and this is important, every month.

Remember, continuous products are a monolith. Strategies are a monolith, obviously. And in this product, in particular, you get your return every month. It's not an IOU. It's not, "Oh, I promise, you're doing great." I'm telling you, like don't worry, you're making a fabulous return. By the way, the only you can get that is you go ask for your money. Here, we send you your money every month. So you're actually, as an investor, getting a reminder every month that the strategy is working exactly as it was before.

And in fact, with rates higher, actually, the returns are likely to be supported at a higher level. So I think that is another encouraging fact for healing. So then you can kind of say, well, what's the inside, what's the outside? So the sooner the better in terms of getting down below these redemption request levels.

But we can look at the other side and say, well, like what -- I don't want to call it the worst case, obviously. But there's a data point out there in BREIT when you had a product that actually had a performance problem, had a liquidity challenge, had genuine negative issues that it had to work through.

And that took 6-ish quarters. So you kind of have a little bit of a bracketing like if you have a lot of issues, we know kind of what that looked like. And we don't really know what it looks like when you have this, there's no actually performance issues, but a lot of psychological concern. So somewhere between those 2 will lie the inflection.

But I said, I don't really see the benefit of being heroic in one's assumptions. It will take a little time for people to settle back down and get back below those 5% redemptions. But here's one other thing I want to say, the 5% model works. Again, not trying to be a pollyanna, but I am trying to also find what we've learned from all this.

It worked really well, like for all the panic, right, the run on the bank and all the things in the hysteria, at 5%, it works really -- we took in $3 billion of loan repayments. We had $1 billion that went out the door for redemptions. The system is a net cash generator just based on loan repayments, let alone the $11 billion plus of liquidity we have on hand.

And so the structures are incredibly durable and predictable. And if we think about healthy long-term growth, it'd be hard to imagine there's no one -- there's anyone left that doesn't understand that when we say semi-liquid, it's semi-liquid, not fully liquid.

And I hope now it would be hard to find someone to get that. We always said it, but you don't know how people absorbed it, and we've all talked to the clients, the FAs do. But that's a healthy fact for long-term growth. And the last comment on that point because I know this is a topic of great interest to all of us in retail in general. If you take a step back, sort of compared to what, and this gets back to like what's the proposition.

The proposition is to benefit from certain private strategies and the premium returns we deliver. We've delivered a 300 basis point premium to the liquid credit market during that same 5-year period to the leveraged loan market, 500 basis points to high yield. That's a heck of an additional return on top of those liquid strategies. And indeed, you have to give up some of your liquidity. But what does that really look like?

What it's looked like is of 20 quarters for CIC, in 19 of them, people got the money the minute they asked for it. And in 1 quarter, the darkest corner that we could all see and we know what we went through, people got 25% of their money back. And if all things stayed the same, which I don't think they are based on what we're seeing, that would take you a year to get all your money back on that basis.

Compared to a fund where you put your money in and 10 years later, you get your money. I mean, that's actually a tremendous proposition. It worked. And I think at the end of the day, if we all digest that, not we, but I think as the market digests that, it means this is a really, really healthy way for people to use privates intelligently as part of their portfolios.

That's helpful. So I guess broadening out on the retail topic, where -- can you update us on where you are broadening out the distribution footprint for each of the products? And then beyond that, what does the new product development pipeline look like?

Sure. So the products all follow a curve and the curve is relatively predictable, which is kind of number of launch points, number of FAs that use them and then one person told a friend, they told a friend. And they all kind of follow this directional curve impacted for sure in an environment like this changes the front end of that curve. But we're working through those curves in our core products. So let's take a few categories.

So the core income product is, let's call it, fully distributed, right? That's not a story about broader distribution. It is about broader adoption in the short term. It's not in the short term, it's obviously about reversing this drop-off in use. So that's in its one category. Then you have the category like introduced one of the bigger and more important launches, successful product, which is our asset-backed product.

And that product is now in its kind of -- it's got a few points of distribution, points of distribution are broadening, adoption is coming along. So that one is in the kind of the low period, had one of the biggest starts, which is great. And now we got to get to the power point in the curve. Go to something in the middle like in ORENT, our real estate product.

And there's one where you have generally broad but not complete distribution and a product that is thriving and more and more people adopting it. So now you're in kind of -- I might call it the sweet spot, right? CIC is kind of up here in the more call it, the mature end relative to continuously offered products.

And over here in the nascent then, you have like the digital infrastructure product and the asset-backed product, you have to like ORENT that lives in the middle and is really powering up that curve of broader distribution, more use. So we have products in each stage of life, which I think is part of how we support our continued business development.

Okay. That's helpful. So I want to move to credit more broadly. Obviously, direct lending specifically is kind of the press's favorite foil, it feels like almost every year at this point. But as the economy potentially slows, rates remain high, where do you see the biggest risk of something breaking in these portfolios? Or do you think the attention should be focused somewhere else entirely?

Yes, it's funny you said like it's been years of -- that's it, private credit. Oh, that's it. Private credit. And like I can't help but come back to the other Mark Twain, right? Like the new [indiscernible] was an exaggeration. And it does have that like groundhog version of it.

And so let me just take a step back and say that in private credit, a couple of things. Let's talk about the underlying credits and then let's talk about the structures because either of those places can cause a problem for any product. And we've seen both happen in the world across different asset classes. I already started the comment, but I'll reinforce the comment.

Credit quality remains really high. And that is not to suggest that there are not problems and won't be problems. We should all agree there will be problems, and it will now include software companies that 3 years ago, none of us would have thought would have been on the list of places where there'll be some problems. But our business to be prepared for that.

And remember, we're the lender to your second question. So in a software company, we started on average at 30% of the value of an enterprise, 40% if it's a non-software company. So the structure, we'll come on to matters. So there's two kinds of structures. First, there's credit. Credit is strong. And I also say that in the world of credit, we have a lot of visibility.

This is a -- and you know this, it's a slow-moving process because you don't go from average companies performing in the high single digits and well below 1% nonaccruals in a quarter to, "Oh my gosh, what a bunch of problems you've got." Like there's a long journey through I'm doing fine, not doing so fine, doing poorly, and amendment.

And so we see -- just like indicators. It's not like trying to read the tea leaves, you'll go through a gate. The gate will be, "Hey, can I have an amendment"? The gate will be, "Hey, I need some relief." The gate will be, "Hey, I've used my revolver." Like all that happens before someone says, I'm out. And so we know -- so in the foreseeable future, and this is not just us, I'm confident it will be true, but large cap peers.

Small cap is a different business. Large cap peers, there's not going to be some rapid shift in credit quality. So we've got a very nice horizon for some period of time. Now 2 years out, obviously, who knows what the state of the world will be. So credit quality, strong and for the foreseeable future, I expect will remain very strong. Now let's go to structure. Two things about structure. There's a structure of what we do itself, which is we're the debt, not the equity. And so you also have to eat through all that equity to get to the debt.

Somehow we did the press, and I don't want to just put it on the press, the press is reflecting like guys, but they certainly have amplified it, is this -- like someone we left past all the equity and said, let's talk about private credit. And then somehow by putting the word private in front of it, we thought it made something different from credit.

All of that is just misplaced. It doesn't mean there isn't a conversation to have. But private credit is credit. It doesn't trade, credit where you do more due diligence, credit where you have a tighter document. And so we have lots of history and lots of data about credit. And the liquid credit market, where all of a sudden, we articles about private credit, but ignoring this adjacent market that has the credit in many cases, none of us wanted to do. Not all of them, not being damned of it.

We have to have a good healthy ecosystem, and I love that we have a healthy private market and public market. But ones with looser documentation for sure, that we know. Some great companies there, too. But like somehow, we weren't talking about that, we're talking here. So structure matters, we're credit. And we're senior secured credit above a lot of equity. So we left that.

And then last point on structure is where do the loans sit because you get to points that could break. So what do I really think could -- is there something that could break the system. It's not the credit quality, and we have very diverse portfolios.

And even when you do math on extreme stress tests on portfolios, you don't break anything. You end up with lesser returns than you would have wanted. Remember, we run 10 years at a 13 basis point average loss rate. And we've said this every time I open my mouth. Of course, that's not the sustainable and durable and predictable rate. But it doesn't matter, multiply that by a bunch of times and start with a 9-something percent return.

That's not a problem. Then you have -- so credit, let's take that, that looks pretty strong. So then we go to structures. And the structures, we just talked about the structures are enormously durable. You aren't going to break the structures on the basis of 5% redemptions in any well-managed BDC. I'm not saying somebody out there and the fringes can't create a problem. I am and in fact, saying you should pay attention to people's right-hand balance sheets, right?

That everyone talks about credits and a lot of people tend to skip over like, have you done the right job constructing the right side? We spend a lot of time on that, a lot of time. And that's powerful, too. So again, I'm not saying you can't mess things up. But at 5% redemption levels in a diversified portfolio with loans coming in and everyone well-managed fund has liquidity, you're not going to break it there either.

And there's only one turn of leverage on those books. So is there anything I would characterize as, gosh, that's what keeps me up at night in terms of a big problem? No, lots of things keep me up at night about each loan and each decision and the marketplace. And certainly, what kept me up for a period of time was "Oh my, what article I get through each month." That definitely kept me up at night.

That still keeps me up at night.

Yes. You and me both.

Okay. That's helpful. I want to move to deployment. So there's -- we're always talking about this tug of war between the broadly syndicated market and the direct lending market. It sounds like from the 1Q earnings calls from you and others that there's a better pipeline building. So through that lens, how has your pipeline been tracking? And are you still seeing the trend of better terms in terms of like wider spreads and better dots?

Yes. Terms of -- the one thing you would predictably expect in an environment like this is that spreads have widened. And credit quality has been high throughout. In this case, I'll speak very much for Blue Owl. We never compromised credit quality. Didn't, won't. That's just -- there's no loan worth it. There's not, right? We looked at 10,000 loans to select the ones that will be more than that that we've selected.

There's not a loan on earth that's worth doing for us on a stretch basis. Why? I mean you get paid S plus 550, S600, it wouldn't matter, make it S700, not that that's on offer today for a quality loan. None of that is going to compensate for making a bad loan. And that's why I think our portfolio has proven to be, again, perhaps ironic given the press conversation, one of the very best credit qualities with those most durable performance because that's the choice we have always made and always will make. Spreads have widened.

That's a good thing. Like this is a good environment to be making new loans. Not a run, don't walk environment. Like in a way, I would characterize it more as a return to a normal spread where spread probably got overcompressed a bit during like prior to 6 months, 6 months before all this noise started. So I sort of said this, I think that spreads in our market undulate. And you undulate up to the high zone during '22, '23 when the public market is very restrained.

And you undulate down into the lower zone when the public market is more aggressive or markets in general, like in part of '24 into '25. And now we're back, I think, probably into the middle zone. We have a functioning public market. We have generally a reasonable risk appetite in the market, maybe if we are talking unreasonable in certain places.

And so I think now our spreads are in a nice, healthy equilibrium state. Deal flow is low. I mean, to be clear, right, M&A activity for sponsors is low. Now hopefully, with the same noise lifting and the markets as strong as they are, one would logically expect activity to be picking up. But the first quarter where everyone thought, okay, quarter 1 would be -- speaking for the PE firms, quarter 1 would be the time.

Obviously, PE activity wasn't enormously high in quarter 1. Now that's in contrast to what we're seeing in a world of digital infrastructure where the numbers are just breathtaking and moving at rates none could possibly contemplated or comprehended. So the PE activity level, if you said what's the one thing you would like in direct lending, yes, I'd like more activity because the more things we get to pick from, the better.

For sure. All right. Turning to move away from credit. Obviously, there's a lot of noise on the direct lending side, but one of the better growth stories for you guys has been real estate, which is a triple net lease business. You guys pitch this as more of a fixed income replacement than real estate equity. So I'd be curious to get your updated thoughts on how that pitch is resonating through the credit noise.

Yes, that pitch is -- well, it's working and the work -- so since it's working, it's delivering and investors have seen that. So -- that's a business, to your point, in our case, our strategies are a very particular type. We do these long-dated leases with very strong counterparties. And so it is a fixed income replacement. Now that has some wonderful tax attributes.

So and I call it an enhanced fixed income solution. Take like our ORENT product. The ORENT product has a -- we raised the yield. It has a 7% current yield and delivered last year an 11% return. It's delivered over a 9% return since inception of that product. And the counterparties are investment-grade counterparties.

And then it turns out you can do better than that in this environment when you have the privilege of working with the hyperscalers on these monstrous projects where it takes deep technical skills to be their chosen partner. So in that area, we've got as large a pipeline as we have basically ever experienced in triple net lease writ large and probably $100 billion pipeline working on in the digital infrastructure space.

So that place is working most importantly for the investors. I always start with does it work for the LP, and it does. And then can we marry them with a user of capital. Well, in this case, the answer is absolutely yes. And we're seeing, therefore, the demand. So ORENT continues to be a very, very successful thriving net fundraiser in the wealth channel. And our institutional product, as you know, we raised our record institutional flagship fund and triple net lease only a little over a year ago.

We're already into and headed toward our hard cap in our next iteration of that product with tremendous investor interest. Those products where, in addition to doing what I described, buy and hold the asset, we there also often sell them because once you have a fully developed asset and corporate partners is happy with how it's all set up, then you can sell it on to insurance companies or other real estate funds that are, call them equity funds, maybe they're core funds. And so in that product suite and triple net lease over its life, we've generated over a 20% return doing these long-dated commitments from incredibly strong counterparties. I consider that really pretty special.

And on the call, you pointed to what sounded like a particularly strong deployment pipeline. Maybe update us on that and what the nature of that pipeline looks like.

Yes. That pipeline is -- continues to be incredibly strong and things keep moving through it. Our deployment in that area is very, very strong. In fact, our current triple net lease fund is nearly fully committed at this point. And our digital infrastructure fund, also Fund III, which itself was a record fund is nearly fully committed, and we'll be back with that product.

And so the pipeline there, again, I'll now focus for a moment on maybe the topic of a little more specific interest, digital infrastructure is monumental. And it's not a surprise, right? If you take a market that take the 5 hyperscalers that matter, and then I'll add a sixth company NVIDIA because NVIDIA is now doing some of their own infrastructure and safe to say, we like their credit, too.

And we work with all of these -- all the hyperscalers. There -- we all know what they have reported. They went from, I don't know, $50 billion of CapEx cumulatively between all of them a few years ago to $700 billion this year, probably going to $1 trillion. When that happens in a market and then when you have a finite number of people, because a lot of people will correctly say, but isn't there a lot of people that want to invest in this area?

Yes, there are a lot of people that want to invest in it. That's good news. But there's very, very few who are actually qualified and equipped to then be the partner to those companies to actually build the projects. Now once we build, develop and deliver the capacity, there's a lot of buyers.

But today, you go to Amazon and you go to Microsoft and you go to Oracle, Google, Meta, there's a tiny list of people, and we're one of the premier ones that they're actually going to work with because we have 1,000 people that do this inside of our operations group, and we've done it a 100 times over. Over the last little over a year, we have done 4 greater than $10 billion hyperscale projects. And almost every large hyperscale project done when the third parties involved has been ours.

And they just -- the scale is breathtaking. You think about the Hyperion project down in Louisiana, which is Meta project in Louisiana. It's a 2-gigawatt project, and let's contextualize that. Denver, the city of Denver uses 1 gigawatt of power.

So 2 Denvers of power, the land mass it's built on is the size of Manhattan. It costs $30 billion to build the physical part we're doing with them, the part that we can own. $30 billion project in nominal dollars, I haven't done all the real dollar adjustments, I think, is the single largest capital project ever undertaken on the face of the earth. And that's the cheap part. That's the cheap part.

The expensive part is what they're going to put inside that infrastructure, by the way, another nice feature when you're a landlord when someone moves $90 billion worth of equipment into your buildings because that's what they'll do. So that project, one project is a $100 billion program down in Northwest Louisiana, and it's one. It's one. We have a gigawatt project going in Abilene, Texas, Stargate. We have a gigawatt project going in New Mexico. This is -- the Amazon project also in Louisiana is just under, I think, the gigawatt, and there's a lot more of those coming.

Some of your competitors on this point, have pointed to a need to only do deals close to large population centers in order to avoid the obsolescence risk. But to your point, you're involved in some rural development. So what makes you comfortable taking that risk when it sounds like others are not willing to take that risk.

Well, others are not willing to take a thing they can't have. So to be clear, I mean, we were with one of the hyperscalers, and they said this actually in a large group, I won't attribute it to them. They said -- someone in the audience said so, you refer to this. They said, so don't you get a lot of people approaching you about doing these data centers.

They said, "Oh, yes, you get a lot." And 85% of it just gets tossed in the trash because we wouldn't do it with them. They don't -- it's not because they don't think they're great firms. They have the ability. And we don't know them. And for us, what we need is this data center built on spec, on time, the sooner the better.

And so there's no way they're taking that risk based on cost of capital. Now so let's talk about that distinction. Data centers also is a monolithic term. If I'm doing a colocation short-term data center, I would agree, and we own a bunch of urban data centers. And they're wonderful to have because if you're right in the heart of Atlanta as we are and you have the key hub, it's a great asset.

However, that has to do with the nature for us of who's the user on what term lease. If you have a colocation data center and you're counting on people to re-lease it, absolutely, I agree with that statement. Absolutely. We don't do that business. So if you're in that business, you're right, you better stay close to an urban center.

We leased our projects for 20 years, 17 to 20 years at a time to 1 of 5 now, maybe 6 different companies who have, on average, AA credit ratings. There is no terminal question. I mean, sure, we can all talk about 20 years from now, what will they do inside those buildings. But frame it this way. When we go into these investments, we do them in a way where if you even assumed all of that infrastructure, that $30 billion of infrastructure that was built was worthless, you still have a good investment.

And if you assume it has a very small residual value in nominal dollars, 20 years later, inflation adjusted, well, then you're making your double-digit returns. And if you actually ends up having some meaningful useful life, well, then off to the races and we don't have to worry about all the upside cases. And then I'll just make this qualitative comment. None of us in this room know what 20 years from now, all that will look like, like a silly exercise. But I will observe this about the part we build.

And you've visited these sites and those who haven't, it's worth doing, and by the way, we're happy to host anybody who wants to know it's really something to see. What is it that we deliver? We deliver power, reliable backed up power that can never go out 24/7, 365. And when you take power and you convert it to any known technology, again, 20 years from now, you produce heat. Has to happen, right?

That's what happens. You take energy and you convert it to a digital activity. So what do we really have? We spent $30 billion producing a massive power input, cooling output, always reliable piece of infrastructure. And what's important to remember is this, -- it doesn't really matter to us if there's 40,000 chips in one data hall as there is today. Or in some mystical world 20 years from now, it's one mega chip that sits in the middle of that like almost a sci-fi movie you go in and there's one little chip in the middle.

It still takes the 2 gigawatts of power, produce it's physics, right?

At the end of the day, no energy is created or destroyed. And so the energy is produced, the heat is produced, and we have to take it away. So I would actually say if you want to go into do wild speculation about 20 years from now, you still need the power, you still need the cooling, whatever sits in the middle of it.

So I think there's a lot to like about that. And again, importantly, I do find people, oh yes, I'm not comfortable being in Louisiana. I wouldn't want to own that. Oh, that's -- I don't know about that data center. I honestly ask yourself, really. I mean you really don't want to be an owner of a 20-year 8 cap rate product to a AA counterparty with rent escalators at a rock solid lease. You really don't want that. I'm pretty sure you do.

There's a question from the audience on that. Like how do you evaluate the hyperscalers' ability to stick to their obligations given the revenue to kind of back how much they're committing is not there yet? And are you just relying on their credit rating and name brand to kind of go?

Well, we're really relying for sure on their credit rating. These are all -- I mean, often complicated structures. But at the end of it is a commitment from the corporate user. And this is where our triple net lease experience is so deeply valuable.

So maybe data centers are like a newish idea to people. And this triple net long-dated lease is a little newish that people -- but it's 15 years of what we've done in triple net lease. And like in every business, yes, look, you learn through mistakes that happen over the course of time. Now you don't want people doing those mistakes on your dollar on a $30 billion project. So yes, definitely tread carefully with who you invest with.

But what we've done is over 15 years, figure out exactly how to write those leases. And by the by, we have watched leases other people have signed. And they have some holes. It doesn't mean it will be a problem, but they're not ideal. And I like to think we have done leases that we -- nothing is perfect.

You can fight over anything you want to fight over. But we know a lot about having done it. I think we have 3,000 properties that have done triple leases on over the course of history. So I'm pretty sure we know how to get those leases to be as air tight as they can be, and that's the key because we're counting on their credit.

Now it's never a good idea to own an asset that is fully uneconomic for its user. That's just a bad idea because you create a bigger and bigger gap to want to get in a fight. But back to my point, they're loading $90 billion of stuff in here. It's not uneconomic. Now whether it was a wise or not wise choice to spend $1 trillion on this infrastructure, I'm underqualified to comment on. If you want to bet on my opinion or you want to bet on Sergey Brin's opinion, bet on Sergey Brin's opinion. Bet on Mark Zuckerberg's opinion. Bet on Larry Ellison's opinion.

These are the most successful tech entrepreneurial -- entrepreneurs of our lifetime, Elon Musk. They all say, this is a great idea and we can't have it soon enough. So I'll defer to them. But in any case, -- that's their decision. They own all the upside, and there is no case. There's no case where these assets don't produce profits. It's only a matter and this is another thing that's lost.

They'll produce revenues, they'll produce profits. Will they produce enough to have made it worth spending the $1 trillion? Well, that I don't know, we'll find out. And so -- and then you have to really be realistic, are we -- Microsoft has a AAA rating. They're going to pay their bills. We're one of their largest landlords in the world. We're Amazon's largest landlord in the world. They're going to pay their bills.

And again, the conversation ends up often migrating to, well, what about Oracle? I mean they have a mere $600 billion market cap. And sure, there's a difference between a BBB credit rating and a AAA credit rating. There might be good credit ratings, but they all have big backlogs of revenue also. And again, it's not 0 or 1. They're going to produce a lot of revenue out of these products.

All right. I want to touch a little bit on your asset-backed business. You acquired a business called Atalaya. It feels like this is through the lens of the direct lending concerns, a business that could see more demand. So how is the demand algorithm tracking for ABF? And given the noise we've seen this year, are you actually seeing that accelerating?

Yes. So ABF -- so let's -- again, I always come back to start with is it working. And it's absolutely working, which is to say the returns and loss experience there has been excellent across the board, both in the funds. So again, here again, we have an opportunistic fund and then we have this adjacent wealth product.

Both are thriving. And in fact, the fund we reported, I think, had a high teens return. And the wealth product is doing great with very, very low rates and great returns. Not all. It's always that there you're ever more built for the idea that asset pools will have things that perform, things that underperform structures and capture that.

So the product is working for the investors. In terms of ramp-up, that's one, as I said, it's very early in introductions. We're just getting it into platforms. And again, back to my ripple point, no doubt, my observation would be direct lending takes most of it, but then you get a ripple out into people don't delineate for some direct lending from private credit.

So I think you saw some muting across all of asset-backed lending as a sector compared to where I call it it should be, and I think we'll get back to much sooner. It didn't go down in the same way either with that sort of acceleration of the curve. You got to pull this haze a little bit off of the term private credit. So that probably like lagged the ramp-up a bit from what I would consider expected or ideal. But interest there is high.

You didn't get the redemption cycle there. So the delineation is already in place. Now you got broad distribution, get adoption. It probably will be the beneficiary if I had to speculate on if people just have a -- I don't know, I just read the direct lending, okay, well, here's a different credit product, gives you the same experience. You don't have to decide if you do or don't like direct lending. So I think we'll actually see movement of dollars over the medium term, probably that direction.

Okay. Great. So taking all this together, I sense investors are a little skeptical of your guide of high single-digit basically fee-related earnings growth this year, particularly given the gross flow dynamics we've seen in the second quarter. So could you put some more meat around that view maybe help kind of lay out the levers you see as providing enough juice to kind of offset the downdraft we've seen in the credit flows?

So let's start with the core business model, fee-based revenues off of permanent capital vehicles for enormous predictability. When we start the year, we know a whole lot about what that year is going to look like.

Funds flows today into a wealth product are largely about next year. And funds flows, this question of inflows, redemptions, absolutely will affect the trajectory. But remember, we manage $315 billion. And when we get down to this funds flow question, we're down here in a corner where we have $23 billion of total NAV, $20 billion in CIC, $3 billion in TIC.

So this is really small. So park that to the side. So we're really talking about in this $20 billion, a 5% outflow is $1 billion. So we're talking about the delta between is -- are you out $1 billion or pick whatever inflow number when things were full throttle and your inflow over $1 billion. So that's the delta. It's a couple of billion dollars, which I don't take lightly, but it's a couple of billion dollars against a $315 billion denominator. And at this point, joined about a part year. So what I would say is that is a very modest input to the 2026 question.

On the other hand, products like the success we're having in raising our next real estate fund and the success we're having in ORENT as kind of a direct offset, same thing on timing, but definitely has money coming in. And as we go out with our digital infrastructure product, those are all bringing in revenues sooner, and we're deploying at rates much higher than logically one would have expected. So there's offsets in there.

A lot of that AUM turns on as deployed.

As deployed. And then we have -- and therefore, as a result, we have $350 million in revenues from funds under management not yet deployed, and we're still raising, obviously, a lot of new funds. So I think the way I would say is this is we are aiming to be predictable as always. We do appreciate the market is a little more uncertain. We do appreciate the picture on things like fundraising will be a little harder to predict for some period of time, mostly because of the wealth topic.

You always have the episodic nature of fund closings and the like. That's not new. So of course, there'll be a little less certainty on fundraising. But when we look out, we have a lot of visibility on our revenues. And look, our job is to keep delivering it for our shareholders.

Okay. Well, I have a lot more I want to talk about, but we're out of time.

Well, we'll take it offline.

Thanks a lot.

Thank you very much, Pat. Appreciate it.

Good morning, and welcome to Blue Owl Capital's First Quarter 2026 Earnings Call. [Operator Instructions] I'd like to advise all parties that this conference call is being recorded.

I will now turn the call over to Ann Dai, Head of Investor Relations for Blue Owl.

Thanks, operator, and good morning to everyone. Joining me today are Marc Lipschultz, our Co-Chief Executive Officer; and Alan Kirshenbaum, our Chief Financial Officer.

I'd like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Shareholders section of our website at blueowl.com.

Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund. This morning, we issued our financial results for the first quarter of 2026, reporting fee-related earnings, or FRE of $0.25 per share and distributable earnings or DE of $0.19 per share. We declared a dividend of $0.23 per share for the first quarter payable on May 27 to holders of record as of May 13.

During the call today, we'll be referring to the earnings presentation, which we posted to our website this morning, so please have that on hand to follow along.

With that, I'd like to turn the call over to Marc.

Great. Thank you so much, Ann. As we highlighted this morning in our results for the first quarter of 2026, we operate 3 differentiated platforms at scale, each of which has contributed to Blue Owl's expansion. Revenues increased by 13%, fee-related earnings by 14% and distributable earnings by 11% compared to the first quarter of 2025 against a backdrop of geopolitical uncertainty, interest rate volatility and increased attention to private credit. Our financial results reflect stability driven by our durable capital base and growth, driven by fundraising and ongoing capital deployment. We raised $57 billion of capital over the last 12 months, our second highest capital raise since inception and $11 billion in the first quarter, which represents approximately 14% annualized on our AUM at the end of 2025. These fundraising results reflect investor interest across client channels and across our credit, real assets and GP strategic capital platforms.

In recent months, we spent time with clients and other stakeholders addressing the questions that have arisen around private credit. Our approach has been straightforward, answer those questions with facts. Across the business, fundamental performance remains strong and portfolios remain strong and the portfolios continue to behave in line with the discipline with which they were built. Compared to the last quarter, there's certainly more uncertainty in the macro and geopolitical landscape and investors across all asset classes are faced with more questions than answers about the near-term environment. As we've observed in the past, times of heightened volatility and uncertainty tend to favor those with patient capital and longer duration and market share has moved towards private players during those periods in the past. While we continue to see a healthy balance between the public and private markets, the momentum has shifted in our direction in recent months, offering attractive investment opportunities that we are selectively leaning into.

As it relates to fundraising, we continue to see good interest from a broad range of investors across an increasingly diverse set of strategies, resulting in $11 billion raised across equity and debt platform-wide during the first quarter. Institutional capital represented 2/3 of total equity raised for the first quarter or $6.1 billion. These inflows came from approximately 80 institutional investors with 47% of those commitments coming into our credit platform, 40% in real assets and 13% in GP Strategic Capital. We received commitments from 33 new institutional clients during the quarter and 14 existing Blue Owl investors committed to new strategies, further deepening these relationships.

We took in capital from institutional investors across every major market with an increasing amount coming from non-U.S. investors over the past few years. In our private wealth channel, we raised approximately $3 billion of equity in the first quarter, primarily across net lease, direct lending, alternative credit and digital infrastructure, highlighting that individual investors continue to allocate to alternatives. 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 2.5x increase from the prior 12-month period.

Taken together, our fundraising results for the first quarter highlight 3 major takeaways. First, institutional and individual investors continue to allocate to products and strategies across the Blue Owl platform. We think this speaks to our ongoing education efforts with investors through the years and the differentiated returns we have generated as a result of rigorous underwriting, deliberate and thoughtful product construction and scale benefits and ultimately, long-dated strong performance. Second, the evolution and diversification of Blue Owl's platform has been and will continue to be an important driver of fundraising and earnings. So let's explore that briefly.

As you can see on Slide 5 in our earnings deck, today, direct lending represents only 37% of Blue Owl's AUM. To put this in context, real assets is now 27% of AUM and GP Strategic Capital is 22%. Nearly 3/4 of equity capital we've raised over the last 12 months has been outside of direct lending. Alternative credit and net lease have grown their AUM by roughly 40% year-over-year, reflecting strong interest in these asset classes. Our digital infrastructure strategy, which is approximately 6% of AUM today, has significant runway ahead as we face unprecedented demand for data center capacity and continue to work closely with some of the largest, most innovative and best capitalized companies in the world.

In fact, just a couple of months ago, Amazon announced a $12 billion data center campus with investment for Blue Owl's digital infrastructure funds and development by STACK Infrastructure, our scaled designer, developer and operator of sustainable digital infrastructure. This marks the fourth data center project above $10 billion announced in less than 18 months for which Blue Owl will play a critical role. We held the final close in the first vintage of our GP-led secondary strategy, BOSE, during the quarter, above target at approximately $3 billion. We think this is a great outcome for a first-time fund, and it makes us a market leader in dedicated capital raised for GP-led secondaries.

And as it relates to fundraising channels, institutional investors drove 67% of total equity capital raised in the first quarter. And in private wealth, nearly 70% of flows came from real assets, GP Strategic Capital, alternative credit and GP-led secondaries during the first quarter. And these strategies themselves constituted about 60% of private wealth flows over the last 12 months. These figures highlight an increasingly diversified set of high-quality in-demand strategies that offer investors significant income and downside protection.

Finally, it's worth keeping the recent attention on our nontraded BDC flows in perspective. While the level of debate around private credit has resulted in elevated industry-wide redemption requests, the actual impact to Blue Owl's revenues and earnings for the first quarter was quite modest. During the quarter, net outflows of roughly $170 million from OCIC and OTIC were less than 6 basis points of our beginning of period AUM. As a reminder, these 2 funds collectively comprise less than 17% of our total AUM. For OCIC, redemption requests were concentrated with 1% of investors representing the majority of tenders and approximately 90% of the investor base electing not to tender at all. Generally, requests have been more investor-led than adviser-led, highlighting continued strong support from our partners and what we believe has been a headline-driven, not fundamental-driven redemption environment.

And notably, gross repurchases for our net lease non-traded REIT ORENT were less than $134 million compared to inflows of $1.1 billion, resulting in net inflows of approximately $1 billion for the quarter compared to about $8 billion of fee-paying AUM at the end of 2025.

Moving on to performance, which remains resilient across credit, real assets and GP Strategic Capital. Our strategies have delivered attractive absolute returns and on a relative basis, have generally outperformed their public indices since inception through a wide range of economic and market environments. To give a few examples of this. Our direct lending strategy generated gross returns of 8.5% over the last 12 months and more specifically, our largest nontraded BDC OCIC has delivered an attractive 9.1% annualized return over approximately 5 years since inception, demonstrating durability across a range of market environments. Over this period, Class I shares of OCIC have outperformed leveraged loans by more than 300 basis points, high-yield bonds by approximately 500 basis points and traditional fixed income by approximately 900 basis points.

In alternative credit, gross returns of 11% over the last 12 months have compared favorably to leveraged loans as well, outperforming by more than 600 basis points. Our net lease strategy has returned 14.7% over the last 12 months, outperforming the FTSE REIT Index by over 1,100 basis points. And GP minority stakes has delivered outstanding results with net IRRs of between 10% and 34% across Funds III, IV and V. These funds are top quartile of DPI, and we're honored to recently be named the top large buyout firm in 2025 by HEC Paris-Dow Jones in a category of nearly 700 firms, which we think recognizes our outstanding performance across these key metrics.

I mentioned earlier that we were seeing the market move our way as a result of volatility and GP stakes is a good example of this. Not only is fund performance strong, but we have substantial dry powder and the pipeline continues to grow for this business. Bring us back to where I started. Performance remains the clearest measure over time. What matters most in periods like this is whether the portfolios are behaving as expected, whether the underwriting is holding up and whether the structural protections in the business are doing the work they're designed to do. On those measures, the quarter reinforced the stability and durability of the business, supported by continued growth and strong underlying fundamentals. We plan to continue communicating with our stakeholders transparently and candidly and look forward to speaking with all of you in the weeks and months to come.

With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. Today, we reported another quarter of solid earnings growth and broad fundraising across the platform. As Marc noted, during the first quarter, we raised $11 billion of capital across a diverse set of products and strategies.

As you can see on Slide 14, while the first quarter is typically a seasonally lighter quarter for fundraising, we continue to see fundraising across a broader and more diversified platform driven by ongoing diversification across products, strategies and investor base. Compared to the first quarter of last year, equity capital raised grew by 35%. Staying on the theme of 1Q '26 results versus a year ago quarter, management fees were up 13%. You can see on Slide 10 that we broke out management fee offsets this quarter, which we think helps investors get a better sense of the core trends across our business. FRE grew 14% and DE grew 11%. We modestly increased our FRE margin, expanding to 58.4% for the quarter versus our FRE margin for 2025 of 58.3%. AUM not yet paying fees increased to $30 billion, representing approximately $350 million of expected annual management fees once deployed. This is equivalent to approximately 14% embedded growth off of our 2025 management fees.

Turning to our platforms. In credit, the $4 billion of equity capital we raised during the first quarter included about $1 billion raised in our nontraded BDCs and over $0.5 billion raised for each of GP-led secondaries, alternative credit and liquid and IG credit. During the quarter, we held the final closes for both our GP-led secondaries fund, BOSE, and our alternative credit opportunities fund, ASOF IX, around $3 billion each, with both closing above their targets, strong outcomes in the current environment. In direct lending, last 12-month gross and net originations were $39.4 billion and $8.2 billion, respectively. Repayments in the portfolio were $6.4 billion for the first quarter and over $27 billion in 2025, highlighting significant liquidity in our direct lending funds just from repayment activity alone.

As Marc mentioned earlier, the market conditions that create volatility in public markets also tend to result in spread widening and a decline in available capital across asset classes. We are beginning to see this in the origination pipeline with spreads at least 50 basis points wider. More importantly, the portfolios continue to behave in line with the discipline with which they were built. We have included some additional slides and disclosure in the supplemental information section of our earnings presentation.

Slides 24 and 25 show a series of KPIs for each of our BDCs as of December 31, which we will update through March 31 in our investor presentation.

Slide 26 compares some of these KPIs for the leveraged loan and high-yield markets.

And finally, Slide 27 compares the performance of our BDCs for the leveraged loan and high-yield markets. Now to run through some of these here, in direct lending, underlying portfolio company growth has remained healthy with no meaningful adverse movement in metrics such as our watch list, nonaccruals, amendment requests or revolver draws. Our average annual loss rate remains a very low 12 basis points, an important factor in driving our continued outperformance to leveraged loan and high-yield indices. On average, our borrowers have delivered last 12-month revenue and EBITDA growth in the mid- to high single digits.

In our tech lending portfolio, we have continued to see higher growth compared to our overall diversified lending portfolio with LTM revenue and EBITDA growth in the high single-digit to low double-digit range on average. LTVs have ticked up modestly, incorporating moves in public comps and broad-based spread widening. As a result, LTVs are on average in the low 40s across our platform and in the tech lending portfolio, continuing to illustrate meaningful equity cushion below our senior secured positions even in the face of compressed equity market multiples. And outside of direct lending, we deployed an additional $2.8 billion on a gross basis across our other credit strategies in the first quarter. And as Marc mentioned, the opportunity set is expanding across the risk-reward spectrum, and we are engaging where the risk-adjusted return is compelling.

In real assets, net lease contributed about $3 billion of the $4 billion of equity capital raised in the first quarter, roughly split between the wealth and institutional channels. In total, we have reached $5.8 billion raised for the latest vintage of our net lease flagship and continue to expect to hit our hard cap of $7.5 billion by the end of this year. For ORENT, our non-traded REIT over $200 million of the $1.1 billion raised in the first quarter came from 1031 exchange structures, and ORENT experienced its lowest percent repurchase quarter in 7 quarters. Deployment in real assets continued to accelerate, increasing more than 100% year-over-year to approximately $20 billion over the last 12 months, supported by the completion of build-to-suit projects in net lease and new commitments in digital infrastructure.

In Net Lease Fund VI, we have fully committed the fund and have reached 2/3 of capital called with visibility to be virtually fully called by this summer, in line with our prior expectations and within 3 years of its final close. Our net lease pipeline remains around all-time highs with $50 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are also seeing a substantial pipeline of over $100 billion and have now called over 75% of the capital in Fund III, just a year after its final close at the end of April 2025. And we continue to be on track for an initial close of the next vintage of our flagship fund in the back half of this year.

In our real assets platform, we now manage $85 billion of AUM, up 27% over the last year and specifically for net lease, up 38% year-over-year. We are seeing these strategies resonate with investors looking for income-oriented returns backed by mission-critical assets and investment-grade counterparties across logistics, manufacturing, health care and data centers. In GP Strategic Capital, we raised $900 million primarily in our flagship vehicle and co-invest during the first quarter, with the total raised in our sixth vintage approaching $10 billion, inclusive of co-invest.

In March, we made an investment into Atlas, a leading investment platform with a differentiated owner-operator model within the industrial, manufacturing and distribution space, and we continue to see a robust pipeline for deployment in our latest flagship fund, which is now about 40% committed on our target.

Finally, I'd like to offer some high-level thoughts on a few items. First, we remain focused on disciplined expense management. We demonstrated FRE margin expansion in 1Q and continue to see a path to achieve our goal of 58.5% FRE margins for 2026. We declared our quarterly dividend, which we had announced on our last earnings call. We remain committed to paying out our $0.92 dividend for 2026. Our business is broader and more diversified than it was even a few years ago, and we will continue to measure ourselves by performance, portfolio behavior and the consistency of our results over time.

Thank you very much for joining us this morning. Operator, can we please open the line for questions?

[Operator Instructions] Your first question comes from Craig Siegenthaler with Bank of America.

My question is on the $6 billion of institutional fundraising in the quarter. Can you help us size the credit inflows and also what specific funds saw the inflows? And I saw your broad comments on direct lending and strategic equity, but I was hoping to get a little more detail on the fund to help us think about the fee rate dynamics and also the sustainability, too.

Sure. Thanks, Craig. You as well. Look, we continue to see flows come through up and down across our credit platform. We continue to see flows into direct lending products like ODL, SMAs. We certainly had about $1 billion come into our non-traded BDCs, OCIC, OTIC. So we saw inflows there. We continue to see, as you noted, ASOF IX, we did our final close. Alt credit continues to grow in line with what we talked about last quarter, continued very strong growth from the alt credit business. So it's really coming through up and down the board there.

We're noticing just one add-on, which I'll call more qualitative. We're noticing institutions, I think, are observing that direct lending and credit at large is actually working very, very well. And so in contrast perhaps to what is the sentiment in the air, if you will. I think institutions are actually seeing that this is an appealing time to look at credit. In fact, some who perhaps had paused credit might be very well coming back. Remember, spreads are starting to widen again. And these moments in time, as we commented on as I did a moment ago, these moments in time when markets are like this, generally speaking, have tended to actually favor opportunities in private markets. And I think institutions know that.

Your next question comes from Bill Katz of TD Cowen.

I appreciate the extra disclosure. Super helpful. Just coming back to wealth. I wonder if you could provide a little more color. You mentioned that a lot of the redemptions were driven by investors rather than financial advisers. Can you give us a sense of what you're hearing from the gatekeepers around a couple of different dynamics here?

Number one, how they're thinking about maybe the appetite for direct lending given spreads are widening out, where you're seeing the flows going if they are, in fact, leaving direct lending or they're staying in your ecosystem and just moving to other vehicles like ORENT, et cetera? And then I think you mentioned that spreads are widening out a little bit. Can you give us a little bit of an update on maybe gross and net deployment into the new quarter?

Sure. Bill, thank you for the question, and thank you for your feedback on the added disclosure. When we're on the road, we talk to folks, folks have asked for added disclosure, and we want the opportunity to show the markets what we're seeing in direct lending, as Marc just commented on a minute ago. So there's a little in your questions I want to unpack. I guess, first, in our discussions with financial advisers, generally speaking, they want the products to work as designed, 5% tenders per quarter, not more. The reason for the 5% and the reason clients want us to keep it is so that shareholders benefit from the asset class, the illiquidity premium that they're receiving. And as we pointed out, back to your comment in our earnings presentation and the supplemental information, that has worked as designed.

Our products have meaningfully outperformed the public loan markets. And with these structures, the assets are matched duration with the structure and better. So what do I mean by that? For example, paydowns in OCIC were almost $3 billion this quarter, regular way paydowns versus the gross redemptions at $1 billion this quarter. So we're 3x covered. 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 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. And your question is exactly that. What's also natural is that sentiment tends to move to other asset classes, which as a diversified manager like ourselves, we're well positioned to benefit from that.

So I had talked through last quarter now kind of shifting to those other capabilities. I talked last quarter in the Q&A session about some of the attributes for what it takes to be successful in the private wealth channels and how we go about expanding and continuing to grow in environments just like this. While we have large, high-quality and most importantly, well-performing products, we have a diversified suite of capabilities, as I just mentioned, which makes us really well suited to capture shifting sentiment like what we're seeing now. So the track record of our nondirect lending capabilities support exactly what I just said, right? ORENT delivered an 11% return last year and is up 2.5% in 1Q. OWLCX, our interval fund, our alternative credit product is 11% over its first year and up 2.2% in 1Q. OTIC, which is new where we just launched that at the end of last year, it's up 2.3% in 1Q. -- we have significant scale in these products.

OWLCX is the smallest at about $2.5 billion of AUM. And not leaving off, of course, our non-traded BDCs, they continue to demonstrate strong performance. OCIC has delivered a 9.1% annualized return since inception over about 5 years, which is meaningfully outperforming the leveraged loans market, high-yield bonds and traditional fixed income. So strong returns, scale and a diversified suite of products are what's needed to broaden into other channels and markets, new geographies. We've talked in the past about model portfolios, 401(k), the resources we have dedicated to private wealth globally, the new product origination capabilities and deep focus on emerging trends and opportunities. We have scaled distribution across all channels. And our business is an industry leader in a market where there's massive opportunity and significant barriers to entry. This is not easy to build.

Your next question comes from Brennan Hawken with BMO Capital Markets.

I had a couple of questions on fee rates. So the -- both in credit and real estate. So first in credit, excluding Part 1, so excluding that noise, the underlying fee rate went up 8 basis points quarter-over-quarter. I believe you had a solid fundraise in BOSE, and I think that's in that segment. So were there catch-ups in that? And maybe could you quantify that or maybe some other one-time type items or any noise? And then the real estate fee rate also looked better than expected. Was there any noise in that business as well?

Of course. Thanks, Brennan. I appreciate the question. So for credit, we did have some BOSE one-time catch-up fees. Overall, management fees were up a little. Part 1 fees were down a little. The management fees were driven by the BOSE one-time catch-up, but also things like ASOF IX, I just mentioned that the interval fund continues to grow. And so that's what I would point to for the fees in credit. And there's always some mix shift when you look at fee rates quarter versus quarter. Nothing in particular that I can think of that I would flag for real assets, though.

Your next question comes from Mike Brown of UBS.

So dry powder certainly represents an embedded growth opportunity here for you guys and certainly positive that spreads are widening. How should we think about the timing and phasing of deployment here? And as you think about -- maybe you can just give us a quick update on April, how has activity been in the month of April? And then when we think about software and tech, are those areas that you will kind of lean into are opportunities attractive there? Or is that an area that you'll kind of pull back from as you think about deployment?

Let me start with the latter, and then Alan can share a few comments on kind of how to think about deployment of that $30 billion or so of dry powder.

So let's talk about the ecosystem first, and I'll start at the highest level. Obviously, the overall M&A environment is fairly tepid right now. It's not -- it's active, and therefore, our business is active. We're seeing a nice number of opportunities to invest in. And most importantly, we like what we're seeing. and we like them at higher spreads, and we like them in an environment like this to originate. So these are the kind of environments where we are perfectly happy to be in a position with a good amount of capital to deploy selectively and certainly happy to continue, and this is, of course, the feature of the business. Loans get paid back, and they're getting paid back regularly, and Alan just talked about before, the many billions of dollars that have gotten paid back. And when those come back in, and generally speaking, those are at lower spreads and we put them back to work at higher spreads that's a really good thing for our investors.

And so that's the environment we're kind of in an aggregate, a bit of that rotation out of some of the lower spread product into higher spread products. That's a good thing. In terms of activity, it's probably a little more about geopolitics overlaying the market than it is anything else. And so it's a little -- I guess I dare say I wouldn't claim to know when that air clears and when the M&A environment picks up steam as a result. But activity is perfectly healthy. And so we're going to continue to deploy at a steady pace in lending. Now frankly, in other areas of the firm, we're seeing just tremendous acceleration in deployment. You've seen this in pipeline, triple net lease and in data center, digital infrastructure, in particular, the pipelines are just so compelling as are -- fortunately, the risk return. I think we all saw overnight, obviously, all the tech announcements, and there were a couple of consistent themes, some pretty good numbers.

But most notably, just about every single company talked about increasing their CapEx even more. Well, that just flows directly to our digital infrastructure business and our triple net lease business. So it does depend by area. In our GP stakes business, this is a good opportunity, good time for what's happening. We're seeing people return. Remember, there was a time when lots of people thought they were going to become public companies. There was a time when the M&A market was extremely active. That's not the current moment. And so that brings people back to, gee, how do I continue to finance -- the great businesses? How do I continue to fund their growth.

So I would say that we should look at the credit market right now as M&A market is fine, and we're going to be following really no particularly greater or lesser than the overall M&A market activity levels. But I expect as the air clears in the world, we'll see those accelerate again. There's certainly plenty of dry powder in the hands of private equity firms, as we all know. And we're seeing really robust pipelines, particularly real assets and accelerating in terms of engagement around GP stake. So I'd say the path ahead looks pretty appealing as we look into the back half of the year.

But Alan, any comments on pacing?

I think that was really well said. Pacing, I would think that what we saw in credit, good environment, as Marc just said, to lean in selectively on the right opportunities. Markets are functioning well. On the other side, we were paid down on over $7 billion of loans across the credit platform. So hard to tell how that will play out in any given quarter on a net basis. Real assets, we continue to see very strong deployment there. Huge pipelines. You should expect us to continue to draw down on products like Net Lease VI. I mentioned that's fully committed. We think that will be fully drawn by this summer. So pacing is going well there. And Marc commented on GP stakes, we actually have 6 really interesting investments in the pipeline, 5 of which are new investments, one is an add-on. So we're really excited about that as well.

Your next question comes from Glenn Schorr of Evercore ISI.

I want to say thank you. Slides 24 through 26 are great. Now -- so here's my question. Those -- if you looked at those statistics, you wouldn't know anything is going on in the world, meaning those are all healthy stats of some portfolios. So people are looking for the public markets crush the equities in some of these underlying companies, wider spreads and public BDCs trade a big discount. So I wonder if you could just drill down a little bit more on the color of nothing's changed on our watch list and how you quantify that.

And then most importantly, if you look at the tip of the spear, there is a software maturity wall coming in 2028 and '29. And in normal times, I think that the current lender would be part of the process of refinancing, especially in private land. So who's going to do that if the current lenders are in redemption mode? And what kind of conversations you're having? What are the equity investors' behavior? What's that like right now? So anyway, I thought that would be helpful insight to how we should all think about the go forward.

Yes. Thank you very much, Glenn. And on those additional credit stats, a couple of comments, just and then we'll jump into the specifics. Look, we're out talking to all our shareholders. That's who we work for. And what we heard is we're trying to understand, we're reading a lot of narrative to help us with the facts. We tend to try to be very data-driven in our business. And so this is additional disclosure that we hope helps people understand what we're seeing at the portfolio level as you're observing because headlines are pretty different from the underpinning facts in this context. And so we want to try to share as much as we can so people can see what we can see transparently for the good and the bad. But I think in this case, as you observe, there's a lot more to like than to dislike.

Now with that all said, as you said, let's try to look forward. We don't have a crystal ball, obviously, but I have a few things we can observe, and we'll get to the software point specifically. Let's start more generally, though. We have seen no material negative developments in our portfolios in terms of amendments, in terms of PIK in terms -- in fact, PIK has been on the decline as a percentage of the portfolio, contrary to what I think people probably would draw minds into it or suggest. No material change in watch list, no material change in nonaccruals. So those are observable and important facts. And I think, are, again, probably a little different from what people tonally would suggest would be happening. So that's a very healthy place to be, #1.

Number two, things in our business, as you know, we have a lot of visibility and things don't move fast, by which I mean, that companies as they are going from being very healthy and our average portfolio company, remember, is still growing in the high single digits, revenue and EBITDA. These are growing businesses. And to go on average from that and no material changes in those other gates, and they are gates. They're not just indicators. You don't go from I'm a healthy company to, gee, I have a tremendous problem. We have huge visibility on that. That's why we have watch list. That's why we have conversations about amendments and other topics. It's one of the great advantages of having tight documents and being in the private market. So we have visibility on people going from one stage to the next. So we can actually say with a lot of comfort that in the foreseeable future, portfolios are likely to remain very healthy.

Now when you -- the further you go out, obviously, the more variables come in, and that will bring us to the software topic. So none of us know the future state of the world transformed by AI. And obviously, the center of gravity of that conversation today is software. But frankly, it ripples across the whole economy, and all of us should probably have our eyes on that as well. But here's what we can say. We're lenders. We're not equity owners. And that's not a small distinction. We choose that position for a reason in our strategies. Our job is to be prepared, and that means doing great due diligence. It means doing good underwriting. It means doing good documentation. And importantly, it means being the senior capital where there's a lot of equity capital beneath us.

Our tech portfolio, remember, are some of the very largest companies. average EBITDA today is $320 million, and we all understand where the pressures can come from, from AI. But you're starting at $320 million with companies that in many instances have equity checks from very sophisticated sponsors of billions and billions of dollars. And we have maturities that are 3 to 4 years on average, I'll come on to your maturity wall question. But 3 to 4 years, so what that really says to all of us is today, by and large, the question on hand is really an equity question, not a debt question. A, not a monolithic answer. But if you took just one step back, you probably logically conclude that there is a set of companies that will actually be beneficiaries of AI, the agentification of the business.

There will be a set of companies in the middle of that range that will probably be harmed in terms of profitability growth, but that's far from mortal. Again, that's all equity, both those categories. And then there'll be some companies that get themselves in more substantial trouble. And that's where, again, our preparation and our work always comes to bear. This isn't new. I mean credit is not intended, never expected to be a flawless exercise. 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. And I'll tell you this, we've gone back and studied all of the cases where we've had restructurings or material amendments driven by performance issues. And here are the actual statistics in that. The actual statistics are our average principal recovery in those cases has been $0.80 on the dollar. And when you incorporate that we actually had several coupons on average in those instances as well, our actual recoveries in total on our problem situations has been 1.1 to 1.2.

Now again, not suggesting that doesn't mean you can't have worse outcomes and there couldn't be some of those in the world of software, probably a good place to watch. But you're down into a very much a subset of a subset of a subset, and our job will be to manage through that. As for -- therefore, the conversations. Listen, these have very, very large equity checks involved. And that doesn't mean that some of them won't be handed over to the lenders. Some will. But in all likelihood, and we've experienced an analogous circumstance with COVID, and again, everyone now will say, well, lasted a short time, but it wasn't -- it didn't seem that way living forward, right? It was a very dark world. And by and large, good sponsors are going to look and say, take a $10 billion buyout. Now they may very well think it's worth $10 billion, $12 billion. We may very well think it's worth $6 billion, and it has $3 billion of debt.

In either case, you're talking about someone's several billion dollars of equity check, and they're very likely to logically want to continue to sustain that. So what does sustain it mean, which brings us to your software wall question. So yes, there are a number of refinancings that are going to have to take place. And again, there will be different categories of software performance, which will be a lot clearer a few years from now than it is now and who fits in what category. And I think when we get to that place, look, it's safe to say as today, we are working down our exposure to software given the level of uncertainty. We'll all know a lot more in a few years.

But I think just to cut to the chase, you're going to end up in a circumstance where you're going to need to see a lot of equity injected by private equity firms into these companies in order to continue forward even when they have many billions of dollars of equity value they are holding on their books or understand that they have. So it's going to be working together with those. Some will I think most will work probably quite amicably. Some will probably be a little more challenging. But again, that's what we've done since the day we started. happens to be in the software arena this time. It's been in other arenas before. So don't minimize it, but I don't overstate it. I think we'll come to a point and there'll be a subset of companies that will be the more contentious ones, and then we'll work our way through. And that's what leads to having some amount of loss rate, which is endemic to not just private credit. It's going to be in public credit. It's going to be in high yield. It's going to be in equities.

And last comment, which we've all seen a lot of volatility, certainly a downward direction for sure, in software equities. But you look year-over-year and the change in the software indices is actually quite modest. And yet here, we're talking about things that are down in the 40% on average loan to value. So I think there's a lot of spring and cushion and our job is to be prepared and ready, and we are.

Your next question comes from Brian McKenna with Citizens.

First off, it's great to see the resiliency and results to start the year. Can you just remind us how much exposure you have in your direct lending funds to SpaceX? And I know this is just one investment, but I think it's important to understand how and where you invest and really how these portfolios are structured. And can you just remind us how these gains ultimately help offset future credit losses across these portfolios?

Maybe I'll take the last one first. If you go to Slide 25, you can see net gains since inception for both OTF and OTIC, whereas you would normally expect some sort of modest annualized net loss rate since inception. And so investments like that certainly contribute to what you see as an outlier, a net gain since inception on our returns.

Specifically at SpaceX, just as an example, we made about 10x our money on that investment. We've sold about half of it at a $1.25 trillion valuation, still holding about half of it. The reason I highlight that not because in the context of our funds, that's going to change the fundamental flight path. But as Alan said, those are the ways we -- even when we do have and we will have some credit losses, how we can offset some of those losses. But the other thing I would just note on that is about our ecosystem. The reason we have that position is because we were one of the very earliest lenders to SpaceX. And we made loans to the company and had the privilege of getting to know them very well and then participating in ongoing conversations about other financing opportunities and ultimately, in this case, an equity investment. And we have that elsewhere in our ecosystem.

So part of being a one-stop shop and being in a position to deliver capital solutions, it gives us a lot of ways to win on behalf of our LPs. And of course, when we win on behalf of our LPs, we win on behalf of our shareholders.

And create these very long-term partnerships with our borrowers and the sponsors.

Your next question comes from Steven Chubak with Wolfe Research.

So I wanted to ask on the FRE margin outlook. You delivered strong expansion in the first quarter, encouraging that you reaffirm the 58.5% target. Just amid the slowdown in retail fundraising, it would be helpful if you could frame some of the assumptions underpinning the FRE margin guidance and the levers that you could pull to hit the target if gross BDC flows remain subdued and redemptions stay elevated over the next couple of quarters?

Sure, of course. Happy to do that, Steven. Look, I think we've talked a little bit about this. We're very focused as a management team on showing progress on the FRE margin line. I noted in our prepared remarks, we remain very focused on disciplined expense management, and we continue to see that path to achieve the goal of 58.5% FRE margins. For '26, we certainly have comp and non-comp, right, G&A. And we have levers, I think I talked about this a little last quarter that we could pull across the board to make sure that knowing we expect to continue to be in a softer environment in wealth, you saw strong institutional results.

I think in an environment like this, you certainly saw good results out of our wealth products away from the nontraded BDCs. Even in our nontraded BDCs, you saw about $1 billion of inflows. But assuming that the environment remains soft for, let's say, the remainder of this year, the next number of quarters, we expect to continue to maintain that 58.5% FRE margin.

Your next question comes from Patrick Davitt with Autonomous Research.

In the vein of Steven's question, last quarter, you said you thought you could do low double-digit FRE growth this year. So I'd be curious to hear your thoughts on how that might have shifted given the now much lower flow outlook for the retail credit products.

Yes, of course. And it's a good question. We talked about the challenging environment for the industry. We've talked about assuming this environment continues for us, there could be -- for the industry, but for us as well, there could be a wider range of outcomes for revenues. This ticks right back to keeping that in mind, we just talked about remaining focused on disciplined expense management. So when we look at something like the visible alpha consensus numbers for us, we think we can beat those numbers for 2026.

Your next question comes from Wilma Burdis with Raymond James.

You gave some good color on software earlier, but if you could give us a bit of a preview on what the software LTVs would look like today, sort of an update of those 24 to 26 slides. I know you touched on it, public comps are down a little bit. We still expect the portfolio to remain healthy, but we would think the LTVs would come up a little bit.

Yes, of course, happy to. I'll kick that one off, Wilma. So LTVs, what we've seen in the last few quarters leading up to this quarter is LTVs in the low 40s for diversified lending and low 30s for software lending. And what we saw this quarter is LTVs coming up to across the portfolio in the low 40s. So we saw a move in software LTVs. Obviously, a lot happening with public marks over the last 3 months. And so LTVs came from low 30s to low 40s, matching the diversified side, which still gives us obviously a significant amount of cushion. Marc referenced this earlier, a significant amount of cushion to the equity of about 60%.

Yes. And a couple of additional observations on that. We don't mark our own credit books. We get the marks from a third party. And so when we take those marks and apply them and then we do look at LTV based on current facts, current market environment. Alan just said this, but I actually think it's kind of important to understand that indeed, there's been obviously a deterioration in the LTV or the value of software companies. We're a lender. That's reflected. So this -- yes, we've come from low 30s to low 40s by virtue of that deterioration. I think that's an important point to understand. That's a tremendous amount of remaining cushion. Again, that's about preparation. That's about being in places with lots of underlying equity in the system.

So actually, I would dare say, I think that really speaks to the strength and durability of the underwriting and positioning that we're seeing, absolutely, we all acknowledge the challenges in software. And with those challenges understood and quantified as best they can be today, we have a lot of cushion in the system to continue to get strong returns, strong recoveries and look, we continue to see strong loan repayments.

Your next question comes from Crispin Love with Piper Sandler.

Can you discuss the fundraising outlook for 2026, maybe parse that between institutional and retail fundraising trends have remained solid, looking at the top down in recent quarters. And Alan, you did mention the first quarter seasonality, which I do appreciate. But looking at Slide 4, you did see softer private wealth year-on-year, which isn't a surprise. So how do you view the outlook differences between key investor channels and products as you plan for the rest of the year? And then just what that cadence could look like given seasonality in fundraising?

Of course, Crispin, thank you for the question. I'll take that. So we've talked about near-term softness, in particular, in the non-traded BDCs and wealth. I also mentioned earlier about having these other nondirect lending capabilities with very strong returns on a relative and absolute basis. So we're very encouraged by looking out over the horizon to see what we can continue to do with products like ORENT. It's been the #1 fundraiser in the market, the #1 returns. It's been a very strong performer, the interval fund, OTIC. But now shifting over, thinking more institutionally, but not solely institutionally, we do have more products and more strategies that cover more geographies than we ever have. So we continue to see a lot of traction and success across a number of these products and strategies.

Just to reference the 2 recently closed funds, I may have mentioned this in the prepared remarks, our GP-led secondary strategy, BOSE, we talked about that, closed at approximately $3 billion. And for a first-time fund, that's a great accomplishment. And in alt credit, ASOF IX also closed at approximately $3 billion. In both cases, we exceeded our fundraising goals. We have 3 real assets, first-time funds in the market, net lease Europe, sitting around about $1.25 billion raised to date, original goal of $1 billion to $1.5 billion. So we've already hit that goal, but we think there's a little more upside here. Products like real estate credit, data center credit, the goal has been to raise about $1 billion plus between the 2 of them in total. And we think we can exceed that goal this year.

And then when you focus on our bigger -- our large flagship funds, wrapping up net lease VI. We're sitting at about $5.8 billion today. We mentioned in our prepared remarks, we think we'll hit that hard cap of $7.5 billion by the end of this year. We're wrapping up GP stakes VI. We're at about $9 billion in the fund, $10 billion with co-invest. We're going to close out fundraising here this year. Launching BODI IV, we've talked about that as well, our next digital infrastructure fund. So setting up for our first close there in the back half of this year. And this is obviously just a subset of the products and strategies that I'm talking about.

And also, as a reminder, deploying our AUM not yet earning fees, that's $350 million of incremental annualized management fees. that we would expect over the next 12, 18, 24, probably 18, 24 months. So overall, we're continuing to see strong interest. We'll see how the rest of the year plays out. But we are cautiously optimistic with many of these products and strategies. And taking just a step back for a minute to close out, a number of these new products or strategies could be in 3 years or 4 years or 5 years, part of our series of big flagship funds for Blue Owl. So we're really focused on how do we start to generate more of these big flagships a number of years down the road, and we have a number out there that we think could absolutely fit that bill.

And just adding briefly on to that. The -- look, we have strategies that are built for all weather. They're built to be durable, predictable, generate current income and generate good downside protection and the corollary to an uncertain environment is that really serves a strong purpose in people's portfolios. And so I think we're seeing that appetite, particularly, again, visibly in the real assets arena, where we're really serving a very powerful need. And in fact, again, if we think about both for institutions and individuals alike, the idea of how do you participate in, I think it's now $700 billion of CapEx as planned by the hyperscalers. How do you do that in a fashion that is also about predictability and stability. Well, OTIC, right, our digital infrastructure product is exactly the way people can access that opportunity set to work with Microsoft and to work with Amazon. We just announced a couple of weeks ago another Amazon project, $12 billion project that we're doing.

So that's our fourth greater than $10 billion project just in the last about 18 months. And these are under long-term contract with some of the very best credits in the world. So it's really a great opportunity in time and institutions and individuals alike, I think, are both seeing that, and we've created pathways for them to participate. ORENT has been a tremendously successful product, continues to thrive. Our triple net lease business continues to turn in really strong returns. ORENT, in fact, we actually just raised the dividend on the yield on last -- I think, last quarter. So there's a lot of ways to participate across our now ever more diverse platform, and we're seeing the benefits of that, I think.

Your next question comes from Ken Worthington with JPMorgan.

What is the outlook for direct lending fee-paying AUM as we look out to the end of the year? Is it more likely to be higher, lower or flat from where we are today, given what you see as the deployment opportunities in your dialogue with investors?

It's a good question, Ken. Thank you for asking. I'll answer 2 questions. Fee-paying AUM growth, as you saw meaningful institutional dollars come through in 1Q, that typically will go into AUM not yet earning fees. And then as we deploy that capital over time, it shifts over to fee-paying AUM. And so I would expect as we continue to -- and we talk through a little bit about the successes we are seeing across our products and strategies, including credit, I would expect to continue to see fee-paying AUM grow as we continue to go through the year, in particular for credit, but across Blue Owl.

Okay. And then any comment on direct lending specifically?

I would have the same comment for direct lending. Sorry, I was more focused on direct lending. I was using the word credit. Everything I just said, I would echo for direct lending specifically.

Your next question comes from Benjamin Budish with Barclays.

Maybe another one for Alan. Just wondering if you can comment a little bit on how you're thinking about compensation, something investors tend to focus on a lot. I'm just curious if you have any thoughts you could share around the trajectory of stock-based comp, how you're thinking about cash versus equity compensation for employees and how we should think about that from a modeling perspective?

Sure. Of course. Ben, I appreciate the question. So we gave guidance on this last quarter. The numbers will move around a little bit in any given quarter, but we're in line with our guidance for the stock-based comp other line. That's $365 million was my guidance for last quarter. That's about upper teens growth. And keep in mind, when I mentioned last quarter as well, the business combination line also winds down to 0 by the end of this year.

So overall, the -- we saw an increase this quarter in stock-based comp, but our guidance continues to be in line and in line with what we're expecting for the rest of this year. On the acquisition related, you're going to see that bump around in any given quarter. And we use a combination, as we've talked about, of cash and stock for compensation at the end of the day, from an overall expense perspective, of course, we point back to the FRE margin guide of 58.5%. But specifically for stock-based comp, we're very in line with our guidance of the $365 million last quarter.

Your next question comes from Alex Blostein with Goldman Sachs.

Alan, I was hoping we could have on the balance sheet a pretty meaningful increase in the revolver sequentially. So I was hoping you can kind of walk us through the sources there. And more importantly, as you think about the dividend dynamic, obviously, not fully covered here. But as you think about the forward both on the dividend and how you guys are managing the debt level at the corporate level would be helpful.

Sure. Thanks, Alex. I appreciate the 2 questions. So let's hit both. So on the balance sheet, 1Q always steps up. And by 4Q, it comes back down. You can look back to last year, same path, the year before that, same path. We make our TRA payment. We pay bonuses in 1Q, and then you'll see that come down each quarter as we get the 4Q back to where we started the previous 4Q.

On the dividend, we're committed to paying the dividend of $0.92 for 2026. Our business is growing. You've heard a lot about that today, and we're excited about that. So we expect our payout ratio is coming down naturally. It's going to take a couple of steps as we talked about in the past, I touched on this last quarter, to bring that payout ratio back to, call it, the 85% general target that we have over the next, let's say, course of the next few years. But we are focused on the payout ratio. We're committed to the dividends. Our business is growing. So we feel good about all of those aspects.

That is all the time we have for questions. I will turn the call to Marc Lipschultz for closing remarks.

I had one last quick follow-up, which was there was a question on catch-up fees in the credit business. That was about $7 million for our BOSE products. Over to you, Marc.

Thanks, Alan. Thank you all very much for the time. We appreciate the opportunity to really have a detailed fact-driven conversation. We're always available. We're going to try to keep sharing as much as we can share and we carry forward. We're quite optimistic overall about the forward path for the business and look forward to sharing that information with you as we go forward. Thanks so much. Have a great day.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North American Head of Diversified Financials at the Bank of America. And it's my pleasure to introduce Doug Ostrover. Doug is the Co-Founder and Co-CEO of Blue Owl as well as Chairman of the firm's board. And prior to founding Blue Owl in 2016, Doug also cofounded GSO in 2005, which he eventually sold, has become Blackstone's $0.5 trillion private credit business. So it's actually the second time that Doug has done this. So Doug, thank you so much for joining us today.

It's great to be here. Is it $0.5 trillion now?

Yes.

I should have stayed there.

You're pretty close now at $300 billion or so. So Blue Owl is an alt manager that grew from zero to $300 billion AUM in less than 10 years. Its investment performance is good to great across the board. And it's business mix is mostly in secular growth businesses, including private credit, digital infrastructure and asset-backed finance. It's also a top 2 alt manager in the private wealth channel, which is the fastest-growing channel over the last five years. So Doug, with that, let's get started on the macro front. We've entered year for the bull market IPO and M&A are expected to accelerate. The Fed is cutting rates, credit spreads are tight and maybe banks are going more in the attack now. So how does the macro backdrop play out in 2026 for the industry and also Blue Owl specifically?

Well, first of all, thanks for having me. I appreciate it. Thanks, everybody, for spending a few minutes today and listening to the Blue Owl's story. From a macro standpoint -- look, I view -- what we view is, we're a little bit agnostic to where rates go. Obviously, when rates go up, it's a little bit better for us, they go down, it's a little bit worse. But if I were to look across the platform, private credit, M&A plays a big role. And we're expecting a nice uplift in M&A. I think I was here last year and said the same thing. And while M&A was fine, it just didn't materialize the way we had hoped. I think M&A is looking good. If you look at the M&A stocks, which many of you -- you know many of them, they are trading well. So the only thing that makes me nervous is that when that's the consensus, it's usually wrong. But I'm cautiously optimistic. I -- we see a good M&A market, which will lead to good deployment. I think you mentioned the banks are active, but they're active in the way, they've always been active. And I'm not saying that in a negative way, but their model is to underwrite and distribute. And the market is robust, spread are tight, but what we've been able to do over a long period of time, and we're still doing it today, is delivering anywhere from 200 to 300 basis points versus what you could get in the syndicated market. Today, it's on the low end. It's been higher, but I expect deployment to be good, and hopefully, inflows will remain strong. And then across the rest of the platform, just real quickly, our alternative credit business is -- deal flow is quite strong. And I think deployment there will be good. Digital infrastructure, our backlog is the biggest it's ever been. I'm sure we'll talk about that. And then on the real asset side, I'm -- we're seeing good capital formation and lots of investment opportunities. So I'm definitely more on the optimistic side of where things are. The economy seems good. I'm sure we'll get into credit, and what we're seeing. But across the board, things look pretty good for the strategies we're in.

So taking a step back, I wanted to talk about your strategic priorities for 2026. So you've had a very active period of M&A. You added multiple products in separate growth verticals, but what are your key strategic parties now for this year? And could we see another acquisition of Blue Owl again this year?

Let me start with the last question. I -- we did make some acquisitions, which I'll touch on. I don't see us doing a strategic acquisition this year. We're not working on anything. I don't want to say it's impossible, but it's improbable at this point. In terms of what we're trying to accomplish this year, and you and I have touched briefly on this. If I look at '24, we did make a bunch of acquisitions. We felt we needed some more diversification across the platform. '25 was a period of integration and now '26 is about execution. So execution, first and foremost, is we've heard from the stream, from our investors. We've got to improve margins, you're going to see margins continue to improve. Not, they're not going to jump from where, I can't remember exactly where we ended the year, 58%, 58% and a little to 60%, but you're going to see gradually quarter-over-quarter, year-over-year, margins going up. We're focused on FRE per share. We said -- I think Alan said for '26, growth will be modestly better than '25. And then we hope to see a real acceleration in '27. So that, obviously, we're very focused on. We had record fundraising last year, both in the wealth channel and on the institutional side. I think wealth could be a little bit more muted for the first 6 months, and then we hope to see it accelerate again in the second half of the year. And we're still very bullish on what we're going to do institutionally. In terms of away from financials, fundraising is key for us. We've got to finish up our GP stakes fund. We're going to finish up our real estate flagship fund. I think we ended the year at $4.5 billion. We have on the cover $7.5 billion. We want to hit that, maybe do a little bit better. We finished up our fundraise for asset-backed and will be in the market in the second half of the year with hopefully a big number on the cover for digital infrastructure. We also were able to take some of those acquisitions and very quickly get them in the wealth channel. Basically within a year of buying them, digital infrastructure, we raised just under $2 billion in the asset-backed side. We raised the largest interval fund or initial interval fund, and we're getting really good traction there. So I think -- as I think about strategic initiatives, it's really -- we've integrated things and now it's taking each of those businesses and really getting out there and execute with a real focus on margin and growing FRE.

So Doug, I wanted to talk about deployment. You hit on this briefly earlier, but when you're in a 3-, 4-year bull market, credit spreads tend to be pretty thin at that moment. At the same time, though, we are expecting a big pickup in M&A, which will provide new origination opportunities. But as you sit here today, what is the deployment outlook look like?

Well, what deployment for us is really closely tied in credit, it's very closely tied to the M&A cycle. And if there's M&A, I can tell you, not all firms, but mostly firms really like the idea of financing their buyouts day 1 with private debt. They like knowing who their creditors are. So the question I get all the time is why are people daring deals with you? You're more expensive than the public market. Your covenants are tighter. These are savvy people on the other side, why did they do it? And really -- just going to take a step back and think about what the true cost is, it's really de minimis. You're buying a new business. It's an auction. It's like buying a house in a hot housing market. You get somebody to do the inspection, you buy the house, you get in there and then you start opening walls, and you realize, it's quite -- it's really not as good as you thought. I would tell you in companies today, there's a lot of cash on the sidelines. When good assets come up for sale, it's a bit of a frenzy. And so by working with us, if God forbid, there is an issue, you know who your creditors are. You know if you need to go back, reach a quick deal, it might just be us, it might be us and a few others, but it's very manageable. So it's a very inexpensive insurance policy. Now why do I say it's inexpensive? And this is the negative to direct lending. We don't have a lot of call protection. Maybe we get 18 months or 2 years. So think about it if you're a PE firm. You go buy the business, you figure out what you want to do with it. When things look good, 18 months, usually, it's a 101 call, maybe 102. You've paid a little bit higher coupon. And then if you want, you can go to the syndicated market. So I bring this up because if we see like everybody is expecting an increase in M&A, you will see elevated deployment for us.

So let's flip it and talk about digital infrastructure. So you bought a business in this space, kind of at the perfect moment, right before this AI boom. So would it like that IPI? Why did -- and also why did they choose to partner with Blue Owl?

Well, you know I'm incredibly bullish on this space. And it had been something I was really focused on. So let me start with your question why they chose us. IPI had two owners. One of the owners wanted to sell. The remaining owner had the ability to direct where it went. And you can imagine the usual cast of characters, all my competitors wanted to buy it. But this one firm who controlled it, a firm called Iconic, said that we don't want to go to auction. We just want to work with Blue Owl. So we were able to buy it at a very attractive price. So why was I so excited? Truth be told, I have been chasing after IPI for years. And the reason I got to it was we are the market leader in triple net lease. Now until we got involved in it, triple net lease was really just a niche strategy. Now we have tens of billions of assets in it. And for those who don't follow it, simply, it's we go to an investment-grade company. We buy assets from them that we think are mission-critical, and they lease it back. It's triple net, insurance, taxes, maintenance is all borne by the tenant. So we just get a cash flow stream. And as I mentioned, market leader, we've generated in excess of 20% returns per annum in that business. Our clients, our tenants, for the most part, are BBB companies. Many are weak BBBs. So at one point, I think we own 10% of Walgreens stores. We've done deals with Cracker Barrel. We recently did a deal with, well, I don't know if I'm supposed to say, but a bunch of distribution and cold storage facilities for food distribution business. We're earning on average in those deals, about a 7.5% cap rate with a 3% escalator per annum over, let's say, 20 years. BBB 7.5%, 3% escalator. And then I started understanding what's going on in data centers, Microsoft, Meta, Google, Amazon, that you could get the same 7.5% cap rate, same triple net lease structure, same 3% escalator, but instead of financing a lot of BBB companies who are great businesses, now we're providing capital to some of the largest companies in the world, on average, AA rated. And so I knew it couldn't last. But I thought -- I think we can -- the projects are big. We can deploy a lot of capital. So we are getting from this type of tenant, oftentimes, we're starting out with an 8% cap rate. And it goes up by 25 basis points a year. 8 years from now, you could have a Google, Microsoft type piece of paper at a 10 coupon. Google did a deal yesterday a 40-year deal at 90 over. They're going to print today a 100-year deal. And yet I think I can get very comparable credit risk and maybe make a 20, maybe more. And just to give you -- just quickly, when I talk to people about this, they're like, "Oh, but the residual value of a data center, 20 years from now, it may not be worth anything." Well, I can show you if I started at 8, and I use leverage, if the data center 20 years from now is worth zero, thousands of acres of land, dozens of buildings, lots of equipment, it will not be worth zero, but if it's worth zero, as long as Meta, Microsoft, Google pay me, I make a 10 to 12. If I get back $0.30 on the dollar, I compounded almost a 17% return. So the bet I have to make is, will those firms be able to honor a lease over 20 years. The bond market would tell you it's 40 years, 90 over, it's a very low probability they're not going to pay us. And so I look at that, and it's one of the best risk-adjusted returns I've ever seen in my life. I'll stop talking about it now, but one final thing, when you have demand here and supply here, and they don't want to finance on balance sheet, they've made the decision to use other people's money to buy real estate and build buildings. And as long as that demand supply stays out of balance, we'll continue to generate these returns. But I think we all know, even in the high-yield market or in any market, that arbitrage will disappear over time. It will especially disappear when your average tenant is a AA credit. So I can't tell you right now, you probably saw this. Everybody came out and doubled their CapEx budget. It's now $650 billion. And for all of you, obviously, you're looking at the economy, I mean, we're working on projects right now. Our biggest deal is just under $30 billion for Meta. We're working on deals. I am not exaggerating. This is just for the shell and maybe some GPUs in there, $50 billion. I mean, in our lifetime, I never thought I'd be financing deals of that size, but I never thought I'd come across CapEx projects of that magnitude. So it's an exciting opportunity. I think it's going to go on longer than I originally thought, and we're really going to try to take advantage of that arbitrage.

So Doug, on that, I think one misconception is that you have a lot of private credit exposure to data centers, but it's actually coming out of the IPI -- former IPI business, your data center business through release. But what is your private credit exposure to data centers?

Well, today, we don't do anything in private credit to data centers. We -- in terms of lending, we have nothing. And there's a misconception. So remember, we're doing 20-year leases. So if I'm going to do a 20-year lease, I've got to make sure that I'm working with companies that can pay us back. And so let's just take a company like anthropic. It's an amazing business. They're going to go raise money at $400 billion. They're going to go public at a much bigger value. But would I sign a 20-year lease with anthropic today, and I know Dario Amodei, I spend -- I just traveled with him. I'm -- amazing company, but I couldn't sign a 20-year lease. It just doesn't make any money yet. Same thing with Open AI. I -- so -- one, there's the misconception that we're working with companies that are not the best companies in the world. In terms of lending, when the Meta deal, there was a $25 billion bond deal, amortizing. We took a piece really in our insurance business because it was rated single A or AA. And then PIMCO investment grade, we sold the rest to them. So in the credit side now, it's not an area we're lending into right now. We might look at it out of the real asset side, a dedicated fund, but it would be primarily IG paper.

So given your focus on the picks and shovels around AI and AI, what are your thoughts on if we are entering an AI bubble here, especially around public market securities. And does it really matter that you got because you have these bulletproof 15-year plus leases to an investment-grade company that is fairly safe.

Yes. Listen, I'm really not in a position to tell you whether we're in an AI bubble or not. But we do work with the biggest companies, the most sophisticated people when it comes to AI. And they think it's the equivalent of the industrial revolution, and it's going to be life changing. I will tell you that most of the people we talk to who touch at the closest, think that Wall Street in general and investors have a tendency to overestimate its impact in the short term and underestimate its impact longer term. So I -- as I said earlier, CapEx is going to continue to grow. They think it's so big, it's the equivalent of having like an incredible product, but not having manufacturing. We're those manufacturing facilities. We create the compute. But to answer the question you asked, we're not making an AI bet. What we are doing is making a bet that those firms over a 20-year lease, let's say, 15 to 20 years, are going to be able to honor their obligations. And I think just based on where comparable debt securities trade, the marketplace would tell you that is a very, very low risk of default. I don't know the exact probability, but I have to guess it's under 1% or 2%. And so if I can make a mid-teens base case with the potential to make in the 20s on taking the risk that those companies will continue to pay us, I think that's really compelling, and that's why you and I have talked about, I think it's one of the best risk-adjusted returns, we'll see in our lifetime.

So let's now change it up to ABF, asset-backed finance. So Blue Owl acquired Atalaya, I think I pronounced it right, in 2024, which added a best-in-class ABF capability. And how is this transaction tracked today, and what do you see as the long-term growth drivers of ABF? And kind of how do you think about that TAM longer term?

Well, I'm just a -- just to give you a little history of it, if I went back to when Silicon Valley Bank and a few other regional banks went under, about 6 months later we started getting calls from the teams -- asset-backed teams at banks that their lines of credit were being cut. And so the ability to generate historical profits had gone down. And they were looking for a home. And so we started doing a lot of work on it. And originally, we were going to build it organically. We touched a lot of the markets they were in and put together a game plan to do that, hire a few people, and then we get approached by Atalaya. Again, no auction, wasn't shopped, just senior people at our firm knew the senior team there. As you mentioned, Atalaya almost a 20-year track record best-in-class, but they woke up to the reality that their world is getting more competitive. Firms like Apollo, who are now generating -- competing not just on the below investment grade space, but in the IG space. And they realized that they needed a better distribution, access to capital, and so we very quickly cut a deal. It's off to a very good start. The TAM in that space, depending on who you're talking to on the low end, is, let's call it, $8 trillion to $10 trillion and high-end many multiples of that. The penetration unlike direct lending is negligible. And so it reminds me of where direct lending was maybe 15, 20 years ago. But the difference is, I was in the leverage finance department at DLJ and Credit Suisse. It was very natural for us to say, "Oh, we understand credit. Let's go build this." But in the ABF space, if you go buy, you have to buy 20,000 loans from SoFi. You've got to have the systems to understand it, to track it. If someone doesn't pay, how do you collect? What you do? And so -- and they have this history and the performance has been exceptional. They joined a little over a year ago. We got it fully integrated. As I mentioned, we launched a wealth product. We finished the institutional product. I believe they were a little over $10 billion and raised $4 billion of capital for them last year. And we're in the market without interval fund. And I think it's a nice complement to what we do in direct lending. As I said, less competition, returns are more compelling. Just to give you an idea, our institutional fund, I think last year, generated a 19% gross return. So I'm really excited about it. I am -- yes, we'll see overtime, but I hope to make that into significant leg to the stool.

Great. So let's jump into your private credit business, where Blue Owl is a leader, your first business essentially. How would you sum credit quality trends to date?

So I'm glad you brought this up because certainly I've gotten this call from a lot of people because there's been so many negative articles about what's going on in credit. And so just to give you an idea, at Blue Owl, our average company probably does $320 million of EBITDA. So we lend to big companies. Our average loan to value on the typical industrial is right around 40%. And on a software company, it's right around 30%. As you -- I think you mentioned this earlier, our performance has been really strong over the 10-year period we've been operating. We've had 8 basis points of annualized losses. So not quite zero, but de minimis loss. I talk to a lot of CIOs, and it's very important for me to manage their expectations about what the returns are going to look like for the next year. It's the last thing I want them to do is be blindsided, especially with so much negative sentiment. The truth is, and I'm sure you've heard this from others, and you'll hear from them today, the portfolios are all doing really well. The industrial side, we're having right around 10% EBITDA growth in the fourth quarter versus year ago. Software is in excess of, well, let's call it, 15%. Our non-accruals are not going up. Will we have some bankruptcies here and there? We definitively will. I mean it's just part of the business. Some I think we'll get back par. Some will get a discount. But net-net, over a 10-year period, very small losses, and I can tell you with a very high degree of certainty, over the next 18 to 24 months that these portfolios will continue to perform exceptionally well. Now will returns come down a little bit? Definitely. SOFR is down down. Spreads are a little tighter, but in terms of bankruptcies, it's going to be de minimis. We expect recoveries to stay pretty consistent. And how do I know this? Well the press loves to talk about two companies I've never heard about until they wrote about it, First Brands and Tricolor, they're still writing about it. It's been like 7 months, but those were companies where there was fraud. So you had -- and by the way, they weren't private debt issuers. So I never seen it, but these were companies that traded at par and the next day, they dropped precipitously. As most of you know, in corporate credit, that's not how it works. We start to see some weakness. Company misses budget, maybe it's starting to bump up against covenants. Do we have to work with the PE firm. We have to put it on a watch list, eventually doesn't have to go to nonaccrual. So it's a long process. We're just not seeing that today. The names where we have problem have been our problem names for a long time. A number of them have been problems since COVID, just never recovered, relied on China, things never thought out there, just a variety of issues. But net-net, the funds, I believe, the next 18 to 24 months are going to put up really good numbers. And by the way, without naming the firms, I've gone down, and I've gone out and met with the CEOs of my biggest competitors just to see are they having a similar experience. And very candid conversation, and they're saying the exact same thing. So I think we're going to remain despite all the negative rhetoric in the press in a very benign environment.

How much time do we have left. I don't want to steal your time. Oh good, there we go. Okay. So real quickly. The one thing I do want to point out that I just find really curious, when I was doing a one-on-one or little group meeting ahead of this. So we're senior secured lenders. And on average, we're about, let's call it, 40% loans and value. That's 60% private equity underneath us. On my $0.40 that I'm putting in, or 40%, if I lose $1, I promise you, the PE firm is getting zero. And so if you're worried about direct lending at all, you've got to be really worried about PE. There are trillions and trillions of dollars at work, and yet nobody seems to be writing about it. Then if you go up the cap stack, just a tiny bit, there's a multitrillion dollar high-yield market. It's unsecured, has no covenants. They won't get zeros, but they'll get between $0.05 and $0.20 recoveries. So if you're worried about us at the top, those two are really vulnerable. The other thing that just people don't understand, and I'm not trying to debate bank CEOs, but I underwrote loans for a long, long time in a bank. And let's say, I'm working with a big PE firm, I don't know, KKR, and I'm a bank. My goal is to get that bank the lowest price possible on their debt and the weakest convenance because that's how I get the next deal. And so a deal gets announced on a Monday, and it's printing on Friday. You get to do maybe 72 hours of work. In the direct lending space, we're working on these deals for months. We're negotiating every word in that indenture. I can tell you public side, you need to get money to work. You don't even have time to read the indenture. Now I'm not saying it's a bad market. I'm just saying that really peel the onion back. This is a safer way, you get higher returns to play, you give up liquidity, but is definitively a safer way than the syndicated market. But my point is this, there are trillions and trillions, it probably aggregates the $8 trillion that I think is vulnerable if you're worried about direct lending, yet you hear about cockroaches and shadow banking, but the rest of that cap stack, nobody really takes about. So I -- going back to where I started before I went on my tirade here, I think it's going to be good performance for the next couple of years.

Great. So I mean, to date and even last year, your private credit funds did have good performance, yet we did see a pickup or redemption in the fourth quarter. Maybe comment what drove that? Was part of that seasonal? And I'm thinking the diversified U.S. fund, not OTIC. And then since performance is good, but flows got a little worse, when do you think flows get better?

So look, here's the problem of the structure in wealth. There's no penalty for leaving. So it's just human nature. If you're an adviser, and there are some advisers in the room, and you start seeing all these stories, and your clients called, and they're concerned, there's no cost to saying, "Hey, you know what, let's go out of the market, we'll go to cash for 30 days." To your point, we'll get to the end of the year. We'll see where things are in January, February. And so we weren't surprised by it, and I think you should assume just with all the volatility in the markets across the board, we'll see elevated redemptions again in the first quarter. But the returns have been good, and that's what matters the most. That's what attracts people to the asset class. Why they want to be in? So look, if I were to model it, I would assume first, maybe second quarter is a little bit weak and then we start to see it come back at historical levels. That's how we're thinking about it.

Got it. So at the early 2025 Investor Day, you provided us FRE growth guidance of 20% per year. Now a lot of us focus on FRE after tax per share. So I'm wondering because there's different moving pieces there, how do you think of that metric? Is that metric probably drives what you plan to grow the dividend at in the future?

I want to -- I'm not sure I fully understand the question, but let me give you my best guess. I am -- I think the way Alan addressed this on the earnings call. Given what we're expecting for wealth in the first and second quarter, I think we're expecting FRE per share to -- from a growth rate to be modestly higher, modestly higher growth than what we saw in '25. And then as things normalize, we're expecting things to accelerate. I think Alan also mentioned, probably about 2% issuance in shares. And we've got some questions on tax. I don't want to give the wrong number, but tax rate just being -- just a few percentage points higher.

Got it. Maybe let's just -- you know what, actually, let's take a moment because we're running out of time and just see if there's any questions from the audience. So please raise your hand, we will get you a microphone if there's a question. I got one more up here. All right, so let me ask the private wealth question. You're #2 in the world at this, and you did this very early too. What inning do you think we are in, in the migration to -- for alts in the private wealth channel, and private credit has been the best spot for the last few years. Do you think we're undergoing a transition to private equity, which did outperform private credit last year or even infrastructure, which is less sensitive to Fed funds?

Well, in terms of where we are in innings, hard to say but early, second or third inning. And when we launched the wealth business 10 years ago, I had left Blackstone, and I was trying to figure out, okay, we're a new firm. What can we do better than the big firms. And if you remember, 10 years ago; one, nobody was focused on wealth; and two, when they were focused, they had what was known as an adviser, sub-adviser relations, where all these big alternative managers didn't want to distribute it, so they were the sub-adviser. And there were firms like Franklin Square and SION and CNL and none of those relationships really worked. And I thought day 1 by bringing it in-house, I could give investors a better experience. And by better experience, what I said was in all of our institutional funds, all of our wealth funds, we're going to invest in the same product. We're going to give the wealth investor the identical experience as the institutional investor. And that really allowed us to scale, and we've delivered. We've delivered good results. And so everybody is always asking, "Hey, why are you able to get your products, you're not as big as these other firms into these platforms." We built a very large team. We've shown we can raise a lot of money and most importantly, we've executed in terms of performance. In terms of where the market is going, I think at the end of the day, I think PE is having its moment in the sun and raising good amount of money. But I think strategies that offer low volatility and high current income are going to be the things that resonate the most. That's why private credit has done so well. I'm not sure many of you are aware of this, but we were the #1 fundraiser last year in real estate. And we generated, Alan's here, I want to say an 11% net return for investors, tax-advantaged. And while I really like credit, and I think it will continue to grow for many investors, it's a little bit tax inefficient. So finding something that can generate a double-digit return that's tax efficient, that's really exciting for wealth. And I think, as I think about the products that are going to resonate, tax will play a role and high current income will be the other piece.

Great. With that, we are out of time. So Doug, on behalf of all of us at Bank of America, thank you very much for joining us.

Thank you, everybody. Appreciate it.

Good morning, and welcome to Blue Owl Capital's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I'd like to advise all participants that this conference call is being recorded. I will now turn the call over to Anne Dai, Head of Investor Relations for Blue Owl.

Thanks, operator, and good morning to everyone. Joining me today are Mark Lipschultz, our Co-Chief Executive Officer; and Alan Kirshenbaum, our Chief Financial Officer. I'd like to remind our listeners that remarks made during the call may contain forward-looking statements which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control.

Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Shareholders section of our website at blueowl.com.

Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund. This morning, we issued our financial results for the fourth quarter of 2025, reporting fee-related earnings, or FRE of $0.27 per share and distributable earnings or DE of $0.24 per share. For the full year 2025, we reported FRE of $0.96 per share and DE of $0.84 per share.

We declared a dividend of $0.225 per share for the fourth quarter payable on March 2 to holders of record as of February 20, and we also announced an annual fixed dividend of $0.92 for 2026, or $0.23 per quarter, starting with our first quarter 2026 earnings. During the call today, we'll be referring to the earnings presentation, which we posted to our website this morning.

So please have that on hand to follow along. With that, I'd like to turn the call over to Mark.

Great. Thank you so much, Ann. Blue Owl experienced significant growth in 2025, measured by record fundraising across an increasingly diversified set of strategies globally. We raised $56 billion of capital across the business, including over $17 billion during the fourth quarter, with record years for both our institutional and private wealth channels. .

During the fourth quarter, we crossed $300 billion of AUM, another milestone for the firm, and we are seeing robust investor demand and investment pipelines across the business as we enter 2026. Our ability to drive strong results for shareholders starts with investment performance, and we continue to deliver for our clients. Investment performance matters greatly to us as it relates to long-term growth for Blue Owl and if we deliver great results, business growth will follow.

Performance of the funds we manage remain strong, supported by our focus on generating attractive returns to income, leveraging our scale to create opportunities that offer attractive return per unit of risk and protecting the downside through investment structure and rigorous underwriting. Our net lease strategy generated gross returns of over 13% in 2025. And our ORENT product net return was approximately 11%, meaningfully outperforming the FTSE REIT index total return of 2.3% due to our differentiated investment strategy and fundraising for ORENT has accelerated, with inflows up 11% quarter-over-quarter and 55% year-over-year, making ORENT the top net fundraiser in nontraded REITs in 2025.

On a fully realized basis, our net lease flagship funds have generated a net IRR of 24% since inception. During the fourth quarter, we sold the final assets of our Digital Infrastructure Fund I for a realized net IRR of approximately 11.5%. Direct lending net returns were 8.7% for the year compared to the leverage loan index return of 5.9%, and our continuously offered BDCs had continued strong performance with net returns of 7.4% for OCIC and 8.4% for OTIC. And our GP Stakes funds continued to generate very strong IRRs with a significant amount driven by cash yield.

In credit, the fourth quarter was marked by a high level of debate and discussion about the health of the private credit markets. The fact of the matter is the trends we observed within Blue Owl's credit portfolios remain strong and did not align with the headlines or investor fears. The sentiment seems to be echoed broadly by other asset managers and banks alike across broader credit markets.

As of the fourth quarter, we continue to see resilient KPIs across our direct lending strategy, with healthy underlying portfolio company growth and no meaningful movement in our metrics such as [indiscernible], LTVs, amendment requests or revolver draws. On average, our borrowers have delivered high single-digit revenue growth and low teens EBITDA growth year-over-year. Specifically, our tech lending portfolio, this growth has been even higher in the low to mid-teens range on average.

Notably, since the launch of ChatGPT in November 2022, which is widely regarded as a turning point in AI, borrowers in our tech portfolio have achieved cumulative weighted average revenue growth of nearly 40% and and cumulative weighted average EBITDA growth of nearly 50% through September. Our average annualized net realized loss rate has been 8 basis points, encompassing realized losses and gains. This remains well below industry average.

Remember, this is not a zero loss strategy. We have hundreds of borrowers, and we will have losses in the portfolio. No one can loan money without having losses. The expectation of our investors is that we will rigorously underwrite our deals to minimize defaults and maximize recoveries over time, which will drive attractive total returns as we have done very well. In alternative credit, our portfolio similarly continued performance expected, putting up gross returns of 16.6% for the year with no meaningful signs of stress.

From a fundraising perspective, industry-wide nontraded BDCs experienced a slowdown in capital raising and elevated redemptions during the fourth quarter. This is in line with what we have seen in prior market environments with heightened volatility and fear. We saw this during COVID with the Silicon Valley Bank failure and after tariffs were announced last year. We've always managed our funds with a sharp focus on leverage and liquidity. And during the fourth quarter, we met all investor requests for tenders as we have every quarter since inception.

Our view is the most sentiment for a particular product strategy or asset class will fluctuate strong risk-adjusted performance is the only thing that matters over the intermediate and long term. And our products have performed very well in this regard across a wide range of economic and market environments. Despite the headwinds, we had a record quarter for equity raised in private wealth, with about $5 billion raised during the fourth quarter and over $17 billion for the full year, we are now beginning to see the synergies of the acquisitions we made over the past 18 months.

During the fourth quarter, we held a $1.7 billion first close on our digital infrastructure evergreen product, [ ODIT ], which followed an $850 million close earlier in the year on our alternative credit interval fund, OWLCX, which has already reached $1.8 billion of AUM in just 3 orders. In 2025, equity capital raised across our 5 well dedicated Evergreen products totaled $15.4 billion for the year, which represents 66% of the beginning of the period fee-paying AUM in these products despite substantial market shocks earlier in the year and near-term headwinds in the nontraded BDCs.

All this is to say, we have expanded and diversified our private wealth footprint substantially, and we continue to feel that we are just scratching the service of this market. Moving to our institutional business, we likewise benefited from ongoing diversification and the investments we have made in mobile distribution. We saw record institutional equity fund raise of $25 billion in 2025, up 80% year-over-year and constituting about 60% of total equity raised in 2025.

This includes about $5 billion raised for direct lending across funds and SMAs and over $6.5 billion raised for our net lease strategy across our global European and co-invest vehicles. Since 2020, the average time to market for our real estate fund has nearly doubled to more than 2 years, with roughly half of those funds also fall in sort of their fundraising targets, highlighting the broader challenges in this asset class. Blue Owl's net lease strategy bucked these trends with our prior flagship fund net lease Fund VI, holding a final close of the fourth quarter of 2024, above its hard cap having been in market for just 16 months.

The momentum has continued into our current vintage, which remains in market and has raised 60% of its hard cap in just 3 quarters. And now we have very complementary capabilities in digital infrastructure, which is similarly focused on generating attractive income-driven returns through a net lease structure, working with tenants that have some of the best credit ratings in the world. We think we have a very unique offering for investors in digital infrastructure, a pure play that will benefit from the demand for hyperscalers for data centers while remaining focused on principal preservation.

And finally, to call out some of the contributors to our fundraising that have been less observable, we have now reached our $2.5 billion target for the latest vintage of our opportunistic alternative credit product with $1 billion of that raised in 2025. In total, we raised nearly $4 billion across alternative credit in 2025 after having closed on the acquisition in September 2024. Our GP-led continuation strategy is approaching the final close of its first vintage, for which it will have raised approximately $2.5 billion.

We think this is an excellent result for our first time raise in a new strategy, has exceeded our recent expectations on fundraising, and we've deployed a meaningful amount of the capital already. And in GP Stakes, as we previously disclosed, the strip sales we completed in 2025 drove $2.6 billion of capital raised on top of fundraising for our minority stakes fund.

Looking at the big picture on fundraising, we took substantial steps forward by strengthening our global distribution platform, launching new products and expanding or launching new partnerships throughout the course of 2025. And during the year, we knew this would be an investment and execution year, laying the tracks for future earnings growth. You can see the early successes of that long-term plan and the results that we reported this morning.

Despite the significant investments we've made, we were able to end the year with FRE margins slightly above our guidance for 2025 and heading into 2026, we believe we can achieve modest operating leverage and continue to make progress on FRE per share growth. Bringing you to back to where I started, we continue to deliver for our clients. We strongly believe that high-quality performance drives business growth over time and that the continued diversification of the business will support well-balanced growth. We're very proud of the work that we've done over the past 2 years to position Blue Owl for long-term success across a variety of market environments, and we look forward to sharing more updates in the quarters to come.

With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter and for the full year. We had another very strong quarter of fundraising in 4Q, raising $12 billion of equity. You can see the breakdowns on Slide 14 of our earnings presentation. .

As you can see from our results, we ended the year with FRE margins of 58.3%, slightly above our guidance for 2025 and showing disciplined expense management, and we believe we can see modest margin expansion for 2026, targeting approximately 58.5% FRE margin. We also ended 2025 with FRE per share growth of 12%. As we focus on 2026, we believe we can show a modest increase in the growth rate for FRE per share, and we feel we can accelerate that growth in 2027 versus 2026.

Now a quick run-through of some other metrics for 2025. We grew FRE 19% and DE 16%. Total capital raised was $56 billion, which represents an increase of 18% year-over-year and equity fundraising was $42 billion, which represents an increase of more than 50% year-over-year.

AUM not yet paying fees grew to $28.4 billion representing over $325 million of expected annual management fees once deployed. This is equivalent to approximately 13% embedded growth off of 2025 management fees. And as Marc walked through in his remarks, the performance across our strategies continues to be very strong.

As you can see throughout our earnings presentation, including on Slides 4 and 22, we continue to deliver for our clients. Our products performed very well again in 2025. Turning to our platforms. In credit, weighted average LTVs remains in the high 30s across direct lending and in the low 30s specifically in our tech lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits.

As Marc mentioned earlier, credit quality remains very strong. In direct lending, growth in net origination in the fourth quarter were $12 billion and $3.3 billion, bringing last 12 months gross to net originations to $45.4 billion and $13.2 billion, respectively. Despite strong public loan market conditions, we continue to see a growing pipeline of discussions.

And importantly, we are seeing the benefits of incumbency as approximately 60% of our gross originations in 2025 resulted from existing borrower relationships. We also continue to see very large deals being done in the direct lending market with an average deal size of nearly $2 billion for Blue Owl in 2025, up 23% from the prior year and we continue to lead or co-lead many of them.

Turning to alternative credit. We have continued to deploy meaningfully across investment grade and noninvestment grade. In this strategy, we have been able to take advantage of market dislocations, given the flexibility with which we approach various asset classes. We can buy assets, finance assets or engage in structured capital transactions depending on where we see relative risk/reward.

In real assets, we remain focused on our core competency, owning mission-critical assets from investment-grade counterparties, whether those are logistics facilities, manufacturing plants, or data centers leased to some of the largest companies in the world with exceptional credit ratings. We have [ called ] close to 2/3 of the capital for net lease Fund VI and believe that we will have nearly fully deployed the fund within the next couple of quarters within 3 years of its final close.

We have also started committing capital out of the current vintage of net lease with a meaningful pipeline of over $60 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are similarly seeing a substantial pipeline and have called over 50% of the capital in Fund III, which just held its final close in April of 2025.

In GP Strategic Capital, performance across the funds remain strong. We have begun to see increasing levels of activity in partner manager funds across both deployment and monetization, including what we believe to be the largest transaction ever announced by a sponsor. The consolidation trend remains in place, with the percentage of capital raised by funds raising more than $5 billion continuing to increase over the past 5 years. This has been a central part of our investment thesis in our large cap strategy and our fund investors have been beneficiaries, with the AUM of our partner managers growing more than 30% faster than the broader market over the past 10 years.

Okay. A couple of notes I wanted to highlight before we wrap up. on our effective tax rate, we expect 2026 to be in the mid- to high single-digit percentage range, in line with our general expectation that our effective tax rate increases a few percent each year. As a reminder, we pay our tax receivable agreement during the first quarter each year, so expect a higher effective tax rate for the first quarter of 2026 and a much lower for the second through fourth quarters.

For reference, we disclosed an estimate of the next few years TRA payments in our quarterly SEC filings. On stock buybacks, the company buyback and senior executive purchases totaled approximately $70 million in the fourth quarter of 2025. When we see our stock deeply discounted, we intend to utilize our existing stock repurchase program. As it relates to share count, we currently expect 2% growth in 2026, with roughly 14 million shares to be issued related to the acquisition of our digital infrastructure strategy and the remainder being driven by normal course stock compensation.

As for stock compensation, we have 3 types of items running through our stock comp expense numbers, all on Slide 28 of the earnings presentation. The line to focus on our regular way year-end stock compensation expense is equity-based compensation, other, which we expect will be running at approximately $365 million for 2026.

As a reminder, the amortization of stock-based compensation from business combination grants will tail off by the end of 2026. And the line called acquisition-related is GAAP amortization expense related to some of the acquisitions we've made over the last few years. Finally, I'd like to pull the lens back for a moment. There's been a lot of noise about our sector over the past several months.

Across our portfolios, we have a very diversified set of investments that generate high income for our investors with downside protection. We have high FRE margins that we expect will continue to expand and are laser-focused on increasing the growth rate of our FRE per share each year. We have invested for expansion and diversification across the business with the results showing continued strong fundraising across our products and importantly, strong performance returns. Thank you very much for joining us this morning. Operator, can we please open the line for questions?

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Bank of America.

And despite the stock reaction, it's nice to see the strong fundraising and 62% FRE margin result in the quarter. My question is on software AI disruption, which has really emerged as a big theme recently. Can you help us size up your exposure across both debt and equity. And then as you take a step back and look across your hundreds of private investments, like what are you seeing in the pipeline in terms of credit quality? Because if you look at returns, revenue, EBITDA growth, interest coverage, general credit quality, like it doesn't look like there's any red flags yet. So are there any sections of the software book that concerns you?

Yes. Thank you very much. So let's level set and come to those specific answers. So a couple of observations to start with. Tech lending has worked, continues to work. And to get very direct right to your answer, no, we don't have red flags and point of fact, we don't have yellow flags. We actually have largely green flags. The tech portfolio continues to be the most pristine amongst all of our portfolios, amongst all of our subsectors.

I appreciate we're all looking forward. But remember, these are loans that are on average 30% of the value of the enterprise at time of acquisition or LTV with huge equity cushions. These are companies on average. Let's -- again, let's be fact-based, headline driven since -- let's use November '22, the advent of ChatGPT is some kind of moment of AI's arrival.

Since that time, the portfolio on average has grown revenue 40% and EBITDA 50%, [indiscernible] bring it much more current because we can all agree that November was doing [indiscernible], so maybe it didn't matter. But let's bring it to this quarter, the fourth quarter, the revenue growth was 10%, and the EBITDA growth in those software names was mid-teens. That's fourth quarter quarter-over-quarter.

The -- it is not a monolith, and it's, listen, this is the opportunity because, obviously, when this happens, of course, markets can deeply disrupted, that hopefully leads to spot opportunity. It certainly leads to dispersion in performance and we will outperform. If you look at all of our products, and we led with this in my early beginning of my comments here, we're there for a reason. The end of the day, stories don't drive results, results drive results.

As you can see, we have delivered on every one of our products that absolutely top-level performance in both total return and in terms of nonaccruals and in terms of losses. Thinking about what we've run at an 8 basis point net loss rate. And so these facts do matter. Remember, yesterday, everyone, I'm sure, is tuned in to both, on the one hand, the software performance. But on the other, I mean, the software stock performance. But then folks that actually understand this, let's say, I think we can all agree, Jensen Huang has a pretty good understanding of AI, say this idea that AI is the end of software is one of the most ridiculous things he heard.

And the reason that's ridiculous is because AI -- software itself is not a monolith. Software, which it's a system of record where you are integrated into the business processes of large companies. And business processes are a big part of how companies operate, software is as an enabler. And the best companies what we are seeing that are embedded in that position and have data modes and operating environments like health care and financial services with 0 tolerance for risk environments, regulatory limitations, what we're seeing is they're the ones that are the adopters of AI. They're the ones that are then turning around and saying, "Here, I can offer you an agentic solution to replace some of your human costs, some of your labor costs by integrating these capabilities into the software, I already have resident in your system and fully integrated into your daily behavior."

So we understand the generic -- there are certain parts of software that are vulnerable and they are. We've studied our portfolios very carefully. We do not see any meaningful exposure to those more susceptible areas. We see deep exposure where we have it to businesses that have the attributes I described where there are actually very significant business processes, data and kind of environmental regulatory constraints, and we see them adopting agentic solutions.

Now as to the specific numbers, remember, we have a variety of different vehicles. And to be clear, the tech-only vehicles actually have the best credit performance. So I want to be clear, we're not negative in any manner on software. However, we also run diversified funds. If you take, for example, our continuously offered BDC, our credit fund, actually amongst the peer group, we have the lowest software exposure.

So again, even we're not a monolith, there's different strategies and different ways to participate in those strategies. But the reality is we don't see any material indication, any change in the accruals or nonaccruals asks for amendments. At this point, things look very healthy, which certainly gives us a meaningful, certainly a very meaningful runway.

Last point I'll say is the PE firms, let's remember, remain active in this space. I want to make sure one understands that software remains an area where sophisticated buyers are still highly active because, again, if you have the right software solutions, you're going to benefit from the adoption of AI. And so again, this monolithic view and action people are taking is going to prove, I think quite misguided and it's going to lead to a miss and significant opportunities.

The book is strong. We don't see meaningful losses. We don't see deterioration in performance. And last point, the typical duration of a loan remaining in our books, let's say, a software loan is a few years. So when you have a business that is still growing double digits, and only a few years left and a 70% equity cushion, all we're talking about is do we get our money back.

We're not a software company. We're not here to tell you whether the model will be better or worse, whether growth is higher or lower. We're not a software company. We're -- we are an asset manager. We're not a bank. We're an asset manager. We get paid to manage assets and do it well. And that's what we're doing very successfully. If the software business evolves over time, well, that will be to the maybe a benefit or loss of the equity holders, but we're in a position, we think, to continue to get our capital back and earn a very strong return.

The only thing I'll add quickly here, Craig, is, as I think we would all agree in this type of market environment, it's important to round down to the facts, the data so our publicly traded BDC OTF, 11.4% inception-to-date return, 18% NAV growth since inception, in this case, a positive net gain of 16 basis points since inception. Non-accruals is 0.1%. 0.1% of the portfolio. Average weighted EBITDA is almost $300 million, 94% leading private equity sponsor backed. And with 185 positions, it's 0.5% on average for a position size.

The next question comes from Glenn Schorr with Evercore ISI.

So I appreciate the comments you made earlier on the past periods of anxiety and how you've met all requests for [ tenders ] each those times. So my question is a little bit on, should this time be different? Meaning, we all got to live through the BREIT experience. And I felt like it trained the wealth channel to understand what semi-liquid or not so liquid means.

But you and others have gotten some high redemption requests and have been making good on them, a bit of a confidence in your portfolio, good thing. The flip side is what are we undoing in terms of the teachings we've taught in the channel on how these products are supposed to act and what investors are going to expect going forward? So I know it's a like it's a big picture thing, but I feel like it's really important because you have lots of products in the channel that we kind of want to smooth volatility over time.

Sure. Look, our job is to deliver for our investors, our LPs and our shareholders. And to do that, what that means is considering the results of a tender and what fulfilling those investor requests would do for remaining shareholders. .

And of course, obviously, by action, we're seeing the preferences of the shareholders that are seeking redemptions. We've seen these periods of volatility, as you know, we've seen the pattern of behavior where there is these moments of kind of fear and they -- in the face of facts, the facts again, will bear out this time. They tend to fade because performance, in fact, is strong and remains strong.

With regard to fulfilling tender requests or not, you're starting with something like liquidity management and portfolio position is a meaningful consideration. Indeed, there is a structure that has been built with this semi-liquid nature. And to your point, we say investors have been trained. I mean they're aware for sure, as they should be, that there are limits, and that limit might be the 5%.

But at the same time, investor behavior and the presence of limiting people can also be very negative. Remember how long you can get into a world of negative outflows, negative redemption cycles when people feel trapped. And if they're, in fact, really not trapped, what behavior are you conditioning people to understand. Are they -- is it just, look, the hard cap is a mechanical hard cap? Or is the hard cap the proper limitation unless you have the added flexibility to accommodate. I put it in the latter category. We manage our businesses with very low leverage.

We manage with a lot of liquidity. I'd say this with no arrogance. We're very good in both the liability and asset side of the book. In this instance, when we had these large adoption requests, we have lots and lots of liquidity, still do, lots of liquidity. There really was no reason to not fulfill investors' request for their capital back. And we see that as actually meeting investor needs, being an investor-friendly and investor-focused firm which we think leads to much quicker recoveries in fund flows and reached a much better performance as to say, growth in funds flows over time.

Pay attention to your customer, your client meet their needs. If you can't do that in a manner that would leave the remaining investors remain in portfolio in an equally or even perhaps better place that, of course, the limit is there for a good reason. But if you have plenty of capital as we did in these vehicles, then we fulfill those requests, and that is client -- meeting client needs, client satisfaction, and that will lead to more wealth growth over time.

The next question comes from Brian McKenna with Citizens.

So I had a question on OWLCX. There's clearly a ton of great momentum here. But a few things stand out to me, 80% of these assets are fixed rate, while leverage stands at just 0.2x, yet the strategy generated net returns of nearly 3% in the fourth quarter. So I'm curious, is there an opportunity to expand leverage here, drive even stronger performance over time. And then given the fixed nature of these assets, the fixed rate nature of these assets versus floating rate at the BDC. Are you seeing any incremental demand or an acceleration in flows into alternative credit more broadly?

Yes. Thank you, Brian. I appreciate the question. We think there's a very big opportunity in alternative credit. We think there's a big opportunity with the interval fund. We're actually really excited. We are in a very short time frame already over $100 million a month in flows with the interval funds. So we've made really great progress in a short amount of time.

When you think about overall opportunity in the wealth sector, first, let's talk about what does it take to be successful in the private wealth channels. We have large because you have to build the foundation and then using that foundation, how do you go out and expand and continue to grow even in environments like this. So -- we have a large, high-quality mostly, most importantly, well-performing products. How do you scale with wealth with well-performing products. That's the key to scaling these products.

Last year, we added 2 new wealth products, as we all know, ODIT, which is our digital infrastructure, wealth dedicated product than the interval fund, which you just asked about. So we now have 3 key categories: private real estate, private credit and private infrastructure. And so each one of our wealth products we offer is scale. We've been able to scale these very quickly, in particular, as I mentioned, the interval fund and ODIT. So all of our products are now of scale, and we're still in the early days. We know adoption rates are low.

And so there's no doubt that sentiment and demand will move around based on market conditions. Our expectation, though, is real assets and asset-based finance are of more interest today, and we're in a great position to take advantage of this. But now from a tactical execution perspective, and we're only able to do these things because we built that foundation. But what we're able to do now is to continue to look at new local feeder. So what did we do in 2025? We added a Japan feeder. We added an Australia feeder. So we're very focused on continuing to be able to do this into 2026. We are onboarding new distribution partners, either it's RIA platforms, wirehouses, private banks, independent broker dealers to continue to expand our distribution partners for each of our wealth dedicated products and expanding the amount of FAs that sell our products with existing distribution partners.

Now because we have large well-performing evergreen funds, as I just mentioned, we're now being placed in many model portfolios. And we expect to be in the forefront of adoption in this regard. And I guess, lastly, as the rulemaking around 401(k)s evolves, we have our partnership with Voya. We're launching our CIT shortly. Our target date funds will be out later this year. Just 2026 will still be more of a building year than a flows year, but there's a lot of momentum around this build. So we think there's a lot of runway here overall.

The next question comes from Bill Katz of TD Cowen.

It's a little bit of a 2-parter, so I apologize or violating the 1 question rule, but I think these are 2 things that [indiscernible] on the stock. First, can you help maybe unpack the disconnection that seems to be happening between the prolific CapEx cycle on the hyperscalers against the opportunity set that you speak to on the digital side? And maybe walk us through how you think about credit risk? And then the second thing that's been coming up quite a bit is can you reshape or just go through where you sit today versus your Investor Day goals and how you get to those goals given some of your '25 and now 2026 sort of implied guides?

So on the CapEx cycle, most clearly encapsulated yesterday in Google raising their CapEx guidance to $175 billion to $185 billion, up from $93 billion. This is something we've been talking about and is an enormous opportunity. As you know, we are in the premier position and premier provider of capital solutions to the hyperscalers that capital cycle is only accelerated.

Again, we're sometimes fact and fiction or too much noise, whether there is or isn't an AI bubble in valuations is secondary to the question of whether people with some of the largest market caps and best credit ratings in the world a, think otherwise and b, are willing to commit to 15- and 20-year leases, which they are with us, which is allowing us to deliver outstanding results for our investors in digital infrastructure and in triple net lease.

Remember, our ORENT product, as an example, delivered an 11% return this past year. We just raised the yield on our ORENT product to 7%. 7% exceeds the performance in and of itself of almost every other real estate product out there. So again, all the headlines and noise aside, facts matter. And we're delivering those results. We see that continued super cycle as a enormous opportunity. We know how to structure those leases so that are ironclad. We have a unique skill to actually build, develop, operate as people want it. We've done it with every one of big hyperscalers in terms of being their partner and proven we can be a really great partner, captured it perfectly in the Meta transaction.

So this is going to continue to be an area of great opportunity for LPs, investors by extension for us. You saw the great success we had in raising our latest Digital Infrastructure Fund III, which we already are heavily invested. So we'll be back this year with Digital Infrastructure Fund IV. You saw our real estate fund, which was closed in fourth quarter 2024. We're already back, as you know, and well down the path toward our target on our next real estate fund.

So we have big successful flagships that are both raising faster, deploying faster and very importantly, most important delivering spectacular results for our investors. And that makes us a pretty special animal and last note in the wealth channel. ORENT has become the market leader by every measure. We have raised over the last 2 years, $5.5 billion with almost no redemptions. This has become a gigantic and market-leading product because it's different. It's better. Back to this question, these are not monolithic answers. Our job is to deliver exceptional results. That's what we've done, and we think we're positioned to do that across the board on our products.

So Bill, on your second question, as it stands now, we're behind our Investor Day goals. Now remember, we're just 1 year into a 5-year long-term target. But we've seen in the last few months, we've had headwinds in private credit, AI, software. We've seen a slowdown for nontraded BDCs and private wealth flows. We've seen an increase in the tenders for nontraded BDCs.

So what you heard in my prepared remarks is we believe we can show a modest increase in the growth rate of FRE per share in '26 versus '25. And we feel we can accelerate that growth in '27 versus '26. We also brought our FRE margins above our initial guide of 57 to 58, and we have another guide out there with another modest increase in 2026 versus 2025.

The next question comes from Crispin Love with Piper Sandler.

On software exposure and the metrics, can you just let us know what needs to happen for you to take losses in your software portfolio and then impacts the net returns to your end investors, just from a standpoint of LTVs, how much is first lien senior secured remaining maturities there, private equity value structure that would need to happen ahead of you.

And then if there are company failing how you think about recoveries? I'm just trying to differentiate between equity and debt here and then what could happen in a draconian scenario because that's what it seems that markets are pricing in today? And then just what is software exposure as a percent of total AUM? .

So it's a really important question you're asking. And again, let me just be really factual for a moment. The stock -- equity versus debt is kind of an important starting point, all of this is getting conflated. Over the last 3 years, the software index is up 23%. We all read it about and know what happened last year. It's down 20% now in the last year, but it's up 23% over the last 3 years.

So if you think about that as some indicator of the vintage, a lot of big software deals PE firms did, employing a fact, software equities, equities are up. We are a first lien lender in almost every instance when we talk about software. We are, on average, around 30% loan to value. So what's happened objectively in the marketplace is since the vintage of those transactions, equity values on average are up 23%, but pick whatever number you want. We started at 30%. So now let's answer your question.

In order for us to have material losses, I can't describe for you anything based in fact, anything based on any measure of default rates recoveries that would lead to a material degradation in performance of the funds. There's not a mathematical -- of course, I can do it in math. But there's no relation to any practical statistic that would lead to anything other than sure, you could have a lower return for a year, you kind of a lower return for a couple of years. But you have to destroy 70% of the value of every one of these software companies when the markets actually judge the net up.

And again, it's not a model then. We do a lot of software very consciously, they're not simple application layer. We're doing things that are business process oriented, have data moats and work in low risk -- low error tolerance environments. And that's why, in fact, in the fourth quarter, currently, the companies are actually performing mid-teens growth still. So I can't really answer it in the mathematical way because the numbers would be so silly to try to create anything more than -- of course, there will be losses. I want to be clear.

We're in the lending business. We have 400 companies. And of course, there's losses. Every quarter, we're going to have companies that go and get in trouble and companies that get out of trouble. And even trouble doesn't mean we've lost anything. It means they might be struggling. We may have to own them. But that's already built into the calculation. And that's what -- with all that said, we've been running at 8 basis points net. So the real answer, you are correct, is there's an awful lot of noise about what is the equity of a software company worth. Again, we're not a software company. So I'm not here to really answer that question.

But I can tell you that when you have a portfolio of loans to software companies that are, on average, growing significantly generating a lot of cash, have a 3-year tenor on average or so left and are currently in very healthy positions to get from that to all the value's been destroyed and you have a credit loss is a journey that just doesn't make sense. And that's the way this broad paint brush is being used today. They are big companies that are deeply embedded. Our software companies have hundreds of millions of dollars of average EBITDA that are deeply embedded in Fortune 500 work processes.

And for those who have got to pause and think, there's not just a matter of technology, there's the adoption of behavior. And for those on the call that are thinking Fortune 500 companies are going to take all their software and just rip it out and just say, I'll just ask ChatGPT. That's simply not the way it works, don't take my word for it again. We're not technologists, take Jensen Huang's words for it.

I can answer one part of that mathematically, which is the total exposure of software loans across our AUM is 8%.

The next question comes from Benjamin Budish with Barclays Capital.

Alan, I was wondering if you could talk a little bit more about the FRE margin outlook for the year. I know in Q4, actually, if you could unpack that a little bit as well, it looks like your FRE comp expense line steps down quite significantly. So I'm curious if there's anything going on there to call out? And then just as you think through next year, what are the key pieces of the operating leverage? Is it more cost controls?

And I'm curious how you see -- or how you would sensitize that to the potential paths for especially the nontraded BDCs where we've seen a couple of months of slower flows, elevated redemptions, it's not quite clear how things are going to shake out. So I know there's a couple of things in there, but just curious to get your thoughts.

Sure. Ben, I appreciate the question. So in 2025, we brought down expenses. We see the full year that comes together in 4Q when we make our year-end compensation decisions. And we're very focused as a management team on showing progress on the FRE margin. Again, we guided 57% to 58%. We wanted to make sure we came in a little above that. We came in at 58.3%. And as we think about 2026, you're, of course, right, there is uncertainty today.

Good news, we have seen a general stability in the daily flows of our wealth products. So that's all the data we have through the first, I don't know, months -- a little more than a month, but it's encouraging that we've seen a general stabilization there. And the answer for 2026 is simple, we need to have revenue growth outpace expense growth. So we have some levers on the revenue side, and we have some levers on the expense side. And we will use those levers accordingly to guide to that 58.5% FRE margin increase from 2025.

The next question comes from Patrick Davitt with Autonomous Research.

Obviously, a lot of direct lending noise kind of a [indiscernible] where that's going at this point. But it seems like the ABF business did quite well. So can you give us a little bit more color on what percentage of your total credit AUM is now not direct lending? And then maybe help frame what you're thinking about or modeling for growth in that side of the business this year. And then specifically, I think you said LCX is at $1.8 billion. So does that mean it has taken in $550 million in 1Q? Or is there something else in the bridge from $1.25 billion in the deck?

Thanks, Patrick. There's a little debt on that. So I think we've raised about $1.3 billion in inflows with a little debt that takes us to about $1.8 billion. We're about 30% of our credit business away from direct lending. So we've diversified quite a bit from just a year or 1.5 years ago, let's say. Alternative credit, I have some interesting stats that I think are worth running through. Alternative credit is definitely a large growth area for us. We've talked about both alternative credit and digital infrastructure. We view those as having at least the same opportunity in terms of future growth.

And when I say future growth, I'm talking 3- to 5-year growth as what we saw with our [ Upstart ] acquisition. So a couple of very quick data points. Let's look, we're now 1 year in on our 2 acquisitions for Atalaya and for IPI. Let's flash back very quickly to our net lease business, which, as of today, has grown almost 4x revenue growth and almost 4x AUM. And so that's extraordinary growth. I know everyone has seen that. We've talked about that. So 1 year into our net lease business, we acquired Oak Street we were at $15.5 billion of AUM. The following year, we raised $3.5 billion. So that's a low 20s percent growth rate.

That's 1 year in. And remember, the first year is usually the hardest. You have integration. You have streamlining everything. You have a lot of work to do. Now let's flash forward digital infrastructure. We are now 1 year in. So what's the head-to-head comparison. We closed at $14 billion. We raised about $3 billion in 2025 in our Digital Infrastructure Business. That is also the same low 20s percent growth rate. So we have already accomplished at least what we've done in digital infrastructure is what we did in net lease 1 year in.

Now let's look at alternative credit. I'm glad you asked specifically about that. Alternative credit, we closed a little more than a year ago. We closed at $10.5 billion. We've raised nearly $4 billion since then. So that's a high 30s percent growth off of where we closed our Atalaya acquisition. So we're really proud of what we accomplished here. We see a lot of growth ahead, in particular for alternative credit and digital infrastructure. We have, obviously, Mark mentioned Fund IV in the back half of this year coming out. We have both wealth products for digital infrastructure and alternative credit wrapping up ASOF IX coming out with more fundraise and alternative credit in 2026.

And what we're really excited about is now flash forward 1 or 2 or 3 more years, what does that arc of trajectory? And how does that compare to our Oak Street acquisition. And we still feel as much as ever, the conviction that these acquisitions will be the same or more than what we were able to do with the Oak Street acquisition.

And I'll add 1 point, and then we'll move on. We're also building organic products. Not to be lost in all of this. We mentioned this -- I mentioned this in my comments, our [indiscernible] product all strategic equity GP-led secondaries, which we stood up at a time when people said, I don't even understand what this business is, which now, as you are well aware, probably, has grown to become a huge share of the overall secondary market, both LP and GP and a meaningful contributor to the liquidity environment for PE. That's now a $2.5 billion profit that we started from scratch.

And that's a product that we see enormous potential for over time. We think that's a way, for example, both the institutions and individual investors truly participate in the very best of private equity from the very best firms in this multitrillion dollar industry. So there's another example of just the growth legs that lie outside of direct lending. We still think direct lending. It's going to prove to be an outstanding business. Facts matter. The results are, and we expect continue to be very, very strong.

But yes, we're delighted with the performance of asset-backed and we're delighted with the growth in those businesses. We're delighted with digital infrastructure and with our real estate businesses that are growing dramatically, and we're continuing to turn in great performance in our GP Stakes business. And that -- those are all things that count that will drive that future growth.

The next question comes from Wilma Burdis with Raymond James.

Could you build a little bit on your earlier comments on fundraising momentum so far in 1Q '26? And just give us a little bit more color on what you're seeing in both the retail and institutional side.

Sure. Thank you, Wilma. So we included a slide in our earnings presentation where we show kind of the step functions that we've been talking about throughout 2025. And we're really proud of what we've been able to accomplish. You can see meaningful increases here on Slide 6 for each of the last 2 years. We raised $42 billion in 2025 and a lot of momentum on the institutional side, record year for institutional and a record year for wealth. .

As we think about 2026, and I commented on the daily flows, so that's as much data as we have right now in the wealth kind of how do we think about 2026. So we're encouraged by a general stabilization there in the daily flows. Overall, if I were to pull the lens back here, we have wrapping up Net Lease VII, wrapping up GP VI Back half of this year, Digital Infrastructure IV. As we've talked about, we have our 2 newly launched wealth products plus our 3 original wealth products, if you will, [ OCIC ] and ORENT. So when you put all of that together, we can certainly see another year where we put up a similar level in '25 as we did in '26.

The next question comes from Mike Brown of UBS.

So I appreciate all the color on the software side this morning. I guess I'll ask a different question. I wanted to ask on the capital allocation side. So you declared a dividend of $0.92 for 2026, so a modest bump year-over-year. How are you thinking about the dividend growth from here, along with the payout ratios and maybe just overall capital flexibility going forward?

Thanks, Mike. I appreciate the question. A lot of the same. So modest dividend growth. We're bringing our payout ratio down we are at 107%, 108% payout ratio for '25. We're bringing that down. It's going to take a couple of steps as we've talked about in the past to bring that payout ratio back to. And this isn't hardwired, but a general ballpark of 85%. We wanted to show some level of modest growth. And we'll -- we expect to continue to do that as we bring that payout ratio back down to that 85% level. Yes, of course. And as I said, over the course of the next few years. .

The next question comes from Brennan Hawken of BMO.

You spoke to the flexibility and ability to provide liquidity by raising the threshold for OTIC, which was, I would agree, was certainly encouraging. That product was sort of heavily distributed throughout Asia. What I'm curious about is, I know you've got distribution across the world. What does the wealth management AUM look like by geography? Like what portion is U.S. versus Asia versus Europe?

So the bulk of our assets and our products is U.S. based to the wealth products. So just to cut to the chase, OTIC is really, in our world, the exception, not the rule and there's history that we don't need to get into it at a time to get into now. But the time of that launch led to less wide distribution, which is done to concentration in Asia, we actually really don't have meaningful exposure in Asia in any of the other products.

Really, they are very domestic and the behavior patterns are very different between those products.

Very little.

So very little outside the U.S. and our other products. So OTIC is kind of an exception corner case of its own, I wouldn't read much into OTIC across to other products of ours.

Okay. Well, I appreciate that. Is it possible to get a number maybe ex OTIC, where that stands because very little is sort of subjective?

We'll try to get back to the number. It's a very, very small part. I appreciate that is subjective. We'll get back to you with a number.

The next question comes from Kenneth Worthington with JPMorgan.

This is Alex Bernstein on for Ken. Congrats on the strong metrics that we're seeing in triple net lease in particular, really showing differentiation. Touching upon direct lending and originations in particular. We saw that both gross and net moved up this quarter for the second quarter in a row similarly, the gross to net conversion ratio improved a little bit.

I'm getting in the high 20s percentages. As we zoom out and look at a full year over full year comparison, still seeing the gross net and conversion are all still lower. I wanted to think through those metrics, how they're evolving relative to historic levels, I think, especially on the gross net, which I understand historically is a bit higher competition with the banks, how that looks. And then maybe how you're thinking about deployment potentially being impacted or not by some of the sentiment in the market, especially if we're seeing slower subscription at least on that basis growth for the BDCs.

Sure. The gross to net, you observed the patterns, I won't repeat all of the facts. We continue to see a very strong pipeline of activity. We are certainly participating in what we think are a lot of great new originations and credits. We're certainly getting at least our fair share business is good. I think we continue to build ever deeper relationships with the users of our capital. So right now, it's really more about overall PE activity within direct lending.

Obviously, as we just talked about, enormous activity in things like the real estate business and in alternative credit away from PE activity. But it's really about the PE cycle and how much transaction is occurring there. We certainly have seen upticks and we're seeing an uptick there for in our inbounds, our demand for capital. And I guess the only silver lining of all of this kind of misinformation about credit and misinformation about software and the like, usually, that environment ends up leading to better spreads and a rotation of more product back to the private market because the public market gets deeply disrupted. So all the indicators would point favorably as far as we can see, but it will all the [indiscernible] up really at the end of the day on just how much activity is their in PE world in a given quarter. .

And the only thing I'll follow up with is about 7% -- 6% to 7% of non-U.S. dollars in our other wealth products. So as Marc said, it's a very small number.

This concludes the question-and-answer session. I'll turn the call to Marc Lipschultz for closing remarks.

Great. Thank you very much. We appreciate it. We know that the hour is up. And so we will release it to the next activity, except to say, at the end of the day, this was a great quarter. We continue to see very healthy portfolios. At the end of the day, performance is the ultimate measure, not anecdote, and performance is top tick in all of the products that we talked about. So we have a very favorable view going into 2026 and look forward to updating you.

This concludes today's conference call. Thank you for joining. You may now disconnect.

All right. Thank you, everybody. We'll get started with our next session. Thank you, everybody, for joining us. Up next, I'd love to welcome -- I'd like to welcome, Doug Ostrover, co-CEO of Blue Owl. Owl is one of the largest global alternative asset managers with nearly $300 billion in assets under management, specializing in private credit, GP solutions and real assets. Building on success over the course of 2025, I will continue to expand into some of the fastest growth areas of private markets such as digital assets and alternative credit, which I'm sure we'll talk quite a bit about with Doug today. Thank you so much for joining us. Always a pleasure to have you here. So good to see you.

Thanks, and great to be here. What number am I for you today?

Today, nine. Over the last two days, 25, 26. I got to figure out if I'm better off being one or nine...

No, this is good.

You have me warmed up. So this is actually kind of perfect. Okay, so why don't we start with some of the priorities for you guys for 2026. Obviously, '25 has been a busy year. This was definitely a bit of an execution year after a number of deals that you've announced, really spending the product set, expanding the capabilities, expanding your distribution reach, what's kind of on the to-do list and key priorities for '26 for you?

Well, again, thanks for having me, and everybody, thanks for taking the time today. So I think you summed it up in your question, and that is, as I think about '24, '24 we were really focused on let's diversify the business. '25 was let's integrate all those acquisitions and get synergies. And then '26 now is just execution. So what are we trying to execute on? Well, one, things like margin. We've spent a lot of money and not that you're going to see margins pop up 200 basis points in a quarter, but what we hope you'll see over time is a nice gradual uptick in margins, something we weren't focused on. We're also focused on FRE per share. Something else we weren't looking at. We were in growth mode, we are really focused on those two metrics. How do we get there? Well, clearly, one is fundraising. And as you know, we've got a bunch of flagship funds in the market, and we're in the market. Our real estate fund, we have on the cover. It's our triple net lease fund, $7.5 billion. If you remember, when we first bought that business, they had just finished a $2.5 billion fund, then we did $5 billion, $7.5 billion, cautiously optimistic we'll exceed that. We're finishing up GP stakes. Again, we'll have a lot more to say about that in the first quarter. But we want to get that wrapped up in the first six months. We have our digital infrastructure fund, our last fund was $7 billion. Yes, we're going to be back in the market. I believe sometime in the second quarter. We'll talk in February about sizing of that fund, but I think it could be materially bigger. On the alternative asset side, we're wrapping up our new -- our latest institutional fund. We have $2.5 billion on the cover. We'll hit that and hopefully hit the hard cap. On the wealth side, you and I were just talking a little bit about credit, and I'm sure we'll spend a lot of time talking about credit. Look, we'll talk about the resiliency, and why we think that is just a core asset for almost all of our investors. So we're expecting continued growth there. But we're really excited about digital infrastructure. You saw we launched the new fund. It's the fastest we've ever gotten to just under $2 billion. And we have high aspirations for what we can do there. And then on the alternative credit side as well, a lot less competition than what we're seeing in direct lending. We are fortunate to partner with the old Atalaya firm with 20-year track record. We launched our wealth product there, got to $1 billion, and I think that could scale pretty quickly as well. One quick comment on those -- just those two wealth products. In '24, when we were talking about acquisitions, and we did some in '25 and digital infrastructure, I believe, closed in January of this year. One of the things we said when we're buying them is they're accretive day 1, if we can scale them institutionally and get them into wealth, then we can make it really work for our shareholders. And you'll notice on those two funds in under a year in each of them, we scaled it, we're in wealth, and they're poised to really grow. So excited about all of that.

Now lots to look forward to...

One last thing I didn't mention that was a little out of our control. This was a number we missed on a little bit this year was deployment. I remember sitting up here with you, I think maybe I went seventh last year, but I -- is that a bad thing that I'm moving backwards?

No, no, no. We'll find out next year.

But I remember sitting up here with you and not just myself, but everybody who came up prior to me, we were all very bullish on the M&A environment. Deployment is very important for a lot of our funds. And while it was okay this year, it was definitely below expectations. And a combination of we earn fees when it's deployed, and we generate some origination fees, it definitely came in less than what we are hoping. We're -- it feels like things are better. I don't want to go out on a limb again and project it, but that's the other variable that we're cautiously optimistic.

Yes. I mean for what it's worth, it's pretty consistent with what others across both the old space, but also the banks and which have signaled about the M&A outlook for next year. So things crossed this time around actually kind of comes to fruition.

Yes.

Okay, let's talk about private credit. And I really want to zone in on performance. I think you guys and really the whole peer group have done a really good job outlining the merits of direct lending solution in private credit and kind of trying to dispel some of the kind of media headlines that are out there. But nonetheless, it's still really topical. And the way I want to zone in on that is really from the perspective of underlying portfolio company performance. We know what the non-accruals are. We obviously see the filings we hear how you talk about the credit trends. But when you look at the performance of the underlying credits, whether it's revenue growth, EBITDA growth, EBITDA margins, particularly in a more tech-oriented software businesses, give us a sense of kind of how that's shaping up to maybe build some additional credibility about the credit trends?

Okay. So let me talk broadly about our funds, and then I'll finish up on software and maybe a little bit on -- we were talking in some one-on-ones, just about a GFC-type scenario. So look, I understand why there's some nervousness with private debt. It's grown a lot. There's been a lot of negative articles, and I'm glad you're asking the question. But I think the key is to kind of pull the curtain back and take a look at what's actually happening in the funds. And I would tell you, and I talked to some of our peers, who are having a similar experience, and I'm sure they said this. Underlying performance is good. And so just some basic metrics of our book. Our average company has about $275 million of EBITDA. So we play in upper middle market. These are good-sized businesses. Our loan-to-value on a corporate credit is about 39%. Our loan-to-value on a software loan is about 30%. Our average position size is about 20 basis points. In terms of performance, have things slowed down a little bit versus a few quarters ago? Yes. Now remember, where we invest, we're -- it's not really indicative of the U.S. economy because we don't do things like deep cyclicals oil and gas, commodity chemicals, retail, we're looking for in businesses that are much more annuity like. And so we're seeing very few defaults. We're not adding names to the watch list. And as I said a couple of quarters ago, probably seeing 8% to 9% revenue and EBITDA growth. Now it's more maybe 1 to 1.5 points slower, 7.5% to 8%, but still very, very robust. So I -- most of the companies that we look at, worst case, we get quarterly, many quarterly financials, many I get monthly. And so I can look at our portfolio, and I can tell you with a high degree of certainty that for the next 18 to 24 months, and I can't go longer because it's hard to predict. But I can tell you with a high degree of certainty, the funds are going to perform really well. And that's because if you look at a company, companies just -- their earnings just don't go like this, right? You know when you're looking at a business when it's going through some sort of secular decline, it's slow, it trends down and then -- over a period of a couple of years. So I see what's happening in the portfolio. I'm not seeing that. And so I feel pretty good about where it's trending, what it looks like. People are saying, well, returns will be lower than they were a few years ago. No doubt. And by the way, we tell our investors, our goal in all of these funds, these are substitutes for what you can get in fixed income. And so we want to make roughly 200 -- anywhere from 150 to 250 basis point spread versus the syndicated loan market. But I'll give you an idea today, and this is why I know Blackstone's redemptions came out. We don't have ours yet. I know the market reacted negatively. But think about it as an investor. If you want fixed income, where'd you go? I was looking at one of the big high income funds. I think it was Fidelity. It's yielding at 670, and we can generate 9%. That's unsecured. We can generate 9% secured loans. So it just makes sense, and I think it's really compelling. Let me just jump to tech for a minute. I'm -- so when we talk about our tech fund, we are talking about large-cap, mission-critical software. Large enterprise software, where we have worked with these companies for years. There's no churn. And so the question is, where are these businesses heading. Now if you just take a step back, the first reaction, the knee-jerk reaction is always AI, it's going to make these businesses obsolete. If you go out and talk to venture firms, the PE firms who invest in them, they would tell you that's just factually incorrect. The pricing model will have to change. And most likely, the ability to keep upselling will come down. So growth is going to compress. And in an environment where we have some compression and growth, what's the terminal value of the business. And so our loans are at 30% loan to value. And so we look at it and say, we can absorb a reasonable amount of compression and enterprise value and still get our money back. And I actually -- I was just going through this with somebody in a one-on-one, so you bear with me. But I found this kind of interesting. There's a software index XSW. It's 140 large mid-cap and small-cap software and IT companies. Everything's equal weight. For the year, what do you think the index is up or down?

Down.

Down 3%. That -- now given everything going on in AI, you would think it would be a lot worse. Then there's one IGV, another ETF. This -- what this one does, the top 10 software companies are 50% weighted. And so Palantir, Microsoft really skew it. This fund is up for the year. So what I decided to do was go look at the top drawdowns in software. So names like Salesforce, ServiceNow, Adobe, Workday, and what you would find is for these companies, and these are the biggest drawdowns, they're down on average about 30%. So let me describe a typical software deal for us, $1 billion enterprise value, $300 million of debt, $700 million of equity. Let's just say -- and I just showed you most are flat, but let's just say it has a big drawdown like these funds. So instead of being worth $1 billion, it's now worth $700 million. So now the cap stack would be $300 million of our debt and $400 million of equity. So our loan to value goes from 30% to 42%. I'd rather it be a 30%, but nobody would look at that and say, "Ah, you're going to have a lot of defaults." The other thing is the average life of those loans is roughly 2 to 2.5 years. So we -- on our software book over a 9-year period, we have not lost a single dollar. And I would tell you, looking at the book today, again, we feel really good about it. The returns have been stellar, and I expect they'll continue to be quite good.

Great. That's really helpful color. I appreciate spending time on that. Okay, let's turn our attention to maybe dynamics in the wealth channel. Super important growth engine for you guys. You've been there really from the beginning. You were there early. I think about $16 billion of inflows over the last 12 months. At a high level, first, talk to us a little bit how the footprint of your wealth channel has changed. And so the key priorities as you push further ahead into that world and '26, both in terms of products and geographies.

So it's pretty interesting. If you went back 10 years ago when we launched the firm, the credit business, almost all the major firms, what they were dealing, what they were -- they had an adviser, sub-adviser model in wealth. What that means is the big alternative manager was managing the capital, and they were outsourcing fundraising. And so when I launched our credit business, I looked at that and said, "I thought we could do it better, and the way to do it better was to bring it in-house." We probably started with Alan is here, our CFO, he thought I was crazy at the time. We probably started with 40, 50 people in that space. It took a long time to get it ramped up. We had one BDC, we were marketing, fast forward to today, to answer your question about where we are today, we have over 200 people. We're obviously heavily weighted here in the U.S., Canada, all throughout Europe, Hong Kong, Singapore, Tokyo, opening -- building out a team in the Middle East, basically everywhere in the world. We think it's still very early days. We have five products in the market, and we'd like to have more. And I think one of the negatives for our business is that we're a younger firm. We are very focused on having a few products and being a market leader in everything we do. But that means we can only have so many products in market, whereas some of the bigger alternative managers who have a much broader suite of products, they can launch more. So I'm pleased with how we're positioned. I think most importantly, I was mentioning to you, if you look at the alternative asset-backed business, if you look at the data center business, why were we able to launch these funds so quickly in a crowded marketplace. The reason is we've been at it for 10 years. We have a lot of credibility in the marketplace. We have a lot of the advisers who know and like us. And we've -- and most importantly, we've delivered on exactly what we said we would do. And so that allows us to get into the market and quickly execute. In terms of what else will bring to market, too early to say, but I just want you to know, we don't sit in a vacuum and say, "Hey, we want to bring x to market." What we do is we start early with the big wirehouses and the big power users at these firms about, "Hey, we think there's an opportunity in x, what do you think?" So we start building a consensus really early on, and that gives us the comfort that whatever it is, we're going to be able to do or the product we go after that we can launch it into those wealth channels.

Great. All right. Let's double-click on a couple of things that you guys see on the ground. You mentioned, obviously, non-traded BDCs. The market continues to be hyper-focused on that whole subsector of this whole wealth ecosystem just given how much it's grown, right? I mean it's been a big driver for not just you guys, but for a lot of the firms in the old space with the wealth product in direct lending. Sales as of December 1 have clearly slowed down for you guys and for your peers now that we've seen a couple of larger ones in terms of December 1st subscriptions. Perhaps not surprising given the barrage of headlines in the last two to three months, what do you hear on the ground from financial advisers in terms of kind of like their level of concern and whether or not this is likely to be just a new norm and maybe it's because level rates, tighter spreads, headlines, and now we're kind of a new slightly lower paradigm for growth in that part of the business? Or there are reasons to be optimistic and think this is just going to be a blip and we kind of reaccelerate from here?

Well, it's really hard for me to pinpoint exactly what's going on because we have hundreds of thousands of people in those funds. And of course, we're talking to the biggest advisers constantly, but it's hard to get to everyone. So I'll just give you just my view from 30,000 feet and that is, when we went through COVID, we had bigger redemptions and slower -- less money coming in. When SVB went bankrupt, when we had tariffs. Whenever there's blip or nervousness in the markets, we see things accelerate in terms of redemptions and inflows slow down. And I think this is no different this time. But let me just share with you where we spend a lot of time with advisers, with the home offices. What do we talk about? What we talk about is, I know there's been negative press. Let us give you the actual math of what happens in something like a GFC. And if you go and look, the syndicated loan market, I had a direct lending book, but -- and I didn't experience this, but the stat is 12% default set here. And if you have 12% defaults, and we would expect much higher recoveries than this, but let's say it's $0.50 recoveries. Remember, we're investing, let's call it, a 40% loan to value. So if you get $0.50, that company is recovering 20 of the purchase price. So let's use 50. 12% defaults, $0.50. That's 6% loss. We use a turn of leverage, that's 12 points of loss, but we have about 10 points of income. So it's somewhere between 2%, 3%, 4%, maybe 5% loss in a very diversified, well-run senior secured loan fund. The equity market in 2008, it was down 38%. So I just keep coming back that we'll have these periods where things will pick up, there'll be nervousness, but at the end of the day, we believe we're providing higher income that investors can find anywhere else in the market. And if you run it well, we can really protect the downside. And that's -- and so I think it will remain a core part of everybody's portfolio. There will be periods where inflows accelerated, and we're probably in one of those periods where it's going to slow down, and we're going to see some outflows, but I'm still pretty bullish about it. And I can tell you, speaking to the leadership of the big wirehouses, they're also pretty excited still.

Yes. Okay. Makes sense. ORENT, that's been a really nice part of the story, and it really does feel like it's accelerating without much of a macro help and then lower rates presumably make that even a little bit more interesting. So what are your expectations on the momentum in that product, both in terms of same-store sales on the existing platforms as well as some of the newer places where you're adding it still?

Yes. I'm excited about where we're positioned there. I think we're the best-selling real estate fund. It's -- for those who don't know it, it's a triple net lease fund. It's had great performance. We raised a lot of money in a fairly short period of time, and it feels like that's accelerating because we're expanding the number of platforms we're on, and most people have never looked at a triple net lease fund. So there's a real education process there. So we're excited. We have -- surprisingly, we have a very big backlog there. So we have the backlog to support the growth. And what's interesting is, and you know this better than anyone, there are not a lot of big pools focused on triple net lease. There's a lot of small pools. And so going out and being able to deliver large wholesale solutions, I don't want to say we're the only one because certainly a Blackstone real estate fund, other real estate funds can do it, but it's not their core competency. So yes, I remain super excited about that, and I think we'll see a lot of growth there.

Great. Let's talk about some new things. I know I asked you what are some new products you're planning to come to market with, but you just did come to market with two pretty sizable new launches. So let's talk about those two, so both on the old credit and most recently with respect to digital infrastructure product as well. Super exciting launch, almost $1.7 billion, $700 million of that in the wealth channel alone, give or take, lessons learned so far? And kind of how do you think about the trajectory for both of those over the next six -- 12, 13 months?

Well, look, I'm really excited about both. And so maybe what I'll do is, I I'll just give you a couple of headlines on each. I direct -- direct lending. In the data center business, you know this, I'm readably bullish on it. And I think it's important. We were talking about triple net lease. Think about what we do in triple net lease. We go to an investment-grade company. It's usually a BBB, BBB- business, could be Walgreens, could be Cracker Barrel. We've done stuff for Whirlpool. But a lot of disparity in terms of credit quality, good assets, but we expect to get paid. They are signing anywhere from 15- to 20-year leases with 3% escalators. And as you know, in our institutional fund, we've generated in excess of 20% returns in that product. So now we're faced with an opportunity, where instead of working with Walgreens, Cracker Barrel, firms like that, we can go to Microsoft, Meta, Google, Apple, the biggest companies in the world sign the identical 20-year leases, get higher cap rates, same 3% escalators. And the way we look at it to our downside is even if the facilities are worth zero, at the end of their lives, we can still make a [ teens ] return. So what we're asking investors to do is to say, "Oh, can met a Microsoft, Google, Apple, pay you over -- pay their lease over a 20-year period." I'm not saying it's impossible they won't pay, but it's highly improbable. These are some of the best companies in the world. Average credit rating is A to AA. And the imbalance between demand and supply here, I've never seen a market like this. Think about this for a minute. We are in a position where we are going out and solving problems for the biggest companies in the world. It shouldn't exist. I shouldn't be able to make those kind of returns. And yet, there's -- the demand for compute is here, the supply is here. And I would tell you being in the space now heavily active for the last year. I see that demand accelerating, and I don't see the supply increasing. So I think this arbitrage is going to exist for some time. I know we're running out of time. We are one of the market leaders, and there's a very interesting moat around this. To give you an idea, we have a 1,000-person team, a 1,000 people that act as a GC building these facilities, and we have built 110 of them. And so if you're walking into a hyperscaler, and you have land, and you have the ability to get power, they've worked with us, they know our terms, they know that we can deliver. And very few firms can do that. So I'm unbelievably excited about it, and I think it has the potential to really scale. I don't want to oversell it, though, in the sense that like anything, when you launch something in wealth, the super users, the most sophisticated users come in quickly. Then we have to get out and get out in the branches. And this is why we have 200-odd people and start telling the story. So I expect we'll have nice flows, and we should expect it to accelerate. I'll just touch on alternative credit really quickly, equally as excited there. In my view, a lot less competition than direct lending. Returns are higher. And again, there's an interesting moat you need, the expertise. For those who don't follow us as closely. We bought a business called Atalaya, a little over a year ago, a 20-year track record in the asset-backed space. When we brought them in, our goal, as I mentioned this year, was integration. First thing that I really wanted to focus on was they focused on just the stuff at the bottom of the cap stack where you can get a lot of yield. They were creating a massive amount of investment-grade product, but they had nowhere to go with it. And so I wanted to get that synergy with our insurance business. And so we have really executed on that. We are creating in every vertical you can imagine, proprietary product, and I think that's going to really allow us to scale insurance, so that was one. Two was, I wanted to get the institutional fundraise done, I mentioned. And we're basically done with that. And then I wanted to get the retail fund done. To give you an idea of the myriad of product that we see. I think it came out publicly. We're working on a big transaction with SoFi. And you should know these are basically prime loans we're buying, average FICO score of 750, nice subordination. I'm -- really good alignment with SoFi, making, we believe, a very healthy return. We're working with somebody in the freight business. I think they're split rated between single and double A on helping them finance buying a new fleet of freighters with a 15-year lease, nice escalators. And then we're working with somebody who has rolled up the dental space, and we provide all the financing for dental equipment. So the TAM in this bracket is massive. And we have a big team that has played in all of these areas, lots of expertise. And as I was saying, higher yields, less competition. So I think that is -- has the potential to be a really big vertical.

Yes, that's interesting. Couple of minutes left on the clock. I want to get to maybe some of the financial items. And you actually started with that. You gave us a lot to think about in terms of the fundraising outlook for 2026. But within that, you also talked about FRE margins and also FRE per share. We haven't heard you guys talk a lot about FRE margins in the past, Alan smiling. But look, as you think about the trajectory of your investment spend, what do you feel like you have now the ability to pull back? Where do you see the margins going over the next couple of years? And at the same token, we saw you guys do a small buyback, presumably, that could also become a part of the growth algo at some point of time. So how should we think about both of those elements of the story that could obviously enhance the EPS growth of the company?

Yes. Well, first of all, I'll just reiterate that. We are very focused on margins now. It's not that we ever let our margins get too low. They've always been high by industry standards. But we understand the marketplace wants to see us improving those margins. And I think we're very committed every quarter to making sure they're stepping up on their way to what I think we talked about a while back, around 60%. We were less fixated on FRE per share. I know that's an important metric to the market. And we hope to have the same trends there. We're stepping up every single quarter. In terms of where we're taking the business, I think in February, we will be in a position to give really good guidance for '26. And then longer term, we're still standing behind what we gave at Investor Day, growing this business to somewhere around $3 billion of FRE. We still feel pretty confident about that. We know the levers we need to pull to get there. And so we're looking forward to getting after it in '26.

Great. And then strategically, I'll end where we sort of started where you were really busy diversifying the business a year ago. You've done a bunch of deals. You're in the process of really scaling them now. Anything else in the next 12 to 18 months that looks interesting where M&A could still make sense, or the focus is really still like let just double down on what we build and grow that?

Well, the focus definitively is on, let's focus on what we have and grow it. I am not exaggerating, a couple of times a week, we get a call from bankers directly from alt managers about, "Hey, we would like to talk to you about joining the firm." And I'll just leave you with this thought, and that is, as we think about any acquisition; one, we're looking for things. It will never be as good as the data center space. But where the demand is here, and the supply is here, it has to be a big market, where we can come in and fill that void, and we want to become one of the market leaders, if not the market leader. We're also really focused on products that have high current income, where we can protect the downside. And the best products are like triple net lease, where we have that, and we can get some unconstrained right-tail risk. So in that case, we -- as I mentioned, earning in excess of 20%. So I would just tell you the [ math ] side of it is easy. We know what we want. The culture side is the hardest piece. And the bar is really high there. As you said, we've made a bunch of acquisitions. So the focus right now is on doing -- taking care of business in-house, everything we bought, I know we're out of time, we have a bunch of organic things we're working on. So I think we have enough on our plate. I don't want to say it's impossible just because you know my DNA, but I'd say, it's not anything we're really focused on right now.

Great. Okay. Well, we'll leave it there, Doug. Good to see you.

Thank you so much.

Thank you so much.

All right. I know everyone is eating their lunch here filing in, but why don't we get going? Hopefully, everyone can hear us okay. My name is Brian McKenna. I cover the alternative asset managers and the BDCs and equity research at Citizens. I've actually covered this space for over a decade now. So I've seen firsthand the evolution of the industry, the business model, what's been incredible growth, and most importantly, really strong investment performance. I have seen a few of these double-digit drawdowns in the stocks as well. They're never fun in the moment, but I think one word that I would use to describe the industry is resilient. So the next 50 minutes or so, we're going to talk about the industry. There's a lot to cover. We'll talk a little bit about the past, a lot about the present, everything going on and kind of where we go from here.

So it's great to have two of the leaders on stage with me today, Marc Lipschultz, Co-CEO of Blue Owl. He founded with a few others, the legacy credit business at Blue Owl, Owl Rock back in 2016. Prior to that, he was a long-time partner at KKR. We have Kipp deVeer from Ares. He is now Co-President of the firm, also a long-time partner. He previously ran ARCC and was Head of Credit. So it's great to have both of you on stage today. There's a lot to cover.

Kipp, maybe to start with you, I'd love to just hear about how the new role is going as Co-President, how your day-to-day has changed a little bit. I'm assuming you're doing a lot of this stuff, seeing investors, et cetera. And then the two co-President announcements at the firm, how does that coincide with just the natural evolution of Ares?

Yes, sure. Well, it's nice to be here. Thanks for having me. So I'm joking around a little. So I was already doing a lot of this. Now the good news is I get to do it with a better title. So I'm joking around. So that helps, particularly in other places not like New York where that matters more. But yes, obviously, I've been with the company for 20 years. So I've kind of been there through the growth and the evolution of everything that we've done.

And I think coming up through the private credit side of the business and then taking over credit actually, I think, in 2016 when you guys were getting started, Marc, we have five businesses on the credit side. So it's two direct lending businesses in the U.S. and in Europe. We have an asset-based finance business. We have our loan and high-yield business, then we have our opportunistic credit business.

So the short answer to your first question is, I kind of worked myself out of a job, which means we have a really, really great, deep talented bench of people in all five of those businesses. So any of the strategic stuff or hiring or just changing of the strategy and the people was really done. So I went to Mike a couple of years ago, and I said, I think there are a lot of other things going on at the firm that are pretty exciting where I could be valuable. And obviously, with the transition with Blair and I getting promoted in February, Blair, just by way of background, my Co-President is based in London, spends a lot of time in the States, was someone I hired to really help drive the growth in the European direct lending business in 2013. If he were here, he'd probably say the same thing. He worked himself out of a job a little bit, too. That's a hugely successful business for us.

So we're both able to spread our wings doing different things. So what the three of us agreed on was we have a couple of things that we're working on, I'd say, at the enterprise level of the firm, things to do with sales and customer-facing things, and there's always operations and technology improvements. So we have our hands dirty in a handful of those things. But then we each, Blair and I took a couple of different things to really lean into. The opportunities that I saw that I'm spending a lot of time on today include everything from our real estate lending business to our infra debt business, which unlike some of our other friend and competitor firms actually don't sit in credit at Ares. They actually sit in our real assets team. So trying to bring a little of what we've done in credit to those two businesses and think about talent and think about maybe additions that we might need to make either to the existing team or new geographies.

And it also coincides quite a bit with what we're doing on the insurance side, which I know is a focus for you. Obviously, there is a desire, I think, for many insurance companies to figure out how to access alternatives in a way that they never have before, and they're in a particularly tough spot with how tight IG spreads are and the way their balance sheet support. So that's a smattering of the things that I'm doing. But it was hard to give up my time in credit. Obviously, it's our largest business and most of the people that are there are folks that we've hired over the last 20 years, but it's a great group of people.

That's great. And then, Marc, looking at the early days of Blue Owl, Owl Rock, going back to 2016, really a direct lending business. Fast forward to today, it's not just direct lending, you have asset-based lending, you have digital infrastructure, GP stakes, et cetera. So, talk about the evolution over the last decade. You've been acquisitive, and it would just be helpful to kind of, from your perspective, think through and walk through just kind of the natural evolution of your business as well.

Sure. Look, it's great to be here, Brian, your understanding of this industry is, I would dare say, unique and with the superstar of the industry is a privilege. So, I -- look, we've come a long ways in 10 years, but I think some things have stayed the same. So maybe I'll start with what's the same, and then we can talk to the evolution.

What's the same was we started the business with a couple of key principles in mind. One was that we wanted to be a capital solutions provider. That is to say the picks and shovels provider to the gold miners, whatever metaphorical example you like. Our job is to provide bespoke solutions to ultimately what's proven to be a wider range of users. But that was the principle first.

And the reason for that, very importantly, number two, was to architect a set of investment strategies for investors that are much more about downside protection, principal preservation, yield, and that's the common thread when you look across the things we do. And while it's many more than it was 10 years ago, they're actually still very much adjacent, and that's the common thread is they're very much about the -- how do I protect capital and make a nice return sort of in that order, if you will. And alts perhaps prior to that, and then I was in alts for 21 years before, mostly had the character of how do I get kind of maximum returns and manage the risk to go with it. So those two.

And then third was the idea of serving the individual investor and the institutional investor as true peers and not as this. I'm an institutional business, and I can, damn, to do business with these individuals. So those are the three premises, and those are consistent. And so I guess, today, I would characterize that as really the DNA of the firm. And then what we've done is where we see opportunities organically or through acquisition to deliver on those promises, that's how we've built the business. The bulk of our growth has been organic, the substantial bulk of our growth.

It's true we've done a number of which we're very happy about, of acquisitions. In a way, the number of acquisitions probably -- I don't say it's misleading, but actually as a percentage of our enterprise, each one was quite small. And then we've taken them and done organic things with them. So if you take our real assets business at the time that we acquired what was then Oak Street at $12.5 billion of assets. And today, I think we're at $45 billion of assets, and that now last year was the largest real estate fund raise in the world, I think. Our continuously offered product in real estate is thriving. That now has over $7 billion of equity in it.

So not to go down this rabbit hole, but the idea being that it's where can we find strategies that deliver on that promise from 10 years ago and are additive to what people want in their portfolios today.

Marc, I'm not going to speak for you, but I'm going to add something on that we talk about a lot, which -- and I think you guys -- knowing you guys as well as we all do know one another and respect one another.

A lot of these businesses actually operate better at scale, and they operate better if you can manage them in a global way, right? So the acquisitions that we've done have been really to add complements to what we started as a credit business. So, it is it's real assets, it's secondaries. It's other things that all of our investors, when we talk to them day-to-day, want to see from a large diversified global firm. And most of them actually view us as better positioned to manage those assets as an integrated manager than as a single strategy manager.

Yes. And one other comment on that because this is a commonality between our firms. That said, there's another version, and this is neither good bad or otherwise, just strategy. Some versions of the alt model are all things to all people. And that's not our model, and I speak -- I think I can speak for Kipp as well. It's not their model. It is about certainly multiple different ways to deliver for investors and to win for our shareholders, but it's not everything. And I think it's -- scale is hugely important in each business and collectively. On the other hand, it's very hard to be good at everything all the time, and you got to know your strengths.

That's great. And I guess sticking on the point of scale, I think a lot of folks that look into the industry from the outside, like they see firms getting bigger and bigger and bigger, and they think it's a bad thing. But to your -- both your points, like scale is critical. Scale creates the outperformance. So maybe just talk through this a little bit more, like from your seat, why is scale so important? And what are the competitive advantages? And really how does scale create differentiated returns for your investors?

Yes. I'm happy to start. So, here's the thing, too, like scale is not a monolithic term. In some worlds and some strategies, scale is decidedly advantageous. In others, it's not.

In credit or the -- I'll call it even generally, these capital solutions products more generally, scale is undoubtedly a uniformly advantageous fact. It's about more origination, more underwriting and ability to participate with the largest companies with their solutions. You want to do a big financing and you're a big company and you're a big sponsor, there's only a few people you're going to call and a couple of us are here. I don't say that with any arrogance. I say that with the benefits of the scalable solutions. And so there's only an advantage to be able to see more credits and see bigger credits and see better ones and then be one of the few people that's positioned to take advantage of them.

That's not true of every strategy, right? Like take the opposite version, which obviously has nothing to do with what we all do. Venture capital is not like, oh, is this uniformly better. If you just raise more and more and more capital and you're bigger and bigger, it's just not true. In fact, evidence would probably be the contrary. So I think it's important to know what fits your model here, take the other side of it, the contra. Like why would you want to be smaller so you can see fewer things so you can lend to smaller companies?

And less information...

Yes, less knowledge, less credit. Honestly, they're just other than the -- what is not accurate, this argument, oh, we get better spreads, better agreements, which is just not true in the smaller market. There's just no advantage. And in fact, you've seen this. That's why today, if you look at the scale participants, again, just pick credit as a discussion, it's the same people that were really big five years ago, just gotten bigger, and that's actually a very rational outcome for this business because it's a better way to do credit.

Anything to add, Kipp?

No.

And I guess just going back to the business models a little bit because I think this is important. 5, 10 years ago, the industry was primarily some private equity funds, some direct lending funds, some liquid credit. Fast forward to today, you have capital-light businesses, you have capital intense, you have on-balance sheet insurance liabilities, you have transaction fees, et cetera. So the models have evolved quite a bit. And I think all -- you and your peers, you're all kind of doing the same thing, but you're going at it at a little bit of a different angle.

But I look at Ares and Blue Owl, both models are capital-light, they're fee-driven, they're FRE-centric. So just walk through -- I don't think it's a coincidence that both of those models are like that. So just walk through why capital-light and why you operate the business that you do. Maybe to start, Kipp.

Yes. I mean I think it's really important you point that out because -- we have a lot of folks that come into our office and start asking us questions about our company that seem like they're better suited for not our company. And you can probably guess at what I mean by that. People have ended up going different directions, I think, based on their own experiences with how those companies got built.

To your question, we've tried to keep it incredibly simple, right? Ares is an asset management firm with strong expertise across a wide variety of alternatives, and to Marc's earlier comment, we don't participate in every portion of the market, but we want to participate in the areas where our investors think we can bring them value and great performance. But at the end of the day, for the folks that are buying our stock, I think they love the fact that we've been able to grow both organically and inorganically with a very simple business model that at the end of the day, I think is quite easy to value other than maybe the last three or four months has proven to be the case.

Yes. I'll just echo that, look, at the end of the day, our businesses, both are highly cash generative. And obviously, we've equally made the selection to give that cash to our shareholders. I guess we don't think that there's anything we're going to do with that capital internal to our balance sheet at scale to be better than smart people in this room can do with that capital.

If that were strategically relevant, look, you can't be Apollo and say I'm going to be in the insurance business, oh, I'm going to be capital light. Now you can serve the insurance industry like we all do. You can have a small insurance business, but that's just a fundamental strategic question. And again, I don't -- it doesn't make one model right or wrong, but you have to know what your model is and build a business that's consistent with that. We build businesses that are all about fee income, fee revenues. Our entire revenue line is fees, entire revenue line. So that's just compatible for us with having a high margin, high cash flow, high dividend stock.

And it kind of goes into my next question. I feel like every period of volatility we get -- I've covered the space, again, 12 years. So it's like every few quarters, you get these periods of volatility. People are very negative on the sector. When I take a step back, I look at my alts coverage collectively, there's $600 billion, $700 billion of dry powder. And so I think some folks forget volatility is actually a good thing for your businesses. And so spreads have been tight. You get some volatility, they gap out, you can deploy capital into higher quality companies, better spreads, et cetera.

So, just from your standpoint, like why is that so relevant? And I think, too, like you go back and look at where the outperformance comes from through the cycle, it's periods of volatility.

I'll take that because that's where I was going to kind of lean in. But we've actually I think, develop real expertise in all the assets that we manage, frankly, in volatile markets, right? We tend to see accelerated growth during periods of volatility. We like that. I was having a meeting before coming over here and not to give me my commercial on where the world is.

But my thinking is actually, if you'd asked me three years ago how you're going to see things with a dramatic monetary tightening cycle and all of that, I would have thought you would have seen slower growth, higher defaults, worse credit performance, et cetera, and we're just not seeing it. So rather than talk about first brands, I'll just leave that there. But I think the problem is that markets -- Marc and I were just talking about this, markets generally feel kind of expensive, particularly here in the U.S. because I think a lot of global investors that we talk to continue to believe, despite all of the negative headlines, people were concerned, not to be political, people were concerned about Trump, then came liberation Day. And now everything has rallied back, say, for maybe the last couple of weeks to be all-time market highs, tight corporate IG spreads, really tight in leveraged finance. And that's in response to the fact that the economy is good and people want to invest here in the U.S.

So I'd be happy if things were a little more volatile in the next year or two because I think we'll succeed as a firm, and I'm sure Marc would say the same thing.

Yes. We -- volatility is fine. And remember, our capital is largely permanent in our -- so we're quite happy with there being today, good luck underwriting a syndicated loan or a bond deal because the market is wild and woolly in terms of trading behavior, not fundamentals, right? Our businesses are doing great. businesses are doing great. Our portfolio is in great shape. But obviously, the market is all now stirred up about this constellation is of fears. And so that's good for us. I mean that means more people come to the private market. It means on the margin, terms are better.

Risk premiums are higher, investing is easier and all of that.

And it reinforces our model. I mean today, like to me, the irony will be the -- now the new one is data center overbuild. People should make as much noise as they want. That would be great because then we'll just all get to do more business with five of the most highly rated biggest market cap companies in the world.

And so on the point of pretty healthy valuations, things have really recovered off of the April lows. I mean you still have capital to deploy, right? And there's a lot of perpetual strategies in the industry that are raising capital on a monthly basis. And so, I guess, where are you leaning in from a risk-reward perspective, right? You have capital coming in and it has to get deployed. And so where -- how do you make sure you're deploying into the right assets, the structure is right and you're getting paid for that risk?

Yes. I mean I think there's value in a lot of asset classes. I'll just say one caveat for us is we actually, I think, have been thoughtful entering the wealth market and raising capital there in terms of open-ended strategies where we really don't want that capital to kind of overwhelm us. As we always say, fighting the inflows of those, i.e., to deploy because you have those inflows can be very dangerous.

So, the firm today, I'm just going to use rough numbers because I'll get them wrong, manages about $600 billion of AUM. And I think our flows through the wealth channel this year will be about $16 billion, $18 billion. So, for us, that's pretty manageable. We don't feel the weight of deployment. The way that you counteract that, and I think Marc said it before, is the scale of your origination teams are key. We have 4,000 people in 50 offices. You find a lot of deal flow when you have 4,000 people in 50 offices. So that's kind of how I'm thinking about that.

But for us, I think unlike maybe some of our friends in the industry, it's a little bit less of a concern. It's something that we're really conscious about being careful about how we grow in that channel.

Got it. And I guess on the flip side of that, kind of going back to periods of volatility because I guess the way the stocks are trading, it feels like we're going into this credit cycle, things are going to get really bad. And so I think -- and I believe I asked it on the ARCC call, but when you look back at periods of volatility, I mean, how much excess return has been generated across some of your strategies?

And again, I think the beauty of the model is not a forced seller, you can lean in during periods of volatility. But like is there any way to quantify that?

One thing that's important, I think, to probably start with is in our world -- and again, we'd be careful because our worlds have lots of different components to them. But for the moment, let's just -- let's talk direct lending, which I think is often where people's focus tends to be coming at the moment.

The -- in a way, it ultimately is a relative product, right, at some level and at some level, an absolute product. The absolute part to your earlier question, we say where to lean in. Actually, even that sort of frame of reference doesn't tend to be what we all do in our core businesses because actually, it is to have a standard of credit that is incredibly high. And that's why we have such durable books, such low loan losses. And that's actually bedrock, right? So what's really happening is deal flow may move around that standard, but the key is to be large enough and disciplined enough to hold the standard. And that means, yes, you'll have some periods where we deploy more, some periods where we deploy less.

So even like kind of the lean-in mindset doesn't exist within the confines of, if you will, maybe a narrow vertical other than to say that with regard to looking for opportunities, key is for us to make sure on the relative basis, we're always commanding a very attractive premium for our investors for being a part of our product relative -- we don't -- none of us live in a bubble would be silly to say it just doesn't matter what the market is.

But if you look practically speaking, over any long period of time in the modern version where we're talking to these kinds of large cap solutions, spreads go up and spreads come down, but they live in a band. I mean there's a spread level where it just doesn't make sense for us to be active lenders. And there's a spread level, by the way, on the other side, where it doesn't make sense for people to be active borrowers. And so if you look, it's just this amplitude and this -- and remember, the portfolios have hundreds and hundreds of names in them. So the portfolios aren't like today's spread. The portfolios have some things from today. They have some things from last year. They'll have some things from next year.

So I think people are getting way too micro focused about this moment in time and kind of missing the bigger picture, which is great, consistent premium with great credit protection that really works through it for investors through thick and thin. And if you're really worried, I'll just leave this, if you're actually worried about private credit performance, then as soon as we leave here, everyone want to like get out of their stocks and get out of their private equity. And I mean, remember, we're the top of the stack, senior secured, like by the time you get to that, if that's where your concern lies, I mean you're skipping a lot of step between here.

That's sort of the big miss. And that we have a lot of the same conversations with many of the same investors. But this -- and look, I've kind of been one of the early players, obviously, in direct lending. So I've heard this story a lot, which has been wrong for the last 20 or 25 years pretty consistently. But Marc is making a really important point, which is there are billions, hundreds of billions of dollars of hard invested equity below the private credit industry as a whole. And I'd also remind people, it's really not an industry as a whole. It's an accumulation of different managers, some who are quite good and some are not.

So I think that manager selection is really important. And with some of the -- let's paint the whole thing with a broad brush coming out. It's just not a really very accurate way to think about analyzing a market or analyzing returns.

But again, just back to longevity in the space, we reported our earnings at Ares, whatever it was a couple of weeks ago, and the results were quite good. And a bunch of the people in our room were like, oh, this is great. We're going to put great numbers up. Stock is going to go up 10%. I'm like stock is not going to go up. you don't think something like a positive...

It was 10%. It...

Positive going to because you catch these moments of sentiment and you can't do anything other than focus on what we've done historically, which is just do your job and generate really good performance and really good results and let the results speak for themselves because if people are looking for things around the corner and we're able to put up four quarters of great future earnings, people are going to feel a lot better. It's keep it simple.

Yes. And kind of transitioning a little bit, but covering the BDCs as well, I have a whole new appreciation for the portfolios, ARCC, OBDC, they're performing incredibly well. And I think people don't understand or fully appreciate the diversification that sits in both of those vehicles, right? The average position size at ARCC is sub-20 basis points. You look at OBDC, I think it's about 40. And then the non-traded, it's somewhere in between. So talk about the diversification of kind of the direct lending portfolios. You have a turn of leverage, LTVs are at 40%, 45%, to your point, the amount of equity cushion that sits in these deals. And because I feel like I have a lot of conversations where it's just educating on some of those dynamics. But when you kind of put all those things together, I mean, what -- how bad could things really get?

So I'm just going to go back to one comment, and then I'll let Marc speak. But just having been CEO of OBDC for 10-ish years or whatever it was, it's actually something that BDC investors don't talk enough about. And you say, oh, you guys have these huge diversified portfolios, which we do, and they don't use a lot of leverage, which they don't. That's not what every player in the space does. You see a lot of direct lending portfolios that have 50 names in them that are levered 3:1.

Back to the scale point.

Totally.

Why would you want a 50-name portfolio?

Totally different potential for outcomes, right? So I think you're complementing us, which is great. But I think we both positioned ourselves appropriately to manage the asset class well.

And I'll just add a piece of math to that. I agree entirely. I think also oddly, when you try to do the stress tests, I think people leap from just -- well, let me just suppose there was some sort of set of problems in the world, which, a, starts with a premise that the data doesn't support today. But it doesn't matter, just, okay, but I'm contingency planning.

The durability of being a highly diversified pool of senior loans with deep equity cushions beneath them, that, in turn, are generating a 10% return. You start doing the math and it actually becomes to use -- use this word, but it becomes impossible in a well-managed, well-diversified portfolio to create the kind of problems people are trying to dream up, right? Like just do some math and go from a world and just simplify it.

Let's just take default rates in respective portfolios like 1%-ish. Multiply by any number you want and reduced recoveries from historic levels of like $0.70, reduce them by anything you want and put that over any reasonable period of time and then compare that to the fact that there's 10% coming in every year. You can't do it. And yet again, the leap just goes from this. I think you always generate a machine into...

Your point on the equity is super important. I was sitting in a BDC meeting a couple of years ago, I think, with our CFO, Scott, who I see back there. And I had somebody who not going to throw under the bus, say let me go through your first lien portfolio. It's 55% or 60% first lien, and let's say the defaults there get to 5% and recoveries in any case. This is a quick analysis. They're like, so then I think your NAV goes down by -- like guys, what happened to the other half of the capital structure invested in equity? Is it all just gone? They're like looking at me, like I'm not. So I'm like, man, this is frustrating.

And that's the opportunity today because I'm looking like clear that our stocks are collectively trading with this bizarre fear factor. that's the opportunity for investors. And I -- one we -- Kipp said, like, look, we just keep executing. We know our businesses are working well. And that's not to be dismissive. We listen, we hear concerns. We all care on the it's not useful for us to just like complain about our lot of life. We have great businesses and they're working well. So we just got to keep doing it and then try our best to clear the signal and the noise.

I think there's also -- and maybe it's true of some participants, but we're talking about how this industry has sort of evolved, and I really very much think that in direct lending, in particular, like the winners are already the winners, and they're not going to change anytime soon because of the advantages that we've built that are very difficult to break down and compete with, right?

But there's sort of this narrative, and it's largely in the press, and I was with Bloomberg a couple of times yesterday, so I said it to them, just joking around. But I'm like there's sort of this narrative that everybody in direct lending is sort of like unwittingly participating in this massive growth of an asset class that we're all like just rowing -- not looking at risks, not being concerned to Marc's point at all. And it's just -- it's a little bit silly because we've kind of set this business up very intentionally over a 20-year period and have demonstrated great results for investors.

So this notion that like, oh, you guys are benefiting from a lack of regulation and the fact that no one wants to do this business except you. It's just -- it's a little bit insulting.

So what do you think changes that perception, the misinformation that I see is incredible. And it's -- part of my job is getting the facts out into the market. I'm bullish on the sector. But it feels like every period of volatility, like there's a new cynical narrative that is coming into the market. 10 years ago, it was private equity marks are garbage, those portfolios are worthless. Then it was the energy, then it was picked and here we are, it's all private credit.

And so I mean, is there -- like is it education? And maybe this is just how the markets will always be, but like does that ever change? And if it does...

I mean I was with one of our friends in the industry who -- I do think that private credit and the BDCs broadly have not done a good job telling our story. And it's not for lack of trying. I can promise you, we've all tried. But whatever we're doing, we're not landing as well as we could. So I think it's on us to sort of say what can we do better?

I come back to what I said before, which is individually and as a firm at Ares, all we can do is keep develop -- is keep showing that really strong result because people pay for performance, right? So I'd come back to that. But I do think it's a good question. There's something that we could and should be doing better than we've been doing for the last 10-plus years. So...

And I also think you kind of break it into two pieces, right? There's the authentic, GI, this is bigger than I understood, and I don't really think I get it. And there, particularly, I think it's our job, no one else's job or fault, like to go out and explain some of the things Brian, you explain to people and that we're all talking about today about the portfolios and what we do and how we do it and the nature of the structure of the industry.

And then there's a group of people that are just -- it's a self-interested set of attacks. And that can be those who compete with us. That can be -- look, negative stories get a lot more clicks than, hey, you know how great Ares is -- like it's just that's just how it is.

It always the last time you bought a magazine, it was like it's sunny and everything is...

Yes...

We're like boring.

That's the world we live in, right? So some of it's intentional, some of it's unintentional, and we'll try to do our best with the unintentional part, I think. And by the way, it has happened over and over. You just talked about this sequence, like where everything trades down now, all the BDCs, all the stocks. And the pattern is kind of obvious. I mean there's a tremendous pull on all these portfolios, all of them that are well done. It's par. That's the pull to par over time when you -- and so you go through these panicky moments and people say, I knew it, time has come. And every time the same thing happens, I predict the exact same thing will happen this time and results will be the real proof in the pudding, and it's -- it will be forthcoming.

But it's true that remember the pandemic, that was going to be the end of it all. That turned out to be a great opportunity actually for private credit, right?

Yes.

Then there was a run on the banks, Silicon Valley Bank. Oh, that was going to be it. No, that's okay. That's fine. There's going to be liberation day. Oh, no wait, no, that's fine. And all you do is keep trying to answer this, well, you never know. like yes, you never -- we could be in a simulation right now. You never know. I mean that's like -- that's a very unhelpful argue.

The other one that gets me is that the asset class has never been tested. I'm like, I don't know, we're managing $80 billion of private debt from our like houses when companies had no revenue and no one could see each other during a pandemic. We ran a public BDC through, I hope, the greatest financial crisis we'll see in our careers on Wall Street, so to speak. So I mean it felt like a test to me.

It was pretty hard. And I always like to say this and someone asked me why I think maybe it was just trying to sound smart. But I mean the Medicis were doing private lending like 600 years ago. Like it really is so not a new idea, but more to be nonfacetious about it. Leverage lending has been an active -- I was doing LBOs when they were called LBOs in '95 using leveraged loans.

Just putting the word private in front of doesn't make them not credit. that is also a very strange mindset to say, yes, but private credit, right? You mean the ones with the better documents and deeper diligence. Okay, you're right. So let's go look at the ones that don't have that and see what they did during the financial crisis. But like some others like forget all that, it's just this imaginary new thing called private credit.

Got it. Another topic, I know you guys are getting a lot of questions about it, software lending. So in this new era of AI, I think there are concerns about the quality of that portfolio. Again, I'm quite familiar with OTF, Blue Owl's tech lending, BDC, ARCC gave some great color on the earnings call on the software portfolio. I mean you look at all direct lending, that sector, those portfolios are probably the highest performing highest quality parts of the portfolio. So why is that? You're getting paid additional incremental spread lending to those types of companies.

So like let's just walk through why that portfolio is performing so well. Are there any -- like how do we, from the outside, think about the risks as AI continues to come into our lives more and more? And kind of just walk through that and what's driving?

Let me go since you guys have OTF, and happy to come on.

Happy to comment. So maybe to your point about the focus on software is because like life loves irony because it is the best performing area in our collective respective portfolios. OTF, which is obviously, therefore, visible and you can look at it line by line, our default rate in OTF is 3, 3 basis points. We've never had a loss on a software loan.

That's why I'm waiting for those.

I mean it is -- and I get -- and then we get to, yes, but what about? Well, what's really happening in the vast preponderance of the software businesses we finance. And again, this is one I'll say never. I'm sure some software company will have a problem. And out of those many, many, many line items, they...

There are a couple of bankruptcies that doesn't endemic.

It happens in every industry we've ever been in. And if anyone tells you they're doing lending, they'll never have a loan problem, you're in the wrong place, right? So -- but what's happening really is to use the current terminology is identification is happening on top of the current software platforms. They have the customers if you pick the right ones. They have the data, they have the moats that go with it. They have the workflow. And very importantly, when you pick industries, not like we just think any software business is a good business. You want someone who has a very large share, controls the data, and very importantly, has a zero tolerance environment.

Our biggest sectors are things like financial service, regulatory, health care. That's not a place where you can say, well, what a penny that the AI in that case happened to have hallucinated your disease. I mean it doesn't work that way. And so...

Sort of I'll interrupt you for one second.

Sure. Go ahead.

Because that's kind of a big miss. We always -- software is not an industry. It's a product, right? And its end markets deliver into a wide variety of, you hope, defensive, not cyclical end markets where their products are really important to these end companies that are probably not experiencing difficulties in a recession. And even if they are for us, I think for you guys, too, this is software they really can't shut off. This is like essential to driving their day-to-day business and the management of that business.

So, and remember, our average loan duration in any of these portfolios is about three years in terms of actual time outstanding. So we're not in three years, right, that all this happens and the software companies aren't paying attention. They are. They did learn a hard lesson, right? The legacy software companies learned a very hard lesson through the SaaS transition, painful lesson. It's not like they're sitting there saying, no, I never saw this movie before. They're saying, I know exactly what this looks like and you all -- many of you invest across sectors. It's not like the software companies are saying, yes, that AI thing, forget that, right? They're all adopting the tools. So I don't know who will win 10 years from now, but that's really quite unimportant to lending portfolio like ours.

Yes, for sure.

And then LTVs of the software portfolio, can you just remind us where those sit today? Because I think that's another important stat. Is it 30%...

Yes, close to 30% in the loan to values in these loans at time -- back to the point, time you do a deal, typically, it's 30-something, 30-ish percent of a software deal, where it's 40-something of a non-software deal. Both are low. But again, if you want over the risk, the fluctuations on it, and it's true that software people got pretty hyped about it in 2021. And maybe this is the growth, maybe this isn't the growth. But if 70% of the capital structure is equity, all of shock absorber is just a question of the equity results and nothing to do with the debt results.

Shifting gears a little bit. So I mean, it's funny. Like people talk about private credit the last few years, five years, like it's really been direct lending, right? And so now we're getting into -- I kind of call it private credit 1.0, 2.0 is all asset-based lending. And really, that's where a lot of the growth is going to be coming from.

So, Kipp, you and Ares have built an incredible alternative credit business really from scratch organically. Just talk a little bit about that strategy, the assets you're acquiring. And it's pretty similar to direct lending in terms of the process and how you underwrite, but where -- what are some of the differences look like just to the regular direct lending?

Yes. I mean I'll -- so I mean, our entry really came out of the great financial crisis. And I mean, because we come from kind of the direct lending background, at least a lot of us, the experience that we had setting up the businesses in direct lending are very similar to the experiences the alternative credit teams have had setting up at Ares, where they basically said, everything I do at a bank, I can't do anymore, right? And it was partially because of regulation. It was partially because the way the banks thought about risk changed.

And what we wanted to do because actually the impetus was investing in other people's CLOs. So that was the first business that we had back to '07, '08, probably managing $2 billion or $3 billion of capital doing that. And we realized that all the other businesses built on securitizations were never going to come back, particularly the middle market securitization. Because if your bank in 2007, if you did a big securitization that you could rate and sell, you sold that to a financial institution, that looked a lot like us, a leveraged loan.

All the middle market stuff that used to sit on principal desks and banks, guess what, never came back. That to us looked like a middle market corporate direct loan just with different underlying. So we went out and started hiring everybody who got fired from 2009 to 2012, and there were a lot of good choices. But we wanted to come at it with people that could really evaluate a multitude of different assets.

And what was happening back then was so and so was like I'm an aircraft leasing guy, I'm going to pop up an aircraft leasing strategy. And we wanted to be very agnostic in terms of what the underlying collateral was because we could move around, and we could really select what we thought was great risk reward.

So I mean our asset-based business today is now about $25 billion of sub-investment-grade money that's looking for a higher return, call it, 10% net at a minimum. And then we do have what some of our friends with big insurance companies talk about, which is the investment-grade substitute business. That's about $25 billion as well. But inherently, all of the business is built on direct origination. And that can mean direct origination to banks, but it can also mean a lot of direct origination in the company. And we're not doing a lot of consumer right now, but it's everything from consumer to hard assets to royalties, really see any pool of underlying assets that pays a coupon that's not a company. And you can lend to that asset, you can buy the entire pool. And the way that you buy those assets as a lender or as an owner expresses your view on where you think the appropriate risk return is and how you want to enter that.

So, it's been for us, I know you guys bought some friends to get into the business who -- they are friends at Ally, we've known a long time. You know this, too, one of the guys that runs our alternative credit was Ivan's partner from the early days.

Yes. I know.

When they had like eight people or whatever it was.

I'm in the lineage.

Which is funny. So they all kind of grow up in the business together. But look, we think the end markets there are enormous. Like direct lending, we don't think the banks are ever going to be able to get back into these businesses. And frankly, the people who work at Ares and at Blue Owl aren't going to want to go back to the banks to run the businesses. So it's been a huge growth business for us. We think it will continue to be.

And adding one feature to that, it has an even higher barrier to entry, which is great, now being the managers for a moment. It has an even higher barrier to entry because someone may very well convince themselves and some LPs like, I'm going to go find the next widget manufacturer. I can figure out how to make a loan to that. You can't say, oh, I'm going to figure out how to make a loan to these 1,000 medical equipment leases. It's a super data-intensive business. And it's evolving the same way where there are bigger people originating portfolios that need a sophisticated durable partner. So it's really quite appealing because the barriers are even...

Well thing that's cool, too, is when you talk to investors just having -- I mean, like when I joined Ares in 2004, we would -- we were $3 billion of AUM, 60 people. So we'd go out and we talk to institutional investors about direct lending. And they're like, that sounds kind of neat, but like we don't know what that means, like we don't understand that, right?

Like we have a fixed income team and we have a private equity team, like where do you guys fit? And we're like, we kind of don't. We kind of fit in the middle. This asset class is the same. There are so many large global investors that understand that there's something exciting here, and they're like in the first inning of scoping out how they want to get exposed, which managers they want to select for mandates, et cetera. So it's -- we think it's a huge opportunity. I know you guys do, too.

Yes. And I guess thinking about like the adoption of private capital solutions, right, started as private equity and then direct lending and then here we are alternative credit, digital infrastructure, and you kind of keep going down the list.

But when you look at the adoption of private capital today, I mean, like where are we across the spectrum? Direct lending is probably a little bit more mature, but you look at some like digital infrastructure and asset-based lending, I mean, like what's the opportunity? I mean, is there a way to think about the TAM there at $50 billion, I'm assuming that could be multiples and even Atalaya, now alternative credit, that could be $12 billion, $13 billion today in three to five years, like what is some of these end markets in terms of your business look like?

Well, a couple of comments just to build on what Kipp said, for sure, on the asset-based side, like let's just take it directionally, cut it how you want, it's a bigger addressable market than direct corporate credit. It doesn't matter if it's a lot bigger, not a lot bigger.

Everyone draws the map a different way and whatever, but I agree with you.

So, let's just start there. So it's a bigger addressable market that has penetration that looks a whole lot like corporate direct lending 10 years ago, a lot like.

Digital infrastructure is obviously emerging at scale in our -- in my wild streams, but I'm going to -- I think I can speak for both of us. I don't think we ever started a business thinking, you know what I'm going to do, I'm going to be a lender to Microsoft. That's what I'm going to do. I mean that was not part of the playbook, but that's what we now do because it's scale solutions with very bespoke attributes with an ability to build an asset they desperately want and need and what a great partner to have.

So the world is getting bigger because it's not going to eliminate -- the public markets are phenomenal for so many things. And this is part of -- if you like to set up this like battle between the publics and the privates. We do something very valuable for a certain set of users. It's a big set of users, which is we have very long-dated solutions, very bespoke solutions, and we're your partner for the long term. And that has real value you'll pay for, for some people, right? And the public markets do some other things. They cut up really high volatility risk that none of us will take in our book into lots of small pieces, that's really good because we're not financing have this really neat idea to build an LNG import facility, like that's not what we do.

So you need both markets to be healthy. But they both have a reason and private markets are just finding part of any market that exists to be a private market solution. In some cases, it will be a big part of the market. In some cases, it might be small, but it's because it works for the investor, it works for us as an asset manager, and it works for the user of the capital.

Just a couple of final questions to wrap. I mean kind of going back to the macro, I mean, Again, another thing dynamic that's underappreciated is the amount of data that sits in both your firms, right, all the different data points. But from a macro perspective, and underlying growth perspective, I mean, what are your firms seeing in terms of revenue growth, EBITDA growth? Maybe some of that has to do with the sectors you're allocating to. But I mean, what is the house view on the macro over the next year -- one to two years?

I think our simple view, I mentioned is the economy is good. You made the point about industry mix. I know we said this on the BDC calls, but our mix of companies should be growing faster than GDP, just that's obviously by design. The BDC has had numbers that have ranged from 8% to 12% over the last six quarters. That's pretty high. My own view is things are slowing a little bit, but it depends really on the direction of rates I personally think rates will stay higher for longer.

Inflation seems like it's more or less under control and away from the lower-end consumer spending is pretty good. The employment picture is pretty good. I don't see a huge need for lower rates. So I think we're in kind of a nice coupon clipping credit actually environment that's quite good for credit.

Well, I mean perfectly said.

Okay. And then maybe just the last question. Let's fast forward, call it, five years outside of maybe a robot asking you guys questions on stage about PIK income, like what...

My robot will answer those questions.

We're getting fed the same answers as we see today. What does the industry look like? Who are the winners? Are the winners of the last decade, the winners of the next 5 to 10 years? Like -- and I guess just thinking about AUM and longer term, like where do we go?

I was going to say it's too hard question. I think you have to go business by business a little bit, right? I mean I made the point about direct lending winners sort of being -- I think that's pretty fully baked. Alternative credit, I think we need to be innovative and think about growth in areas that we can continue to build upon what's clearly an attractive kind of first-mover advantage that we have along with some others.

And I guess the last thing I'd say, and I'll leave it to Marc to conclude. But our investors love the idea of having fewer high-quality alternatives managers, and you made this point, so long as what you're delivering to them is really, really good. And you made the point, and I'd corroborate, which is we don't want to manage assets for clients where we don't think we're at least top five in that market, right? And can you truly be great at everything? Probably not. But to answer your question simply, I think, generally speaking, the folks that are at the top of the industry today will stay there.

Yes, this is the funny other side of the commoditization coin. -- people tend to think it's pejorative to say, yes, but isn't the product kind of getting commoditized. When you're already one of the leaders, that's not a bad fact because you don't need any more. The leaders have been largely established. The one place where I'd say that's still evolving on the margin is in the wealth channel. And by the way, there, though, leadership is really important because you see the top few products, really all the funds flows. And that's sort of being occupied by different ones of us and other firms.

So that maybe still has a little more evolution to go, but I think you have a pretty good guess at who the winners in terms of market share and kind of position as the go-to firm for the most part are going to be.

All right. Great. I think we're a few minutes over. So we'll leave it there. Thank you both for being here. Great perspective, as always, and good luck.

Thanks.

Thank you.

Good morning, and welcome to Blue Owl Capital's Third Quarter 2025 Earnings Call. [Operator Instructions] I'd like to advice all parties, this conference call is being recorded. I will now turn the call over to Ann Dai, Head of Investor Relations for Blue Owl.

Thanks, operator, and good morning to everyone. Joining me today are Marc Lipschultz, our co-Chief Executive Officer; and Alan Kirshenbaum, our Chief Financial Officer. I'd like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's -- actual results may differ materially from those forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation, available on the Shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund.

This morning, we issued our financial results for the third quarter of 2025, reporting fee-related earnings, or FRE of $0.24 per share and distributable earnings or DE of $0.22 per share. We declared a dividend of $0.225 per share for the third quarter, payable on November 24 for holders of record as of November 10.

During the call today, we'll be referring to the earnings presentation which we posted to our website this morning. So please have that on hand to follow along. With that, I'd like to turn the call over to Marc.

Great. Thank you so much, Ann. The results we reported for the third quarter of 2025 reflects strong growth and business performance across an increasingly diversified set of investment platforms. Not only are we beginning to see the benefits of the ongoing investments being made across our institutional and private wealth distribution channels, we have also had early successes in new product expansion efforts. We continue to see a comprehensive shift in how assets are being financed globally. Financing offered by the private market is more and more so, being recognized by borrowers as a compelling solution that offers the ability to execute with certainty and at scale and with terms tailored to the specific counterparty. This is a structural evolution for which Blue Owl is particularly well positioned given our leading franchises and one that we are increasingly able to meet in a cross-asset class fashion as a result of our acquisitions. .

Concurrently, investor focus has continued to shift toward credit and digital infrastructure, which are taking greater market share away from legacy categories. We're seeing this play out broadly across institutional, insurance and private wealth channels and have already strategically positioned Blue Owl to be a beneficiary of these trends. We've skated to where the puck is going and our investors are benefiting from that.

Of course, in any period of meaningful structural change within markets, there's always a concern that some participants may act responsibly resulting in negative outcomes. There have been some headlines over the past months detailing idiosyncratic credit issues, which have led to broader questions about the health of the corporate and asset-backed credit markets. Let me start by saying that Blue Owl has no exposure to tricolor or first branch. And broadly speaking, we do not view the events that have unfolded for those companies as canaries in the coal mine for the health of the private credit markets. However, we do believe that these two situations are reminders that vigilance is required in credit investing.

As we have highlighted in previous earnings calls and continue to call out, the health of our credit portfolio remains excellent with an average annual realized loss of just 13 basis points and no signs of meaningful stress. In direct lending, the modest level of nonaccruals we have seen are not thematic in nature, and there's not been an uptick in our watch list levels. Similarly, in alternative credit, we're not seeing anything that would medicate weakness in consumer credit. In fact, you've heard numerous banks highlight the resilience of their consumer portfolios during recent earnings calls, despite some of the financial press headlines. The reaction that we have seen in public equity markets has not been consistent with the strong fundamental performance we see in our portfolios. And our software loans have remained the best sector farmer with our direct lending portfolio, and we are very pleased with the credit quality and ongoing health of the underlying borrowers there.

Moving on to business performance. During the quarter, we saw over $14 billion of new capital commitments, bringing us to another record last 12-month capital raise of $57 billion, the equivalent of 24% of our assets under management a year ago. This capital raising does not yet reflect any contributions from our acquisitions from which we are anticipating significant growth over the next couple of years. And notably, we have a growing base of AUM not yet paying fees, $28 billion as of the third quarter, which we expect to largely deploy over the next couple of years and drive over $360 million of management fees upon deployment.

In direct lending, we're seeing an uptick in the pipeline for deployment and continue to find high-quality investment opportunities, generally underwriting to a high single-digit unlevered return despite tighter spread dynamics industry-wide. With the risk-free rate expected to end the year below 4% and with leverage loan and high yield currently offering 6% to 7%, we believe our direct lending strategy continues to offer meaningful spread premium and an attractive risk return versus other asset classes.

Gross origination in the third quarter was roughly $11 billion and net deployment increased to $3 billion, bringing last 12-month gross and net originations to $47 billion and $12 billion, respectively. In alternative credit, we continue to demonstrate scale benefits, deploying approximately $5 billion over the last 12 months, primarily focused on small business, equipment leasing, aviation and consumer transactions. This is consistent with our broader asset-backed strategy of financing the Main Street economy. The team continues to make meaningful progress capitalizing on long-standing relationships to deliver for our insurance clients for whom we have originated several billion dollars this year with a robust forward pipeline. And we continue to see the power of the integrated platform more broadly as the alternative credit team works closely with direct lending, real assets and insurance to build focused efforts in areas such as equipment leasing. During the quarter, we announced a forward flow agreement with PayPal, their first partnership with the sort in the U.S.

We thought it would be worth spending a moment on how we structure forward flow agreements to create downside protection for our investors and why they're so compelling. One of the most important elements is the dynamic nature of these agreements, meaning we monitor performance of the portfolio on a daily basis, and we can turn off the flow if the assets are not performing as expected. In addition, our team is focused on partnering with best-in-class originators where we have a high degree of alignment. In other words, the originators are at a minimum owning risk side by side with us through their balance sheets and are often the first loss risk. Finally, these assets are typically shorter lived self-amortizing assets with a duration of 2 years or less. This means that if there is weakness by vintage or originator, it runs off relatively quickly compared to other forms of credit. We underwrite to severely challenged economic conditions. And when we buy our land, our starting point is to assume that credit will get worse. To reiterate my earlier comments, we see no weakness of note.

In real assets, we have continued to execute across a record pipeline of capital demand in the data center space specifically with over $50 billion of investment announced over the past 2 months across two transactions, including $30 billion of capital investment with Meta in Louisiana and over $20 billion of capital investment with Oracle in New Mexico. This is in addition to the previously announced development with Oracle in Abilene, Texas where Blue Owl anchored the financing of approximately $15 billion of project value through Phase 2. We are fortunate to be in the position to offer the scale of capital and deep sector expertise that together make Blue Owl the preferred partner for the hyperscalers representing the forefront of cloud and AI innovation as highlighted by our leadership role in all three of the largest financings in the space.

Across our diversified net lease and digital infrastructure strategies, we have raised more than $15 billion in aggregate capital over the past 2 years, reflecting strong interest from investors for what we are offering. And this only includes $1 billion of the $7 billion digital infrastructure fund we just finished raising. In diversified net lease alone, the $14 billion we have raised over that period compares to $26 billion of total AUM for that strategy 2 years ago. This includes the largest real estate fund raised in 2024, the top real estate products in private wealth on a net capital raise basis, and over $4 billion raised toward our next vintage and associated coinvest.

To add to that, during the third quarter, we announced a substantial strategic partnership with QIA, one of the largest sovereign wealth funds with a shared goal of further scaling and expanding Blue Owl's digital infrastructure business. Extending our progress on this front. Subsequent to quarter end, we launched our digital infrastructure semi-liquid product ahead of schedule and anticipate a first close in December with significant investor interest already observed.

We have built what we think is an outstanding business in private wealth, where we have raised over $16 billion over the last 12 months, more than doubling our fundraising pace from 2 years ago. I believe the strength of our results is indicative of the durable partnerships we've built over time and a long track record of bringing innovative solutions to market. Today, we have an installed base of over 160,000 individual investors in Blue Owl products and are adding highly complementary new products in digital infrastructure and alternative credit to the lineup. We're very excited about the runway for these new initiatives and look forward to providing more detail in the coming quarters.

In GP Stakes, we closed on 2 investments during the third quarter bringing us over 35% invested on our target size for our latest flagship vintage. We also completed our largest strip sales to date selling about 18% of the assets in Fund IV for proceeds of over $2.5 billion, delivering a 3.2x gross return on the assets sold across 2 transactions. As you've seen over the past year, we have been successful in delivering liquidity to the investors in these funds, while introducing innovative path for new investors to participate in the strategy. In total, our GP Stakes flagship funds have distributed more than $5.5 billion over the last 18 months in a market increasingly focused on DPI or distributions to pay situating our funds squarely within the top quartile on this important metric.

And considering the strong results we reported for the third quarter and the ongoing momentum across Blue Owl, we continue to center around a few guiding principles that anchor our accomplishments to date and inform our path forward.

First, performance remains key. If we do right by our investors, growth will follow, and so our focus is always, first and foremost, on delivering exceptional return per unit of risk and protecting the downside. Second, duration of capital is highly important to achieve positive investment outcomes over time. And we have an embedded base of permanent capital that not only supports the investors in our funds, but also creates meaningful visibility in earnings for the investors in our stock. And finally, we are hypervigilant to the notion of complacency. We always look to be skating to where the puck is going, not where it has been. This focus on innovation and being ahead of the curve has brought us to our current position at the intersection of many of the largest secular trends happening across alternatives, and we believe it will continue to serve our investors well going forward. With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter. marking our 18th consecutive quarter of management fee and FRE growth. Over the last 12 months, management fees increased by 29% and 86% was from permanent capital vehicles. FRE was up 19% and DE was up 15%. We had another very strong quarter of fundraising taking in over $11 billion of equity in the third quarter and nearly $40 billion over the last 12 months, an increase of over 60% from the prior year and another record for Blue Owl. Of that $40 billion, $23 billion or roughly 60% came from institutional clients, reflecting an increase of over 100% versus the prior year period.

And in private wealth, we have gotten off to a great start with two new wealth-focused vehicles with significant interest in our alternative credit interval funds and our new digital infrastructure fund. And we continue to see a growing breadth of interest in our existing product lineup. We highlight the massive secular trends in play for these strategies on Slide 5 of our earnings presentation.

To break down the third quarter fundraising numbers across our strategies and products, in credit, we raised $5.6 billion, a near record quarter for our credit platform. $3 billion was raised in direct lending of which $2.4 billion came from our nontraded BDC, OCIC, and OTIC. The remainder was primarily raised across our newly launched integral funds and other alternative credit funds, various diversified lending funds and SMAs and investment-grade credits.

In Real Assets, we raised $3 billion, $1 billion was raised from Oren with another $1 billion raised with the 7th vintage of our flagship net lease strategy. The remainder was primarily raised in insurance-focused products and co-investors. And in GP Strategic Capital, we raised $2.7 billion with most of this due to the strip sales that Marc referenced earlier. The latest vintage of our large-cap GP stake strategy is now up to $8 billion raised towards our $13 billion goal. And from a forward-looking fund raise perspective here, as we commented on last quarter's call, we expect the fourth quarter fund rate to come in at a similar level for the second and third quarter.

Turning to our platform. In credit, our direct lending strategy gross returns were approximately 3% in the third quarter and 13% over the last 12 months. Weighted average LTV remains in the high 30s across direct lending and in the low 30s specifically in our software lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits. And as Marc mentioned earlier, credit quality remains very strong.

In light of the most recent 25 basis point rate cut, we wanted to refresh the framework of how a cuts impact Blue Owl and underscore the resiliency of our Part 1 fees. So for every 100 basis points of rate cuts, the impact of Part 1 fees was approximately $60 million or a modest 2% of our third quarter revenues annual. So now with that refresher, first, let's look backwards and then we're going to look forward.

Over the last 12 months, we have grown total direct lending management fees by 18% and Part 1 fees by 12% during a period that included 100 basis points of rate cuts and relatively modest sponsor M&A activity, reflecting the advantages of incumbency and scale in this business. Sitting here today, looking at the forward SOFR curve, which shows approximately 100 basis points of average rate decline in 2026 over 2025 and incorporating our current expectations around fundraising and deployment in direct lending, we anticipate continued growth in Part 1 fees in 2026.

Turning to alternative credit now. Our strategy gross returns were approximately 4% in the third quarter and 16% over the last 12 months. The vast majority of portfolio returns in this strategy have historically been generated by contractual yield and principal recapture with relatively short duration compared to corporate credit. Over the past 2 quarters, we held one of the largest first closes for an interval fund at $850 million and have subsequently raised an additional $150 million to date, bringing us to over $1 billion raised for this new product, an incredibly strong start. We are now onboarding at a number of the major custodians, enabling a broader swath of platform to distribute the product on a continuously offered basis, and we continue to add large distribution platforms for the pipeline for onboarding. And we have deployed the majority of this initial fundraise already by upsizing existing partnerships and transactions as we had more demand for capital than we were able to fill previously.

In Real Assets, you heard about the strength of our data center pipeline for Marc just now. Combining the demand for capital in this area with robust opportunities we see in logistics and manufacturing onshoring, we continue to expect that net lease Fund VI would have committed nearly all of its available capital for investment by year-end. Through September 30, we have deployed roughly 50% of this fund with much of the remainder slated for deployment over the next 12 to 18 months as various build-to-suit projects reach completion. Our net lease pipeline continues to grow with over $50 billion of transaction volume under the letter of intent for a contract to close.

With regards to performance, gross returns in net lease were approximately 4% for the third quarter and 10% over the last 12 months. In GP Strategic Capital, we have now closed on 4 investments to date in the latest vintage of our GP stake strategy. Year-to-date, we have deployed more than $5 billion of equity in our large-cap strategy, slightly above the average annual deployment over the past few years. Performance in these funds remained strong with a net IRR of 22% for Fund III, 34% for Fund IV and 13% for Fund V.

A few items remaining here that I wanted to cover with everyone. First, during the quarter, we saw a fee step down on a portion of the AUM in net lease Fund VI that paid fees on committed capital. This resulted in very modest management fee growth in our Real Assets platform for the third quarter. As we look ahead, we anticipate a meaningful acceleration in management fee growth for real assets given our robust fundraising momentum and the strong pipeline we just discussed with the anticipated mid-single-digit growth for the fourth quarter, quarter-over-quarter, which annualizes to about 20% growth and further acceleration expected into 2026. As a reminder, we have committed 90% of Fund VI to be invested but have only deployed roughly 50% of capital out of that fund, providing visibility into management fee growth as those projects reach completion.

Second, in GP stakes, there was a fee step down for Fund II that is occurring at the end of October and will result in an annual management fee impact of about $22 million. And finally, when we look at our most important key metrics like FRE growth and FRE per share growth, or DE growth and DE per share growth, due to the timing of when shares are issued for each of our acquisitions, shares are issued at close, there can be a natural, very short-term divergence between something like FRE growth and FRE per share growth. So to see the best indicator of our current EPS growth rate, we can look at our quarter-over-quarter growth for, say, 1Q to 2Q '25 or 2Q to 3Q '25. Since we closed our last acquisition at the beginning of January, these are clean quarters, meaning each quarter has full share count and full P&L from all acquisitions. What you see in quarter-over-quarter growth for these recent quarters is a meaningful closing of the gap between FRE and FRE per share as well as an acceleration in FRE per share growth.

So to wrap up, I think you've seen from our business performance that nothing has changed fundamentally across Blue Owl despite the acute reaction we've seen in all stocks over the past month or so. One of the benefits of our model is that we have very high visibility into future earnings given the recurring nature of our revenues, reflecting our very durable business model. Portfolio quality has remained very strong across the board, fundraising has been very robust, and we continue to lean into our incumbency and scale to drive positive outcomes for our shareholders and investors. Thank you very much for joining us this morning. Operator, can we please open the line for questions.

[Operator Instructions] Your first question comes from Glenn Schorr of Evercore ISI.

Maybe I'm going to try to -- maybe I'll try to just get a summary with your last commentary on the acceleration. So I think I'm okay -- I am okay with some dilution that gets Blue Owl into these key growth markets. And maybe it offsets any pressures from any lower rates and maturation of any of your legacy businesses. So the question I have is, we're trying to solve -- I think we're all trying to solve for the magnitude and the timing of the growth investments when they stop having any dilution and improve the FRE growth, FRE per margin per share growth and the margin. So maybe just big picture, '26 and '27, are we back on track? Do you see 20-plus percent FRE growth, FRE per share matching that? And do we see margin stabilization and improvement from here? Just trying to get to the like the summary of it all because I think that's where you're getting that.

Yes. Thanks, Glenn. I appreciate the question. The answer is yes, across the board. We expect over time to continue to have margin expansion from where we are today as we get into '26, '27 and certainly our 2029 goals. We will expect to see meaningful accretion -- meaningful acceleration, excuse me, of metrics like FRE per share, DE per share as we look '25 to '26, and again, as we look '26 to '27, each of those years builds on each other. We are from everything we see sitting here right on track, with what we call our North Star, our Investor Day goals of 20-plus percent growth for management fees for revenues for 20% growth on metrics like FRE per share.

I'll just add taking the numbers that Alan just said, I take a step back for a moment, the -- and well, to be clear, we understand why people ask questions about acquisitions because this is an industry that hasn't always done them well. But I say this all humility. We've done them phenomenally well. I mean think about where we are and how we've positioned for where the real opportunities going forward are, both for our investors in our funds and for our shareholders. Our position in digital infrastructure is monumental. We have this incredibly successful fund already in asset-backed, and asset backed is growing. So these are capabilities that are fully integrated. And in fact, you've already seen, if you look at the Meta transaction, we had about 100 people working across the firm on that, that never could have been done absent the capabilities that we have built organically and added. And so this sort of recurring -- not your mathematical question because I absolutely understand there's the mathematical reality that if you issue shares and have less than a year of earnings, then I mean, obviously, the per share effect won't show up until you get a year out or if you look at our annualized numbers look quarter-over-quarter in annualizing, you can already see what we're talking about. This isn't a -- we can see it on the come, just look at the quarter-over-quarter numbers annualize and you can see that the acceleration coming back to the levels that we're all anticipating. So from where we sit today, just so everyone knows that those acquisitions are done, dusted and thriving. And we view that as having been no small part of our success. Look at -- let's look at Owl Rent. Owl Rent today is, by far, the leader in that fundraise and net flows in real estate continuous they offered. Our fund, our real estate traditional flagship fund, as you know, we've already raised nearly half of our target fund size just out of the blocks. We've already committed -- I think we're now 90% committed in Fund VI. I mean so we're really thriving, not just in our core businesses that we already had, like direct lending, but these additions. So absolutely, we need to deliver it through to the numbers. That's just math, thankfully. It's not operational. It's not execution. It's not strategic. But that math will show through.

And maybe one other thing to add. When folks are looking for early measures of success, right, it takes years to ramp products, ramp strategies to get a a good level of AUM that we're working off of. When you think of early measures of success, it could take 9 to 12 months to roll out an organic brand new product -- a brand-new strategy within your business. Think about what we've done with our acquisitions. The interval fund was out in market in less than 12 months. OD, which is our digital infrastructure, wealth dedicated product we've talked a lot about here we're going to have our first close in less than 12 months from when we closed the acquisition. So when folks are looking for how much are we going to raise, what's going to happen over time, it takes time. But when you look for those early measures of success, are they on the right track? I couldn't agree more with Marc, we're hitting on all cylinders and things are pointing up into the right for us with all of these acquisitions.

The next question comes from Patrick Davitt with Autonomous Research.

I have a question on retail flows. I guess, through the lens of the volatility in August. It looks like October 1 subscriptions were still quite strong. Do you have any early view on how the credit volatility we've seen the news flow has or has not impacted the numbers we're going to see for November 1.

Thanks, Patrick. Appreciate the question. We're coming off just for credit, just focusing on what we're doing there, but I'm going to pull the lens back a little. Very strong flows. We're coming off of a record quarter in our wealth dedicated products for 3Q. We have continued momentum this month. We should build on what we did last month for products like OCIC. We had a record quarter -- I'm sorry, a record month with ORENT. We broke over $300 million. We are well on our way to one of our goals -- one of our many goals that we're on track with of hitting $1 billion a quarter run rate for ORENT by the end of this year. So we're very encouraged by what we see, and we see a lot of resiliency in the channel for what we've been doing.

ORENT and OCIC, just very particularly the way you phrased it, to be clear, they're accelerating this month, accelerating. So I have to add it to the list of imaginary problems that people are concerned about. And maybe it speaks to this point, sometimes we get this issue of gosh, individual investors, are they more volatile, they're going to be fickle. Actually, the evidence to us is there's certainly does that -- it might be to the contrary that institutions actually can sometimes be much more heard like and can hit odd rigid barriers or someone on their board calls and says, gosh, I read an article. I don't really know. But actually, the evidence we have doesn't suggest that individuals -- in fact, it seems like they're grasping the reality that these strategies are working really, really well, perhaps better than the media and maybe some institutions, although we're doing quite well with institutions now as well.

The next question comes from Brian McKenna with Citizens.

So if I look at all of your public companies, that includes OWL, OBDC, OTF, all three continue to deliver pretty strong results across the board. You look at the underlying fundamentals, they remain some of the best in the industry. And even for your public BDCs, they are really the best in the industry. And then you look at direct lending, gross returns that you reported today, it should be another strong quarter for your BDC. So your fundamentals remain really strong, but you look at all the stocks and they're trading at a pretty meaningful discount to peers. So what do you think is still misunderstood about your businesses within the market today? And what are you doing as a management team to change these perceptions and ultimately get these stock prices higher? And then does there come a point when insiders start to step in and they ultimately start buying some of these stocks.

So as to what investors don't understand, it's probably hard for us to to give you a comprehensive answer in fact, you obviously talked to a lot of investors, we can offer some theories. I can certainly tell you what we're doing. We're doing two things that I think at the end of the day, will solve this problem. One, we are executing, executing, executing. Business is good. Business is continuing to be good. And we're focused on continuing to deliver. We haven't seen an opportunity as good for investors and by extension for Blue Owl as the digital infrastructure investment cycle that we're in. And so we're just going to continue to deliver results for investors and continue to deliver -- frankly, we're short capital in an arena like that. So I think that execution is the name of the game, internal for us and then communication, we are out on the road talking to shareholders all the time. Everyone in the senior team here is, by the way, happy to do it. We like spending time with shareholders and we're out on the road, and we'll answer any question anybody has. So I think we can communicate. We're trying to spend time answering questions as best we can in the media as well. So we're going to communicate and execute. And to what you just said, look to our way of thinking, it couldn't be better set. I mean the reality is we -- in every one of these vehicles they're an incredible value. So rather than complain about it, which I know is a natural tendency we can have, that seems kind of pointless, rather, we're just going to continue to deliver spectacular results. Look at where we are compared to where we were when we set up our Investor Day, we're tracking right along. Look at like RDE this year versus what people thought a year ago and compare that to what the revisions happened with our peers. I mean we're in a different category as we should be because we have a highly predictable fee stream. So I don't know, we'll take advice from anyone on how better to do either of those things or crack the code, but history is a guide, those who join us now, I think, are going to be the beneficiaries of the upside from here, which we think of is substantial.

The next question comes from Craig Siegenthaler with Bank of America.

My question is on the digital infra business. So we've seen these large deals recently, like the $27 billion deal to develop the Hyperion data center. And I'm sorry, I'm losing my voice a little bit here, but I believe the underlying leases have maturities of about 15 to 20 years. So my question is, under what scenarios can Meta terminate or walk away from the lease earlier than 15 years? And if they do that, what compensation would they owe Blue Owl funds? And how would that impact the IRR for Blue Owl LPs on that investment?

Yes. So the leases -- first of all, let's step back. The leases are designed to function for 20-plus years. So just to start to level set to your point. There is a -- it is -- and this is part of the skill and art that both Meta and I think we brought to it. They're designed in a very bespoke way to create elements of flexibility for Meta. Of course, as you know, they're actually -- just yesterday, we're talking about how they're actually rapidly accelerating their spend. So I think this is more about having a flexibility, which I give them full credit for than having anything that's likely to be used. But just to cut through it all and I don't want to lose the forest for the trees. If there were an early termination, there is a perfectly mathematical make whole where we make -- the debt makes all its money. We make a spectacular equity return under every circumstance. So it is really -- it doesn't -- we expect it will end up being a 20-plus year undertaking but it actually -- you call it doesn't matter. If we terminated anywhere along where they have the options to do it, there is a value guarantee on the assets. So we make a great return under any one of those conditions. So there's -- we're happy any which way.

The next question comes from Bill Katz with TD Cowen.

I wish it was a day we could ask more than one. Maybe sticking with the digital story. I was wondering if you could help us understand how quickly you might be able to absorb the most recent flagship fundraising given the size of the pipeline? And then secondarily, despite the strong macro dynamics, the fund performance has been pretty weak 2 quarters in a row. I was wondering if you can help us unpack why that's the case? And would that be a hindrance to drive growth from here?

Yes. Let's first just clear up the accounting, therefore, kind of is -- not your misunderstanding understandable misunderstanding of the return points. So Alan you cover that first and then I'll talk about fund.

Sure. Thanks, Bill. This quarter, we saw some mark-to-market on swaps that we have around debt that's in place. So when we look at this, we see these are very long-term projects. When you look at the underlying performance of the data centers, they are very strong. And I'll tell you, on average, across our digital infrastructure funds, Fund I, II and III, we have IRRs in the high teens. So we're experiencing great IRRs for our investors. This is short-term noise.

Yes. And just to frame that in a way that will be apparent to everyone I'm sure it's already apparent to you. These are very long-dated leases with rent escalators, not to be lost by the way, that escalator is very powerful over time. But to match, we will -- we swap debt in many cases against them. So we've locked in our returns and our returns are outstanding. But as an accounting matter, the swap itself gets marked for accounting purposes unrelated to the fact that really, it's just serving to create this fixed income stream. So that is just an accounting quirk. The -- in terms of the absorption of the Fund, we are heavily committed already through Fund III. And so we will be back with Fund IV in the 2026. And at this point, as I said, we're -- the demand for capital given the partnerships we have and the capabilities we have, vastly exceeds our current capital on hand. So that's a great opportunity for our LPs, or frankly, others that may join us in other strategic roles, take like QIA, who joined us as a strategic partner in our continuously offered product, $1 billion commitment to help anchor that product. And we're going to continue to grow that partnership, a fantastic strategic partner. And they picked this platform because they see the scale and quality of the opportunities. So we're going to continue to develop these both strategic partnerships, and we're already seeing really great fund flows in uptake rates, speeds of adoption we've not seen before in continuously world. So we're trying to gather the capital, but it's still very imbalanced. We need much more than we have to capture what we may think are once-in-generation opportunities.

When you think of the momentum we have here, Bill, if you think about Fund III closed at the end of April, and within 12 or 18 months, we should be out -- and we expect we will be out of our first close, not just marketing, but our first close for Fund IV. And the digital infrastructure wealth product I mentioned a few minutes ago, our plans were to launch that in early 2026. We're ahead of that plan. We have so much momentum. We have two of our biggest distribution partners live in the system. We expect our first close to be December 1, and we are really encouraged by the early signs we're seeing in the channels there.

The next question comes from Benjamin Budish with Barclays.

I wanted to ask about operating leverage in the business. You indicated, I think, earlier in the Q&A that you expect -- you do expect FRE acceleration in the next few years. Curious if I just look at this quarter, you did have a big step-up in credit management fees, I think driven by the listing of OTF, but margins are still sort of that low 57% range. I guess that was presumably embedded into your prior full year guidance. But can you just remind us like why wasn't there more in the quarter? And as we think about the next several years, obviously, a lot going on in the top line and from a fundraising perspective, but how else are you thinking about expanding FRE margins and what that may look like?

There's a reason that we're -- there's a reason that we grow faster and more predictably than anyone in our industry. And there's a reason that we get to strategic places like digital infrastructure and alternative credit. And I want to say that other people are doing a phenomenal job, they are. But there's a reason when you just step back and put the numbers on a piece of paper, we are kind of in a category of our own. And it's because we invest in continuing that track forward. So we will continue, of course, to be a highly profitable business. You continue to see our margin this quarter at 57% plus. Sure, there's some operating leverage in the business over the medium term. But just -- from our point of view, that is not where you make money in our business. We have 30 more basis points of margin and gave up investing in the thing that's going to be the continuation of this accelerated growth 2 years from now, it'd be a really terrible trade. So we don't find the idea of trying to squeeze a $0.01 out of our margin versus invested in the future a worthwhile trade. So yes, there's operating leverage, but you should expect -- you should -- I mean I don't want to tell you what you should want us to do, that's obviously your call, but I would prefer you should want us to continue to invest in this dramatic outperformance over the long term versus trying to optimize the last dollar of margin today. And so that's where we are. We will continue to make growth investments. So I'd rather have you think about us as growing for a very, very long time at a very high margin with the highest fee rate, by the way, which we do have in the industry. But whether we take the last 50 basis points of margin to the bottom line or put it into the business, pun intended, on the margins, you should expect we want to put that in the business, so we continue to outperform so dramatically in North Star, $5 billion of revenue, $3 billion of FRE. That's where we're going. .

The next question comes from Crispin Love with Piper Sandler.

I want to go back to digital infrastructure, definitely had some meaningful announcements recently, the Qatar Investment Authority partnership, the Meta JV. When do you think of upcoming data center opportunities, what type of pipeline are you looking at? Are you able to put a dollar value on that? And then as well as just expected structures for these types of investments, could structures evolve? And then just on the Meta JV, why do you think the JV structure made the most sense for that one?

Yes. It's a wonderful question about the structures because if you look at the three largest data center complexes financings done, which no surprise, I'll note, all three are ours. The -- that each one is a different structure. And I think this is really an important point to understand. In the hundreds and hundreds of billions and to quantify, I don't even quite know how to quantify the pipeline because it's so vast in terms of the number of projects that we've already signed or that we're advanced on or that we're talking about. And remember, the size of each one is just so massive. But in excess of $100 billion for sure in terms of the way we would look at our pipeline. So let's call the pipeline or addressable market for practical purposes kind of infinite. It doesn't really matter. That's not the constraint. And by the way, if I'm sure we all did look at the numbers from yesterday from all the big hyperscalers and the articles in the journal and I was reading the journal, three articles are, I'll talk about one very core theme from Google, from Meta, from Microsoft, dramatic acceleration in capital spending beyond what the big numbers are people already thought and had. And if you actually, I think, talked to a lot of folks, they'd say we're underspending in the opportunity not over. Now I don't want to be in a position and we're not in a position to take that risk. We do things under long-dated contracts with exceptionally high-quality companies where we earn these really, really strong and growing yields. So that's our part. We're the picks and shovels, we're the infrastructure of that part, but with that said, there are multiple structures, and this is part of the strength we can deliver at Blue Owl as I think the reason that we are prevailing in this market is because we can serve as that one-stop shop, depending on what kind of solution you want, and I'm going to just quickly take you through this. If you look at -- if you look at the Abilene, Texas or Stargate project as sometimes referred to, so that project, we're developing in partnership with a fantastic company, Cruso, who recently just announced their own actual financing, which we're a part of, but that really reflects the strategic partnership we have with Cruso. They're outstanding what they do. They've been a pioneer in this business. They have big projects they're working on and we're working together on how we look there in the development business, and we're in the own -- the capital business. It's a wonderful compliment. So in that case, they're the developer, and we're the owner and Oracle is the tenant. So that's one structure. In the case of the Borderplex project, which is now -- and that one, by the way, Phase 1 and 2, that was a $15 billion project. In Borderplex, that's a $22 billion project. In Borderplex, we're the developer. Remember, we have a business called STACK. STACK has about 1,000 people in it. This is another 1 of the -- may or may not be fully understood, but the gigantic barriers to answer here is everyone's happy to own a data center. We just took one of our data centers we had created organically and say we're creating our data centers at 7, 8 cap rates, we just agreed to sell one at a 5.25% cap rate. So everyone would like to own them. The question is, how do you get to own them at 7 and 8 cap rates? Well, you have to have the partnerships and be able to either with Cruso or on your own, in the case of this on our own, develop. So STACK, We have 1,000 people that do design, build, operate. And it's not about what you did today. It's about what you did 2 years ago to position yourself with the right land and the right power and the right to understand into the regulatory frameworks and how to actually get this done because getting it done it matters as much as the capital and we do both. And then the third iteration is Meta. Meta develops and is very good at developing their own data centers. So they're saying, okay, well, I don't need the development, what I need is someone that can deliver $27 billion of capital that understands my business and understands all the nuances that are going to go into developing this project. So our expertise isn't like we need to build it away for them, but rather expertise allows us to structure in partnership with Meta in a way that meets their needs. So they say, oh, yes, like, it's great. We get to work with someone that understands what we're doing. And so Meta is building. that project. So what I like about that just so happens that all 3, you see 3 different all good flavors depending on what the user of the data center wants, and we are positioned to do all 3, and we're happy to do all 3.

The next question comes from Brennan Hawken with BMO. .

I wanted to ask a clarifying question and then one a little bit more forward-looking. So I think Alan, in your prepared remarks, you were talking about the GP Stakes business and then you went into fundraising expectations. So I was a little unsure about whether or not -- I thought those fundraising expectations were firm wide and not narrowly to the GP Stakes business where you expect 4Q to be equal to 2Q and 3Q levels, but just want to confirm that. And then you also highlighted expectations for management fee acceleration in the real asset business. Does that mean that the fee rate step down that we saw this quarter should recover? Or are you going to be seeing strong revenue growth despite the lower fee rate?

Thanks, Brennan. Good question. I appreciate you asking. I'm sorry, I have an opportunity to clarify. On the first question, 4Q similar to 3Q, 2Q, it was a comment out of this prepared remarks, same comments as last quarter, strictly related to sixth vintage of GP Stakes. So that's what I was focused on in that comment, narrowly, not broadly for Owl. And on the real asset side, Yes, the answer is yes. So the fee rate looks lower this quarter. It's a little bit of a mix shift. It's a little bit of a Fund VI fee step down, but the fees for Fund VII haven't really fully kicked in. We've called a little bit of capital, but not that much. And so that's the dynamic you're seeing. We've raised money for ORENT. Fees are coming down a little here because of the Fund VI step down. So it's a very, very modest growth there. You're going to see an acceleration of growth and continued fee expansion for real assets.

The next question comes from Steven Chubak with Wolfe Research.

Marc, can you provide some really helpful detail on the forward flow agreements and your approach to underwriting and structuring these deals, certainly a growing area of focus among investors. And I was hoping to delve a little bit deeper. There's like four subcomponents, I was hoping to unpack. First, if you could talk about the quality of the underlying credits? Second, the amount of subordination you build into these structures. Third is the volume it's expected to produce in a typical quarter. And then the appetite to afford similar agreements. So I know that was quite a bit, but credit quality, subordination, volume and appetite for more partnerships.

Sure. So let us tackle all and they're all good questions. They're all highly salient. These flow partnerships are something we very much like because what we're doing -- again, kind of a theme, no surprise in the Blue Owl system, which is we like to find the people that are best at what they do, work with them in the case of we work with them in the case of, say, a PayPal, by them when it's something that is an internal asset management capability that we need to should have, IPI or Atalaya. So I think the theme you're going to always see is we're looking for best-of-breed, and with -- we are very keenly aware of what we are great at and not great at, or put it another way, when you focus, you tend to be really great at things. There's a reason that we are outperforming for our LPs in almost everything we do, could we focus. We don't have that many strategies. There's a reason we win partnerships that I think many would love to have because we're more focused in a few core areas that really work. And so the flow partnerships are part of that. So let's start with quality. Well, quality, what you see is we're looking -- and this is quite important, too, even with all the noise in the market. We work with prime. We're not in the subprime business. And so we're talking about prime credit quality. That is why you'll see partnerships with people like PayPal or SoFi, who have strong prime flows in what they take in. So that's a logical starting point. So quality very high. We don't play in the edges. We don't do anything meaningful in subprime. We do prime. And then, of course, a lot of it is just business finance, business lease finance and otherwise. So high credit quality by individual credit and then obviously, of course, it gets down to the packaging, the diligence and then to your second point, subordination.

In everything we do in these partnerships, either the person we're partnered with is owning part of the same risk we are owning on their balance sheet or in most cases, subordinated. Now the amount of subordination, I can't really -- I can't give you a numeric answer because obviously, that depends on the exact credit quality, how much, what controls there are and what can go into the box. But important to understand, we're not buying a package of things and saying, well, good luck with that. They're keeping a parallel piece or usually a subordinated piece and the flow agreements, we can shut them off. We're doing daily feeds. This is a very data-intensive business. We're doing daily feeds between them and us. We see everything that's processing. And so these flow rooms can be shut off if there's deterioration around parameters, in which case, they actually run off quite rapidly. One of the beauties of alternative credit and flow arrangements is the duration per package per month is very fast. So in a world of liquidity, if people want liquidity or strategy where you can get to liquidity as an answer to a change in the world or a change in preference, so, this is the best match, which is why we put the interval structure -- interval fund structure here. You got to match structure and strategy if you really want to deliver for investors. And so that's on subordination, there is most often subordination, there's always at least parallel ownership, and there's tremendous day-to-day controls through data and tech integration with these big platforms. Volume. So you've seen some of the announcements we have. Now remember, it's important when we talked about $7 billion, for example. If not, then we put out $7 billion, right? That is going to be deployed over a couple of year period in this sort of running cycle of take receivables and then they get quickly paid down and then you add more receivables. So we could take you through, and we can certainly try to make sure people understand going forward, a bit of like what's the deployment -- peak deployment or deployment pace, but it really gives us what is a lot of visibility and optionality, maybe for lack of a better term, but it's not like we put $7 billion to work in any given moment that divide that over a couple of years, effectively.

And then on doing similar partnerships, absolutely. Again, what we want are the best originators in the world and leverage their capabilities and will be the best capital partner they can have partner of choice. So that marries with a lot of what we do. Same thing we do in the world of direct lending, right? We're not in a private equity business. We don't compete with our borrowers there in the business. They're great at it. They originate, if you will, and then we support their purchases. So we, yes, so absolutely continue to see similar partnerships formed.

The next question comes from Alex Blostein with Goldman Sachs.

Another one for you guys related to credit, and while the three instances that occurred a few weeks ago seemed to be related to fraud and it sounds like there's another one this morning with HPS and kind of those headlines coming out in the last hour or so here. But I guess, as you look at the credit exposures broadly across your platform and acknowledging that those four are like not really related to you guys. And it sounds like it was all related to fraud. But how are you addressing potential fraud risks across the platform? Is there anything differently that you're starting to look at? Is there an extra diligence you're starting to look at throughout the portfolios? And ultimately, will that require any incremental spend if these instances start to kind of percolate throughout the industry?

Yes, thanks. And I think maybe what I take a slight step back and just try to comprehensively address the overall credit theme question and well phrased. So I think it's actually important to level set in one place to begin with, which is credit quality here, our peers and at the banks for that matter, despite some [indiscernible] is very strong, very strong. The -- I'm going to come back to us, but let's just start with the ecosystem in total. It's very healthy. The ecosystem, the credit ecosystem is extremely well capitalized. It's trillions and trillions of dollars, and then you have a problem. And in this case, as you point out, a handful of problems that appear to be rooted in fraud, which is kind of the least relevant indicative issue when it comes to credit quality or systemic problems and yet has garnered extraordinary amounts of attention. Banks do a very good job. Like I don't want this to be misunderstood. We're all part of a common ecosystem. We have a different approach. But take banks like Wells Fargo. They do a phenomenal job. JPMorgan, phenomenal job. These are great institutions, and we work with them all the time. And so I think we should start with -- there's almost like -- I don't know you're all familiar with the Mandela effect. This is like the Mandela effect of finance, which is this just common population collective misimpression of what's going on. And for those who don't there's these like people imagine that the monopoly guy had a monopole, he didn't, or the tail has a black tip, it doesn't. There's just these common misunderstandings and misimaginations, and I can do a list so everyone has one. Fruit the loom doesn't have a cornicopia. So in any case, the point being like somehow by just talking about this enough, people have worked themselves into this imaginary world where there's some big or potential credit problem. And from where we sit now, I'm going to be a little more parochial, there's definitely not. When I now look at our book, performance remains extremely strong. You know we've originated over $150 billion in credit over the last decade, and we're still running at 13 basis point loss rates. And it will be higher than that over time, like that's too low. That's not the right rate. We don't suggest it is or should be. And in any given quarter, we have a company that has its challenges. We've had every -- we'll have it every quarter. We'll have some company has a challenge. We have 400 of them. But the key is to have very few when you have them get a good recovery. And all of that is working, and we are not seeing anything in our portfolio that is thematically problematic. We're not seeing anything that suggests a shift in overall credit quality or yellow lights or anything like it. We're still seeing growth. I'm not trying to be -- like I said, of course, there are going to be companies that get in trouble. We've had them and we will have them. Some our peers and some all the banks that's the nature of being a lender. But the key is, is it thematic, does it suggest anything greater or does it even really matter much to the net result when you talk about such small numbers of defaults with any reason recovery, and the answer is it doesn't. And so I'm not -- by any trying to be dismissive, but I do think like a little bit of a step back because now like this daily rhythm of -- like everyone saying, what this thing, what about that thing? As for the items you mentioned, now let me just tie it back again. Now I'll just be again rather than try to speak so broadly. Actually, the strength of what we do in asset-backed is exactly what you described, the thoroughness with which we tie in with the originators, the quality of the originators, like just like we do in sponsor finance, we care who the partner is. we care who that originator is. And I have to tell you that there's a lot of reasons to think that SoFi and PayPal are really well-run companies that aren't -- I hope god willing, companies like that are not any part of the problems that we're talking about. And so that is part of selection. Then there's how you do it. There are tools that can be deployed and we deploy in this business. You do use third-party servicers. That's a way to have someone else looking. You do field checks. And by the way, if you do field checks in some of these circumstances, you see red flags. If you look at platforms, see red flags. Like it is very, a, a lot of work can be done even to confront fraud and prevent or at least prevent get it into your portfolio. And then once you're in any credit, whether let's forget fraud, let's just talk on deteriorating performance, daily data ties, we have a whole data science team here. This is -- that's why I get asset-backed ought to be done by professionals and asset-backed part of why we acquired one of the best in the business because this is a very different business from what many people in credit do. It does have many, many more line items and flows. So do we do anything new? Well, listen, any time there's a problem anywhere in the financial markets. Of course, our job is to instantly go back and look and say, does this suggest there's anything else we should have been doing or could be doing? And the comforting answer for you will be we went back, we looked and no, there's nothing that would -- that we missed. There's nothing we would change. We think we have fantastic controls. That doesn't mean no one could ever defraud us. Anybody could be defrauded. But I would tell you that, no, we actually looked in, and when we study what did happen and study how we approach it and frankly, what we even knew about maybe were -- having looked at some of these companies over time. No, I think we feel great about how our process works, but we will always be vigilant about it. But again, I think everyone is maybe -- not everyone -- I think we're a little careful of just kind of this, churning and churning and churning. I think the credit system banks and private lenders, I think we're in a really, really healthy place. And the last thing I'll say, if you really -- if someone's looking around for, oh, you know what, there's really some problem in the world of credit, then I would tell you that people should take the flight to quality and get into our BDCs and get into our real estate products, all of which are designed to be defensive and take credit. It's the senior part of the equity capital stack. The last point I'll make it -- I don't mean to on about this, but I know it's a really important topic to the market right now, and I understand that. If you're actually concerned about the broad credit industry, banks, private lenders included, I mean people need to take a pause and think about what that means for their equity books. We are the senior parts of hundreds and hundreds and hundreds of companies. And by the way, many favorably selected by sector, by sponsor, by capital structure. So if you really are watching this problem, we're all collectively turn our attention to in that case, wildly overvalued equity markets, and we ought to have people moving into credit, not out of credit. And that's not my opinion that we have while we've overvalued. I think we actually have a really healthy economy and a really healthy ecosystem. And we'll ask I see it with our portfolio. We continue to see great strength.

The next question comes from Chris Kotowski with Oppenheimer. .

So I'm trying to think about going back to the data center financing space and trying to think about how -- when we see these press reports about financing, how to translate it into what it means for your AUM and fee paying AUM, when, where and how much. So thinking about Hyperion, for example, the reports I saw that you put in about $2.5 billion of equity, there was $27 billion of debt and that the lease terms going to 2049. So three-part question then. One, I assume what's AUM for you is the $2.5 billion, not the $27 billion. Two, I assume that, that $2.5 billion is primarily spoken by VIor by infra III. And as such, it would already be in the fee paying AUM, but it would explain why you're coming back to market so soon? And then thirdly, does this stay fee paying AUM for you until 2049? Or are there step downs before then?

Yes. So a few things, and then Alan and I will cover both parts of this. So our investment in Meta's equity is roughly $3 billion just to use the right number between us. That is deployed by us over time into -- and therefore, to, I think, the point you raised, its commitments today that fund over time, but it's -- there for use of capital. We have several strategies and one of the hallmarks of Blue Owl been this drive to make sure that individual investors and institutions get treated as true peers. And so we have multiple vehicles, depending on how you choose to participate that will have a strategy that will participate in this product. And so while $3 billion is a gigantic number, right? Remember, we have multiple strategies that participate in that. So you said -- you named two of them very much correctly, our net lease product, for sure, is a relevant piece. Our digital infrastructure is the lead horse, if you will, right? This is an example of a digital infrastructure originated product, which, by the way, wouldn't have if we didn't have IPI, which therefore, benefits the net lease fund back to our point, remember, net lease has participated. By the way, net lease is where we originated Oracle. So that can be a benefit for digital infrastructure. So these aren't coincidental combinations. Then and very importantly, we have our ORENT triple net lease product and are now ODEBT, our digital infrastructure trust. And those are the wealth access channels, those participate. So it isn't a matter of -- I wonder if I picked the right firm. It's really did I pick the right firm, and investors picked the right firm. And so we have homes for that. For that equity and it's great equity. So that's really how we approach it. And then just to calls out your point, yes, there will be gaps between the time we commit and the time we deploy. So that does, in part, explain if people are trying to reconcile drawdown to when we'll be back in market, obviously, once we commit to Meta, whether we funded it today or 2 years from now, I mean, you have to have that money on hand. As for assets under management. Well, of course, it depends on the vehicle. But it is the case that within a perpetual product, we're talking about long periods of time, we've got 20-something years. But yes, that asset could just stay there -- could stay there forever. I mean, in that sense of the word, 20-plus years. So we would get paid -- continue that, again, is the beauty of matching capital structure to assets. in our funds, it won't stay forever, right, in our funds, like our real estate funds, we will often buy and then we'll sell at nice premiums, the results. And in fact, that's is kind of a thing we're talking just the other day, actually, like our real estate product. So we want to invest in real estate and you want to make well risk managed returns, you look at our -- we've now fully invested and exited our first 3 real estate funds. And as the 24% net IRR doing business with IG companies. And that has to do with the difference between the running kind of double-digit hold forever kinds of returns to buy -- if you create things at 7 and 8, and if you want to, sell some of them at 5 to 6s, you generate very high IRR. So the beauty is we have the ability to do all of the above. And whoever joins us, they can pick their entry path and participate in these -- this digital transformation.

The next question comes from Brian Bedell with Deutsche Bank.

Maybe just continuing on that line of that question, just extending that to maybe tying it back to some comments you made earlier in the call, Marc, about the supply of capital for digital infrastructure versus the deployment opportunities being very vast over a long period of time. How do you think about sort of the strategy of fundraising to try to match that deployment in the future? I know you have, of course, IPI for coming up, and real estate even still in the market. But as we think -- as you think about that timeline over the next 1 to 2 and even 3 years, in terms of trying to match that demand if you think that's still going to be there. What are the strategies either, either launch new funds or use the retail markets maybe as a more major fundraiser for those projects?

Yes. So look, I think -- what I had mentioned, and I appreciate the question, look, we have great homes for a lot of capital. And by the way, we're open to very creative approaches also on top of what I'm going to describe. But we have four entry points that allow you to participate in this digital transformation depending on exactly what assets you want and what type of structure you want. And that's like, again, this is very driven around meeting our investors where they live. So I'm not going to repeat it at all, but we have our real estate product, as you said, real estate VII in the market. Real Estate VII is a diversified triple-net lease product that owns a variety of different kinds of real estate projects with really strong tenants and 15- and 20-year leases. I think we're running in our product right now of close to an 8 average cap in those real estate products. We have a long history of stability and great results. And that's a great institutional entry into real estate. And in fact, you're doing real estate, I -- it's a little hard for us to say why that wouldn't be the way you'd want to do real estate period with that word stopping there. Now if you want a vertical exposure into the data centers, which is this moment in time generational we think, opportunity. I think by the way, as years to run, again, just go read the headlines, everyone keeps announcing bigger numbers, not smaller numbers, and their mind-bending numbers. Then we have our digital infrastructure business, where once again, we have an unparalleled history. We've done over 100 different data centers. I think today, we have -- already have or are building 10 gigawatts, and I know that's not like an intuitive term. But if you think about a gigawatt is the amount of power that a typical sizable city in America consumes. So when you think about it, we're talking about like right now, we have built or are building 10 cities worth of data center capability. And of course, that's a fraction of the market. So you can participate. And those are both drawdown funds. So if you are comfortable and like that structure, you'll be in a drawdown fund. It obviously, therefore, means it's more about money going in and ultimately cycling back out, but it's drawdown and it has all the positive and negative attributes to that structure. The exact parallel to that is you can participate in ORENT, which is obviously our continuously offered version that allows you to participate in triple-net leased assets. And each one as a slight nuance in the kinds of projects. One is built more for hold and collecting yields. One is built more for sort of that drawdown and ultimate exit, but they're participating in the same origination engine, so you can participate there. And then on the digital infrastructure side, as an individual, if you prefer to have the semi-liquid option where you can get your yields and then come and redeem the capital of redemption on a quarterly basis, then you come into ODIT. So if I put those four together, we have the horizontal real estate solution and the vertical data center solution. We have the drawdown entry point. And continuously offered semi-liquid edgy point. So I think we have everything you need, and we welcome anybody anywhere. QIA is anchoring and coming into the continuously offered product. So I even think this idea that people like an institutional product in we've never described that, but now more than ever, that isn't the right way to think about it. It's about creating structures and matching them to people's preferences, about the kinds of assets and access to capital and holds and the like that they have in mind. So QIA is in ODIT. So that's really how we've laid out our system. We don't have as many products as most people. We won't have as many products as most. We are open, of course, doing SMAs and customized solutions. But we're really trying to make sure we have the right entry points and that they're all scaled. .

And so you think the fundraising for those products can accelerate given the deployment opportunities? I guess that's what sort of the punchline of the overall question was.

Oh, yes, yes, I think we'll see we'll continue to -- our target for Real Estate VII, remember at $7.5 billion, I mean that's triple what it was two funds ago, right? So they are scaling, and scaling frankly an ever better market for us to deploy. Digital infra already was a gigantic step up Fund III from Fund II. We haven't set a target, obviously, for Fund IV yet. So those will scale with then the contingency offered, of course, are the ones that people can really -- they can participate tomorrow in these assets. And of course, that, therefore, is a highly flexible way to introduce capital into this accelerating demand.

I would only add to that, that it's not just the supply that's driving the demand, it's the amazing risk-adjusted returns that we're seeing when we make these investments that are driving the investor today. This is a generational opportunity that we're seeing. And I think that's a big part of what's driving the demand on the investor side.

The next question comes from Wilma Burdis with Raymond James.

This will conclude the Q&A session. I'll turn the call to Marc Lipschultz for closing remarks.

Great. Thank you very much. Look, I think we covered a lot of ground and we are trying to figure out the right way to balance the sort of bigger picture with the results, but I'll tell you that it was a great quarter. We're really happy with -- most importantly, the performance of the products in turn leads to importantly, great performance at the Blue Owl level, bang on track with durability and predictability. We're feeling very good that we skated to where the puck has gone, and we'll continue to do that. We'll always be vigilant. Don't take anything away from the fact that we understand people and we do too. We always are on the lookout, but sitting here today, we love the position and we're quite positive about the future ad for both Blue Owl and our Blue Owl products. So we appreciate your time, and we will keep executing and we'll keep communicating.

This concludes today's conference call. Thank you for joining. You may now disconnect.

All right. Good afternoon, everyone. Thanks for being here. I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges here at Barclays. With us for this first session to kick off the afternoon, we've got Doug Ostrover, Co-CEO and Chairman of Blue Owl. Doug, thanks so much for being here.

It's great to be here. I apologize everyone for being a couple of minutes late. I was saying to Alan on the way here, I felt like I was running to catch a plane. I couldn't get the elevator to come...

I know, I apologize.

But great to be here.

Great. Well, let's just start off with your traditional direct lending business. It's where you guys get the most attention from investors. Can you give us a bit of color on the current macro backdrop? How are you thinking about deployment activity in the back half of the year into '26? How does credit quality look? Where are you worried? Where is the market too worried?

Well, why don't I -- there was a lot in there. So why don't I start with the -- is the market too worried? So there's been a lot of press about direct lending and is it a bubble and where is it heading? So let me just describe our portfolio for a minute because I think that will address that question. $120 billion of capital, 450 to 500 names. loan-to-value is about 39%. Loan losses have been about 12 basis points per annum over a 10-year period.

Last quarter, market, Last quarter, the revenue growth was 8.5% and EBITDA growth was 10%. We're not in deep cyclicals. We're not in retail. Long-winded way of saying the portfolio today is in really good shape, really good shape. We -- I think we maybe have 5 workouts out of that 450, 470 of companies. So roughly maybe 1%, we've had others. The recoveries have been good. So when I look at our direct lending business today, I look at a portfolio that's well positioned. And I think most of you know, companies when they start to have a downturn, it's not like -- unless there's fraud or something, it's not a cliff. So I can look at the portfolio and tell you, over the next 12, 18, maybe 24 months, performance should be relatively strong.

So what are the negatives? The negatives are like in any market, I'd say if I went back to '22, when rates started skyrocketing public markets close, we had an imbalance between the demand for capital and the supply of capital. That's changed. Public markets are strong. There's a bunch of dry powder in direct lending, lots of dry powder in private equity, but probably not enough M&A. So we've seen spreads compress a little bit. But remember for us with spreads, when we compress, it's really a function of where the syndicated market is trading.

On average, a good direct lender should to get roughly 150 basis points or more over the public markets. And that's about what we're getting today. But compared to where spreads were 2, 3 years ago, they've come in quite a bit, but I would tell you the market to me seems very rational. Pricing is reasonable, covenants are reasonable. So I'm still cautiously optimistic.

You kind of addressed some of this next question. I was going to ask you, what are the sort of implications if too much capital is chasing too few deals. It's kind of the worry that investors have had over the past year if we've seen more and more private credit fundraising, not as much deal activity. Is this a risk if we don't get a big pickup in M&A soon? Are we at risk of more spread compression if that continues? Could that weigh on investor appetite for private credit?

Yes. Listen, we -- I can't speak to every firm, but I can tell you, firms like ours who've done it a long time and have big portfolios, we're seeing an adequate amount of deal flow. So I'm very obsessed with having -- and Alan can tell you when we launched the firm, I wanted to have the biggest funnel of any of our peers, have less capital, have more deals per dollar of investable capital than any of our peers. And I think we largely achieved that.

Today, the deal flow is decent. It's not where it was. But the advantage we have is we have incumbency with so many companies. These companies don't stop growing. The capital needs don't automatic stop. So we're seeing a decent amount of deal flow. I'd like to see more.

Remember there are literally trillions of dollars of dry powder right now that needs to get deployed. So you've got all this dry powder over here. And on the other side, you have the PE firms that are desperate to have monetizations. It's just we haven't reached that equilibrium where there's a lot of deals. It's coming. I think if rates come down a little bit, we'll see more. But right now, with the administration, tariffs, whatever it might be, people just still remain a bit cautious. And -- but I would tell you, we believe we're going to see a pickup in deal flow.

What about on the topic of competition? I mean, bank retrenchment has sort of been a key theme that's allowed direct lending to step function forward during COVID, during the regional banking crisis. What's sort of the latest there in terms of bank competition? We've seen some recent announcements, deals originally financed in the private markets getting refinanced in the leveraged loan markets. Is that sort of a worrisome trend? And kind of generally, how would you describe the state of competition there?

So in terms of competition, I think it's -- nothing has changed. And if you'll indulge me just for 2 minutes, just to give you an idea and some of you who I know, have heard me talk about this. But if I took you back to when I was at Credit Suisse running leveraged finance, I think it was 2000, so 25 years ago, I had a $5 billion line of credit to go make loans.

And I would go, let's say, to a KKR, make a $5 billion loan. I would turn around and sell that loan as quickly as I could and make 3 points. That's $150 million. Oftentimes, I would sell those loans before they even fund it. That's an infinite return on capital. So when you have a lot of capital markets activity, if you were to sit down with Goldman or JPMorgan or BofA and ask in fixed income, what's your most lucrative business? It's usually leveraged finance because of that velocity of capital. That is not changing. They love that business, and it makes a lot of money for all those firms in the right environment.

So to answer your question, why do we see this movement from private markets to public markets. We view that as like the natural evolution of a company's life cycle. So I'll just give you an example. I don't know how many of you have gone and bought a home, especially an older home. And somebody comes in and does an inspection. And then you go in and start doing work and you're like, this is much worse than I thought. The roof is in worse shape. We found asbestos, just -- there's all these problems we weren't anticipating.

Think about buying a company today. I mentioned trillions of dry powder and there's massive competition for good companies. The processes are shorter, the diligence is less, and you're prone just like in buying that new house to find more problems. So if you're a PE firm and you're buying that business, you have a choice. I could go do a syndicated deal through Goldman Sachs. Not really sure what I'm getting once I get in there. And if there is a problem, I could have 100 to 300 investors I have to deal with on the other side or you could come work with somebody like us, and if there's a problem, you can call me, you call one of my partners within 48 hours, our goal would be to try to reach a reasonable deal.

And so view us as a relatively cheap insurance policy. That's why direct lending is so popular. No roadshow, no rating agencies, and there's usually 1, maybe 2, maximum 3 parties you have to deal with. So maybe you're making a lot of acquisitions. You're integrating businesses. There's a chance for a problem, but once that business becomes a little bit more mature, hits equilibrium, you're thinking of owning it for another few years, very easy then to say, "You know what, I'm paying Doug in the Blue Owl team a little bit too much, maybe what I'll do is, I'll call Goldman or Morgan Stanley, go do a syndicated deal, walk in a low rate and re-covenants. So I -- that shouldn't scare you. When you see names leaving.

And just to give you an idea -- our average loans in our credit book are about 5-year maturity. Some are a little bit longer, but on average 5 years. The average duration is under 3. So either it's M&A or a refinancing in the public markets, something occurs and we get refinanced out.

Got it. Sticking with direct lending a little bit. So on the wealth side, you've got one of the largest BDCs in the market, and you've been at this for quite some time. A similar question, how would you describe the state and evolution of competition in the wealth channel? A lot of your publicly traded competitors who -- just a couple of years ago didn't have BDCs and a few of them have quite large nontraded BDCs now.

What's the current state of competition like? Can you talk about some of the challenges? We talked about this a little bit earlier of raising wealth capital, which earns fees immediately versus the backdrop of lower transacting activity. It sounded like from your prior answer that it's less of an issue, but maybe you could just please speak about...

Yes, sure...

That environment.

Look, when I launched the business, I was at Blackstone. I left Blackstone and I thought there was a big opportunity in direct lending. And I also thought there was a massive opportunity in the wealth channel. From when I looked at the world, nobody was doing it correctly. Everyone was outsourcing distribution and managing the money. And I just thought there was too great a conflict there.

While I was on my garden leap, Blackstone shifted, sold Franklin Square to KKR and brought everything in-house and their business took off. We started day 1 with everything in-house. And I'll just bore you with a quick story. We had our investment team. We had primarily institutional money at the time. We were ramping in retail, the wealth channel, and we must have had 50, 60 people, and we had no inflows. My partners, our CFO, Alan, is here, everybody is like, Doug, this seems like a big mistake. We're spending tens of millions of dollars a year, not getting any traction.

It takes a while. It takes a long while because you think about it, you're going into people's offices. You might be making a sale. It could be $50,000, and you have to go get the next adviser and the next adviser. So we are -- I would -- I believe we are #2 in the wealth channel today. Blackstone is ahead of us in BDCs, but we're #2. And believe it or not, in real estate, in net dollars raised, we're #1 because they're still having some redemptions.

So I like how we're positioned. I think you know we're launching something in the asset-backed space, an interval fund. We raised about $1 billion there just to get it going. You'll see that in the market over the next few months. And I'm sure you're going to want to talk about this. We're going to do something in data centers.

And look, we'll see where it goes, but we are seeing a tremendous amount of excitement in that. So while the world has become more competitive, we've been there for 10 years. We have one of the biggest teams. We're global. And we went in and said, "We're going to do x and we delivered on that. And so we have a lot of credibility at all the wirehouses, the smaller broker-dealers, the RIAs. I'm not saying it's easy.

To your point, competition has picked up. But it's limited competition. The biggest firms have decided Ares, Apollo, a few -- TPG, Carlyle, KKR, I realized they were missing out and are trying to make up for the years they weren't involved, but it's limited competition. We never thought we were going to have 50% market share with Blackstone. But I think we've shown over a long period of time, we've been able to get more than our fair share.

I'll just give you just -- I just want to give you a quick example on this. We have a non-traded REIT. We launched that in the depths of like the worst real estate market. Today, it's the #1 selling REIT in the market. Why is that? Well, one, we have the resources to support it. And secondly, it's had incredible performance. And it's continuing to accelerate.

And so when I look at these other products, both on the asset-backed side and on the digital infrastructure side, I think we're going to have a comparable experience to real estate, at least that's the feedback we're getting from our partners who are going to help us distribute it. So I'm cautiously optimistic. I think the key is -- if you were to go today and say, "Hey, Morgan Stanley, Merrill Lynch, UBS, a few others, we're going to bring a new credit BDC to your platform.

There -- to your point, they're all saying, we haven't not. But if you could find something that's a little differentiated, a little bit different that will allow them these firms to scale their assets, attract more assets from their clients, you can get access. And if you deliver for the firm, when you come with the next idea, it gets that much easier.

Great. Switching gears a little bit. Just wondering if you could talk a little bit about the 401(k) side. You mentioned asset-backed finance, but for you guys, it's more than just investment-grade credit that could sort of take on a lot of different flavors. So you recently announced a partnership with Voya. Maybe talk about the genesis of that. Was it a competitive RFP process? Why was Blue Owl selected? And then I think something investors are quite curious about is how do we think about the P&L opportunities, allocations to Owl products, fee rates, that sort of thing.

Yes. So -- look, we got a nice amount of press on that. To answer your question, yes, it was incredibly competitive. It wasn't an RFP. The CEO and her #2 went around to a handful of firms trying to figure out who would the right partner be. Their criteria were a great track record, but in assets that at least early on, had high current income and could protect -- be downside protected. They were less interested in private equity and venture, more of the kind of things that we bring to market. And there are other firms who play in comparable products.

Look, we're really proud to be chosen. I think it's going to be a great partnership. But you -- one of the things you asked is when are we going to generate a lot of revenue, not just from this partnership, we will have other partnerships with providers who touch the 401(k) market. It's going to be years. It's going to take time. And it's a, let's call it, a $12 trillion to $15 trillion opportunity set. Again, not all those assets will go into alts, but we'll see money flow in.

The way we're viewing it is this. 10 years ago, we decided that the individual investor was going to be an important component to our business. And we've executed on that, not only by selling into wires and other broker-dealers, but just think about all the pensions we touch. We touch almost every major pension in the United States. It's millions of individuals.

For some odd reason, there was this little group of people who were carved out in the 401(k) market. I would tell you that the teachers at CalSTRS think their pension plans are just as important as the 401(k)s that Voya is touching. But that's -- that was a political issue. We didn't want to get involved in it.

But when it started to open up, we said, let's get positioned. And so we are really well positioned because I believe strongly in the beginning, the products that are going to be offered are things like credit, things like data centers, things like triple net lease, high current income, protect the principal. I said in one of our meetings earlier today, we joke where there's get-rich products and stay-rich products. Blue Owl is in the stay-rich business, and we think that is what resonated with Voya and their client base. And I think it's fair to say we'll announce other partnerships as well.

Great. I definitely want to dig more into the data centers. But maybe sticking kind of in this similar topic. On the credit side, and thinking about insurance more broadly, can you talk a little bit about Blue Owl's capability set in investment-grade credit? How much of what you originated is IG versus sub-IG or non-rated? And can you maybe unpack a little bit what you've seen from Kuvare Asset Management since you've owned that asset? I think it's been a year or 2. What are the inflows look like? Any color there would be helpful.

Sure. So look, I think prior to acquiring Kuvare, basically 100% of what we did was below investment grade. And that was by design, that was our capital pool. We had the ability in a lot of our structures to create IG product, but we chose not to focus on it because we didn't have capital that was looking for a spread versus, let's say, the Barclays Ag or something like that.

So with Kuvare, we brought in some expertise, but we realized we needed more in IG. And so we went down the path of let's probably just go build this organically. And I know there's a lot of focus on our acquisition strategy. But I just want to give you an idea in the asset-backed space, we are interested in every part of the capital stack, the IG piece and the junior piece. And so as we were looking at it, we knew it could take us 5, 7, 10 years to become truly proficient in this space. At the same time, you have firms like Apollo making a very big push in the asset-backed market, but only really focused on IG.

And so we got approached by a firm called Atalaya, 20-year track record, fundraises were $2 billion to $3 billion at a clip. They woke up one day and they said, wow, this market is going to get a lot more competitive. We have a firm -- Athene Insurance is 100x bigger than us. We probably need to partner with somebody. So they came to us. As I mentioned, we were building it organically. But as we thought about providing services to insurance companies, having a team that had been creating product over a 20-year period that would come in, come in at a reasonable price, make it accretive and most importantly, fit in really well with the culture. That's the hardest part with any acquisition.

We can do the math on, will it be accretive? Can we grow it? But they're coming in not just to run their business, but to pump a lot of product out, in equipment finance, in rail, in aero, in consumer, billions of dollars, which I can't remember if we mentioned on last -- on the last quarter, but we created just last quarter billions of dollars of opportunities for our insurance clients. So I'll leave you with this thought.

Kuvare is just the beginning for us. We have really enhanced our capabilities in developing and originating product for insurance companies. And I think that leg of the stool will be a piece that over the next 3 to 5 years, I think people should expect really substantial growth.

Great. Maybe coming back to the data center a bit. You've obviously been quite bullish very publicly here. Your digital infra business recently wrapped up third flagship fund, but clearly, there's a lot more to do. I don't think the sort of investment thesis needs necessarily rehash, but maybe give us a sense of -- or if you'd like to, that's I can't help very fine and good. It's clearly a very important theme and a very large one.

I'm curious, give us a sense of how this evolves over the next few years, where and how will you be raising? What does the cadence of deployment look like? There's a wealth product in the works. Can you touch on all those bits?

Yes, sure. I won't rehash the whole thing, but when I'm sitting down with Marc Lipschultz Glipschultz and the rest of the team, and we're looking at a potential acquisition, we're thinking to ourselves, is this a niche strategy that we can scale? Can we be a market leader? And can we get outsized returns? So we were looking at -- I'm going to come to data center in a second, but you'll understand where I'm going with this. So we started out in the triple net lease space a number of years ago. None of our clients had really focused on it.

I think Angelo Gordon had a $1 billion, $1.5 billion fund. I think Fortress had a $1 billion fund. Nobody had been able to scale it. We found a team that had a great track record. They were definitely the market leader. And we thought, wow, this is a very significant opportunity. What are we doing? We're going to investment-grade companies. Think of somebody maybe Whirlpool, Walgreens, firms like that. We're buying assets from them, primarily real estate, and they're leasing it back from us. It's a sale-leaseback model. Again, I won't go into too much detail on it.

When I looked at that business, I thought IG partners, so very little credit risk, never had a loss over a long period of time and has been able to every single year, generate in excess of a 20% return on IG risk. And I just thought this is too good to be true. We did our work. We came to an agreement, we brought it on. And for all those of you who have invested with us, we've had four, five, sixfold growth in that business.

So I started learning about the data center business a number of years ago and getting equally excited because it's nothing more than a sale leaseback, but instead of having Walgreens as my tenant or Cracker Barrel or Whirlpool, I've got Apple, I've got Google, I got Meta, I got Microsoft, a weak credit, $800 billion market cap is Oracle.

So the best credit quality in the world, long-dated leases coming at the same cap rates with same structure with 3% escalators. I will tell you, I've sat down with CIOs of funds, one who's going to come in -- our last fund was $7 billion. They came in at -- the fund was wrapping up as we made the acquisition. They'll give us a big order. They come in for $500 million, $700 million, which is a big ticket. But my pitch to that CIO was, if I can get you a bunch of Microsoft and Google and Amazon effectively credit risk on an unlevered basis at 7.5%, why are you not doing $5 billion?

And it kind of chuckled, but I was serious because if we will look back on this 5 years, 7 years from now. And by the way, these things oftentimes start at 7.5% cap rate and grow at 25 basis points per year. You can wake up in a number of years and have a Microsoft piece of paper that yields 9%. And I really am saying to every CIO, you're going to wake up one day and say, why didn't I do more?

And this goes back all the way back to where we started when you're asking me about supply/demand and credit. Here, we have such an imbalance between the demand for data centers, land that's entitled in power and the supply. And so we're able to get these incredible cap rates, great structures. I'll give you an amazing stat, and this is why I think it's resonating. We haven't launched a wealth product, but it's resonating. If I take our typical deal, and we apply leverage to it, we can get, let's call it, 12%, 14% type net returns.

I can show an investor, let's say, it's a 15-year lease that with leverage and the escalator, if the land and the building that they're investing in is worth 0 at the end of 15 years, they still make a high single-digit return. So then I can boil it down to saying, is Microsoft or Amazon or Google or Meta going to default. And I think we would all agree that's highly improbable.

So anyways, very excited about the opportunity. We are about 60% done investing in our latest fund. We'll be back in the market with that fund next year. We've gotten really good feedback on the wealth product. We'll be in the market with that next -- early next year. And I expect both of those to hopefully exceed expectations of what investors are looking for.

And maybe can you share any thoughts, expectations on this wealth product? A couple of questions, like how quickly can it sort of be distributed across your existing base of partners? And we've heard you and your peers talk about sort of like institutional awareness of things like asset-backed finance. On the retail side, the adviser network seems to be -- I guess, BDCs have been available for some time. REITs have been available for some time. Is there awareness here, a lot of education needed? Or do you think it's an easy enough pitch for the adviser putting this in their clients' account?

Well, I don't want to get too excited about it, but I'll go back to what I was saying about triple net lease. When we bought that triple net lease business, their last fund, institutional fund was $2.5 billion, and there was no wealth product. 4 years later, I think it's 4 years, we're $7 billion in wealth and growing very quickly. It's really accelerating.

So it takes a little bit of time. You have what I would call the super users at the wirehouses. They put their clients into lots of alts, and I think they will be first movers and put a lot of money into it. But then the real growth comes from getting beyond the top 2% to 3% advisers and further permeating the systems, which is education, walking them through, making sure they understand it, lots of conference calls. But the feedback to date has been exceptional. And again, I think we -- I think this has a chance to be by far in the wealth channel, our fastest-growing product.

What about on the asset-backed side? So I think you mentioned $1 billion of capital, and you'll start seeing more ongoing fundraising in the coming months. I mean how do advisers think about it different from your sort of non-traded or traded BDCs? Is there enough differentiation that it's of interest? Like how do people kind of think about prioritizing that versus some of your other products?

Yes. So that one is -- in terms of differentiation, there is 0 overlap, 0. That's going to require education because it's not as intuitive buying a pool of consumer loans from SoFi, or going and making a loan on 15 jets that are leased to Emirates. So that is going to be a little bit more complicated. The nice thing for us is it's a lot less competitive in terms of deals. I would tell you the pricing is more attractive than direct lending today. And I think we're taking less risk in many cases.

So I'm cautiously optimistic there as well. And there, as you think about what a BDC is, a BDC is nothing more than a wrapper around a fund. And so we are launching in a structure that's called an interval fund. Many people have failed at this. There's been 1 or 2 firms successful. The beauty of it is it trades under a CUSIP. And so in the RIA space, they really like it. So the training, the regulatory environment around it is much better. And that's how we're going after it in the asset-backed space. And look, we -- the $1 billion -- just under $1 billion we raised is probably top 5 first fund raise in the interval space. All of our peers have raised materially less, and I think it's going to resonate.

Okay. Great. A little bit of time left. Let's switch gears a little bit and talk about your GP stakes business. The update we got on the last earnings call, it sounds like it's taking a little bit longer than expected for your latest flagship to close. I'm curious, just given the performance here has been very strong, there's a heavy cash component of the return. And there is a general expectation from LPs that there are a few exits in this strategy. Why do you think things are moving slower than anticipated? And what's -- we'll start with that.

Yes. Listen, this is a hard fund raise. We're asking people to invest with us. We're taking a stake in a large PE real estate venture firm, and I mean large, and there's no liquidity. Now we -- because of time, I'm not going to go into detail. We just distributed back to investors almost $4 billion. You mentioned this. The returns have been exceptional.

When I sit down with investors, I often say, have you ever looked at the Forbes 400 and look at the number of people at big PE firms or real estate firms who are in that list. And what we're giving you the opportunity is to actually not just go in their fund, but have a seat at the table with them to become a partner. And so the returns in this product have been great.

You know, I think we will get there, but where we're raising money falls in the PE bucket. And even though I think this is more attractive than virtually any PE firm that's out there, just allocations are down. And you combine that allocations being down with a lack of liquidity, it just makes it a little bit harder. But I feel pretty good that if you remember the last fund for those who were invested, we were kind of stuck at $8 billion or $9 billion for a long time and then took a little while, but we got there.

Great. Maybe just one last topic while we've got you here. So Blue Owl is engaged in a significant amount of M&A over the past year or 2. How do you think about additional capital priorities from here? Is there more to do? Do you feel you can achieve everything you want with the capabilities you currently have? How are you thinking about build versus buy as you're looking out over the next, say, 5 years?

Yes. A couple of thoughts on that because I get that question all the time. If you look in aggregate what we've spent, it's a very small percentage of our market cap. I can't remember who I was talking to, but I remember when TPG bought Angelo Gordon, TPG stock was depressed. It was over 20% of their value at the time. That's a big acquisition. We're nowhere near that. I mean we're just -- it's a small fraction.

So look, we're always looking at the trade-off between organic -- build it organically and buy it. And I would just tell you real quickly, what we're looking for is, I mentioned this, niche product where we can be one of the market leaders and we can scale it. And then most importantly, a team that's going to come in and buy into the broader vision of Blue Owl.

And I know it's definitely caused stress for some investors. There's been a lot of focus on it. But I would tell you, everything has been fully integrated. And I think over the next 12 to 24 months, just like with the real estate business, people are going to look at this and say, wow, those were really good acquisitions. I have a quick question for you.

Sure.

So my question is, and Alan, my CFO, Anna is here, Head of Investor Relations. We're down 25% this year. When I look at our business, we're asset-light, we effectively have an annuity stream. We're 100% FRE. Our money doesn't leave. I mentioned to a group before I came in, when I start every year, I look back to the prior year, I know our revenues aren't going down. It's just a question of how much more they go up.

And so then I look at Blackstone, I look at Ares, they're effectively flat on the year. I look at others, I can't remember where KKR is, down 8% or 9%. And I just look at us being down 25%. And it just makes no sense to me because we've had really good results. And we laid out for people what we thought we could do over the next 4 to 5 years. And our goal is really simple. It's very easy to get caught up in the noise of the market, this group is doing this, this group is doing that.

But what we try to do is we try to lay out a path for ourselves, and we tried to articulate this during Investor Day. How do we double the stock? How do we double the stock and allow investors to make a 5% to 6% along the way? How do we allow investors who stick with us to compound at 20% a year over a long period because that's what we're trying to do. We're the biggest shareholders of the company. So my question is, what am I missing?

Well, what can I say, Doug, I mean, we have a buy on your stock. So that's why I agreed to speak.

I'm not trying to put you on the spot. I just wanted to mention that it just seems to me to be an exceptional entry point when we've lagged so much versus our peers. Anyway, thank you so much.

Thank you, Doug.

Really appreciate it.

No problem. Thanks.

Good morning, and welcome to Blue Owl Capital's Second Quarter 2025 Earnings Call. [Operator Instructions]. I'd like to advise all parties that this conference call is being recorded. I will now turn the call over to Ann Dai, Head of Investor Relations for Blue Owl.

Thanks, operator, and good morning to everyone. Joining me today are Marc Lipschultz, our Co-Chief Executive Officer; and Alan Kirshenbaum, our Chief Financial Officer.

I'd like to remind our listeners that remarks made during the call may contain forward-looking statements which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors including those described from time to time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund.

This morning, we issued our financial results for the second quarter of 2025 reporting fee-related earnings, or FRE, of $0.23 per share and distributable earnings, or DE, of $0.21 per share. We declared a dividend of $0.225 per share for the second quarter payable on August 28 to holders of record as of August 14.

During the call today, we'll be referring to the earnings presentation, which we posted to our website this morning, so please have that on hand to follow along.

With that, I'd like to turn the call over to Marc.

Great. Thank you so much, Ann. The results we reported for the second quarter of 2025 reflect a continued expansion of the breadth and depth of Blue Owl's business and highlights the increasingly essential role the firm plays within a modern capital markets landscape.

We raised $14 billion of new capital during the quarter, bringing us to a record capital raise of $55 billion over the last 12 months or 28% of our assets under management a year ago. And these numbers do not yet reflect any meaningful contributions from our acquisitions this past year where we are anticipating significant synergies over the next couple of years.

We have grown our FRE revenues by 29%, FRE by 23% and DE by 20% year-over-year on a last 12 months basis, continuing the steady march up and to the right, supported by our substantial permanent capital base. This momentum has been driven by the continued strength we see across fundraising and deployment reflecting 2 critical concepts.

First, for investors, we are leveraging the benefits of Blue Owl's scale and incumbency in respective markets to drive differentiated results, and we are creating product structures to serve varying investor needs across the risk return spectrum.

And second, we have placed ourselves in a position to offer the bespoke and scaled solutions that are increasingly in demand for users of our capital, and we have even more of those solutions on offer today as a result of the strategic actions taken last year.

I want to spend a moment on some of the early wins from strategic investments we have made organically and through acquisition over the past year, which we've summarized on Slide 4. Starting with alternative credit. We closed a private offering of $850 million for our new interval fund stemming from a diversified and global set of investors.

We are pleased with this remarkable fundraising, which reflects both the strength of our global private wealth platform and investor confidence in our approach to credit solutions. It's been an incredible start for this product and even more impressive considering the market disruption we saw during April.

In our view, alternative credit is a highly complementary addition to fixed income portfolios given its diversified collateral, modest correlation to other credit asset classes and attractive risk return anchored by current income.

These alternative credit capabilities further diversify our product suite, and we should benefit greatly from the incumbency and leading position we've built in the private wealth channel to date.

For our digital infrastructure strategy, the first half of the year was active from a fundraising and deployment perspective, leading us to a final close of our third flagship fund in April at a $7 billion hard cap. Notably, the fund has already soft circled more than half of the capital raised for investments.

Looking ahead, we're working expeditiously towards the launch of a well-focused product in the foreseeable future, similar to the process we undertook with significant investor interest already observed.

Our real estate credit strategy has been extremely active deploying over $3 billion year-to-date, including opportunistic deployment during the market dislocation that generated outsized spread. Both real estate and alternative credit have been extremely active for our insurance channel with these teams and others across Blue Owl driving roughly $2 billion deployed in the second quarter alone at a spread of more than 200 basis points above similarly rated public corporate bonds.

And as it relates to organic new strategy development, we have now raised $3.5 billion of capital across strategies that did not even exist 2 years ago, including $1.7 billion for GP-led secondaries strategy. We believe the strong reception we've encountered for these new offerings reflects the partnership-driven solutions-based mentality that anchors everything we do at Blue Owl.

Taken together, you can see a substantial amount of forward movement in the early days of these new initiatives, and we are just getting started. The combination of these initiatives and broad-based momentum across our more established businesses drove the robust capital raising we saw during the second quarter.

Alan will walk through our flows in greater detail, but let me call out some notable items. We held the first close of the next vintage of our net lease flagship strategy ahead of schedule with $2.1 billion raised and another $1 billion of

The total size of our 2020 vintage of this strategy was $2.5 billion in commitments and the entire net lease business was $12 billion of AUM when we announced that acquisition. We have more than tripled the size of this business in 3.5 years, a testament to the platform synergies generated through scale and access.

This acceleration has not gone unnoticed with the recent PERE article naming Blue Owl as the third largest real estate capital razor globally over the last 5 years, trailing only Blackstone and Brookfield. In aggregate, we raised $5.1 billion of equity in net lease during the second quarter and a record $5.8 billion across our real assets platform.

Mirroring the expansion trend in real assets, we also raised $5.8 billion of equity across credit in the second quarter, a record quarter for credit. On a year-over-year last 12-month basis, equity raise and credit has increased by 55% and flows have been balanced quite evenly between the private wealth and institutional channels. Last 12-month capital raised from EMEA and APAC investors has increased to 23% from 14% 2 years ago, reflecting the ongoing globalization of our business, embedded in the platform investments we've made for the long-term growth.

And broadly, we saw resilience across our investor base despite fairly disruptive capital markets during the quarter, which speaks to the continued and secular demand for the strategies we offer and the strength of our private wealth channel.

Turning to business performance. In direct lending, we continue to find high-quality deployment opportunities despite a relatively lackluster M&A backdrop, speaking to the advantages of being a partner of choice due to our scale and incumbency. As a reminder, M&A is only 1 component driving deployment activity for us.

We continue to see sponsors pursue bolt-on and organic investment opportunities for their portfolio of companies, driving add-on activity for Blue Owl. And in the case of continuation fund transactions, the breadth of our loan portfolio means that we're often the existing lender and therefore, a logical and frictionless partner for new financing.

Gross origination in the quarter was roughly $10 billion, bringing gross origination over the last 12 months to nearly $47 billion and net to $13.5 billion. Credit quality and direct lending remains strong with average annual realized losses at 13 basis points. We are not seeing any meaningful changes in the underlying metrics. This has been a constant theme over the last few years.

In alternative credit, we continue to see positive network effects benefiting deployment with more partners looking to engage in repeat and larger financings with us. Recently, we renewed and upsized a forward flow agreement with Lending Club for up to $3.4 billion, yet another substantiation of the expanding role that private lenders are being asked to play in the alternative credit markets and across capital markets more broadly.

This marks our alternative credit funds third investment with Lending Club since 2023. Blue Owl also provided meaningful funding solutions to small business lenders. We recently upsized an existing transaction with a U.K.-based lender, Capital ONTAP that funds both U.S. and U.K. small businesses. The alternative credit business continues to see strong demand for stable capital partners and benefited from the volatility in the public securitization markets during the second quarter.

In real assets, we continue to see highly attractive deployment opportunities across net lease, digital infrastructure and real estate credit. As I mentioned earlier, our digital infrastructure flagship fund has already soft circled more than half the capital raised for investment despite its final close having just occurred.

The tremendous capital needs in the data center space are creating an incredible moment in time where our investors can own mission-critical assets for tenants with an average credit rating of AA across 10-plus year durations and earn opportunistic returns for doing so.

As we've said before, we truly believe this is the best risk reward setup we've seen in our careers and feel fortunate to have such a scaled and experienced team at Blue Owl with which to lean into this generational opportunity.

Across our digital infrastructure funds, we have leased capacity of 3.8 gigawatts or approximately 5% of the current capacity leased globally making us one of the leading players in this rapidly evolving technology landscape.

We expect to meaningfully participate in this evolution through our net lease strategy as well, which is financing the largest data center project in the United States. In aggregate, we believe there are very few firms that can provide the breadth of technical expertise and scale of capital we offer across Blue Owl to address the needs of hyperscalers today.

And these strategies present a differentiated proposition, offering the ability to fund the leading edge of innovation, but to do so on products and structures that are designed to be income-oriented and downside protected.

Our GP stake strategy closed on a second investment during the second quarter and on another one subsequent to quarter end. In total, these investments bring us to nearly 30% invested on our target size. We've continued to invest in some of the premier names in the alternative industry, household names with decades of experience and long track records of success and we believe these firms are the ones that will continue to be beneficiaries of this consolidation trend we have discussed.

Over the years, we've seen validation of our strategy through the outsized growth of the partner managers in our funds relative to the broader industry. We've also generated positive outcomes as it relates to liquidity with our GP Stakes flagship funds having distributed more than $2.9 billion over the past year in a market where return of capital has been scarce, situating our funds within the top quartile on this important metric.

There are 2 final items that I'd like to mention before Alan covers the financials for the quarter. And I think it's a testament to the very dynamic quarter we had across Blue Owl that we are only coming to these now.

First, I'd like to mention our recent announcement of a new strategic partnership with Voya focused on delivering private market strategies in vehicles tailored for defined contribution retirement plans. We've observed the growing demand for alternative investment solutions within retirement portfolios and see this as an important first step to broadening access, to supporting plan participants in their quest to build more resilient portfolios and optimize outcomes.

We are very excited about the long-term potential for the new frontier in Private Wealth and see Voya as an ideal partner given their leadership and deep expertise in the retirement market.

Our strategies have also been included in multiple model solutions, Morgan Stanley, Wells Fargo, Sotera, iCapital and Case, just to name a few. This success is evidence of the strong strategic positioning we have in improving access to Blue Owl products via the scale of our Evergreen Fund franchise, our strong distribution footprint and our industry-leading education.

Finally, during the second quarter, we completed the listing of our technology-focused BDC, OTF, which is now the second largest publicly traded BDC by net assets and largest tech-focused BDC in the market. Over the past 6 months, our teams have worked relentlessly to merge the formerly private OTF and OTF 2 vehicles, evaluate efficient liquidity paths for all stakeholders and execute the listing seamlessly, all while navigating serious market turbulence. I want to acknowledge the efforts and collaboration we saw across the firm that culminated in this very successful endeavor.

With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter, marking our 17th consecutive quarter of management fee and FRE growth. Over the last 12 months, management fees increased by 32% and 87% were from permanent capital vehicles.

FRE was up 23%, GE was up 20% and this was a record quarter of equity fundraising for us. We raised over $12 billion of equity in the second quarter and over $36 billion over the last 12 months, an increase of nearly 90% from the prior year.

Recognizing that fundraising is not linear, we also looked at the statistics on a multiyear basis. And as you can see on Slide 6 of our earnings presentation, equity raised over the last 2 years is about 50% higher than equity raised over the prior 2-year period. Each of our institutional and private wealth channels experienced record high quarters of equity raise with $7.6 billion across institutional, primarily driven by products in our net lease, direct lending, strategic equity and digital infrastructure strategies.

And in private wealth, we raised $4.4 billion of equity during the quarter with substantial market volatility. To break down the second quarter fundraising numbers across our strategies and products: In credit, we raised $5.8 billion, a record quarter for our credit platform; $4.3 billion was raised in direct lending, of which over $2 billion came from our non-traded BDCs, OCIC and OTIC. The remainder was primarily raised across diversified lending, our GP-led secondary strategy, our newly launched interval fund, investment-grade credit and our first lien strategy.

In Real Assets, we also raised $5.8 billion, a record for our real assets platform as well. Over $900 million was raised from ORENT. And as Marc mentioned, we held a first close for the seventh vintage of our flagship net lease strategy, bringing in over $2 billion. The remainder was in additional net lease products, digital infrastructure, insurance-focused products and co-invest dollars.

And in GP Strategic Capital, we raised $0.5 billion during the quarter, bringing the latest vintage to over $7.5 billion. As we said on last quarter's earnings call, we expect the fund raise here to come in at similar levels in 3Q and then to wrap up with our $13 billion total fundraise goal through mid-2026.

Turning to our platforms. In credit, our direct lending portfolio gross returns were 3% in the second quarter and 13.5% over the last 12 months. Weighted average LTVs remains in the high 30s across direct lending and in the low 30s specifically in our software lending portfolio.

On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits to low double digits with no material increase in signs of stress, such as increased nonaccruals, stress amendments, conversion requests or watchlist names. And as Marc mentioned earlier, none of these metrics have changed meaningfully over the past several years.

Turning to alternative credit. Our portfolio of gross returns were 2% in the second quarter and 15.7% over the last 12 months. In Real Assets, our first close of the seventh vintage of our flagship net lease strategy occurred less than 15 months after the final close of Fund VI, demonstrating both a strong pipeline for investment and robust interest from investors.

We expect that Fund VI will have nearly committed to all of its available capital for investment by year-end and has deployed roughly 40% through June 30, with much of the remainder are slated for deployment over the next 12 to 18 months, as various build-to-suit projects reach completion.

And our net lease pipeline continues to grow with nearly $41 billion of transaction volumes under letter of intent or contract to close. During the second quarter, in net lease, we committed $4.2 billion, bringing commitments year-to-date to $8 billion at a roughly 8% cap rate on average.

Concurrently, we monetized over $320 million year-to-date at a 6% weighted average cap rate, continuing to drive spread compression at the point of sale. With regards to performance, gross returns in net lease were 4.1% for the second quarter.

In real estate credit, we invested $1.4 billion in public securities at an 8.1% yield to maturity and 11.1% debt yield. During the first half of 2025 we maintained a leadership position in our area of focus, anchoring roughly 40% of the single asset, single borrower CMBS deals that price during that period and about 1/4 of total CMBS deals.

And in digital infrastructure, we held a final close for our third digital infrastructure flagship fund at a hard cap of $7 billion. In GP Strategic Capital, we continue to deploy out of the sixth vintage of our flagship GP Stake strategy, having made 3 investments thus far. Performance across these funds remain strong to net IRR of 22.5% for Fund III, 36% for Fund IV and 15.3% for Fund V.

Moving on to some housekeeping items for the quarter. We want to be sure to point out a few things that we think will be helpful. During the second quarter, we listed OTF, which we had previously said, would drive approximately $135 million of incremental annual management fees for roughly $33 million per quarter.

Given the timing of the listing in mid-June, we saw approximately $6 million of this in the second quarter. In conjunction with the listing, we saw a de minimis impact to NCI during the second quarter and the anticipated step-up of approximately $3 million in the third quarter.

As a reminder, the capital raised for the seventh vintage of our net lease strategy primarily earns fees on deployment. In conjunction with the fee step down for the prior fund we expect third quarter management fees in these 2 funds to be roughly flat compared to the second quarter.

And for our alternative credit strategy, we anticipate seeing the impact of management fees from the private offering of the interval fund in approximately 12 months, similar to a fee waiver. Finally, we had a little over $7 million of catch-up management fees in the quarter. And as it relates to G&A, we had a few million dollars of onetime items.

So to wrap up here, we feel like we're hitting on all cylinders across the business. Blue Owl sits at the intersection of many of the secular trends that we believe will define alternatives for the next decade, and we feel fortunate to be an incumbent across a number of these areas. Now all of these things take time and what you've heard from us today is that the investments we've made over the past year are beginning to bear fruit.

But this type of progress is measured in years, not quarters and for shareholders, our setting and predictable financial profile allows you to focus on the big picture evolution of this market, not on the quarterly swings of realizations or capital markets fees. To us, that is a very valuable thing, and we think that over time, our stock will reflect the value of that certainty.

Hopefully, what we've provided you today is a helpful mile marker on the growth road map we outlined during Investor Day. As you heard that day, we intend to grow FRE management fees to over $5 billion and FRE to over $3 billion, and we feel that we are very much on track with those long-term goals.

Thank you very much for joining us this morning. Operator, can we please open the line for questions?

[Operator Instructions]. Your first question comes from Glenn Schorr of Evercore ISI.

I heard your comments on the topping up of the Lending Club and Cap on TAP relationships. We're seeing a lot of scaling, a lot of growth in the asset-backed market, and you have a new toy to play with here. So I wonder if you could step back and talk about what you have now in terms of an asset origination channel? And I don't know if you want to break that up on platforms, forward flow agreements or just portfolio purchase? And then what you're really trying to build as you scale towards this big opportunity across asset-backed finance.

Thanks, Glenn. The opportunity in asset-backed is huge, as you observe, and we are in a very distinctive position to win, for lack of a better term. And of course, winning means delivering the best results for our LPs, our investors and that in turn leads to building a very big business. And we have the template, right?

You've seen us already do it, and now we're steps down the road, which is to bring -- to have first on board the best team in the business. So we have the -- or former Adelie team, as you know, been at this for 20 years. And that is -- this is a high barrier to entry business. This is not an amateur area.

And so we have the best in the business as the team driving it. It's a deep on data and data science expertise. We're using cutting-edge technology. We have the structures and to your point and this will partly touch origination, we originate, and this has been one of the great powers of 20 years of doing this, across just about every subchannel the world of asset-backed finance.

So we're in those markets and already have the pipeline. The difference here has been they've had the pipeline built, but not the endpoint for the capital. They've had this series of now very successful. We have our ninth opportunistic fund, which is doing fabulously. But now we are broadening the home and doing that with this new interval fund, which as you saw, we closed with enormous success just this quarter.

So we have the template, right? We have the same exact thing with triple net lease, a business where, as you heard us say, we have tripled the assets just in 3.5 years with that business with the same template, take the best-of-breed participant that's a market leader, continue in that traditional institutional drawdown wrapper, put an adjacent accessible wrapper for individual investors and then turn on the Blue Owl origination infrastructure and Blue Owl placement infrastructure. All of that is already happening with asset backed.

So it's also -- as you know, it depends with subset or numbers you want to use. But overall, it's a market $7 trillion, $10 trillion, it depends on what you're addressing, it's bigger than the direct lending market. So we have a very long way to run, and we now have it all stitched together.

We have our asset-backed business fully integrated with our direct lending business and in turn, tied in with all the pipes built to our insurance platform. So we now have every piece in place. We saw it produce value this month, billions of dollars of, for example, in that case, IG-equivalent product at more than a 200 basis point spread to the liquid alternative. This is going to be a very, very good investment for our investors, and it's a wonderful complement to other strategies people have.

It's a good, durable, much less correlated strategy with the same income and even faster amortization attributes, which is also why this is the exact right product for an interval fund. And so hence, you've seen us put this in the wrapper that we think is going to be very, very successful.

The next question comes from Craig Siegenthaler with Bank of America.

Congrats on the record fundraising quarter.

Thank you.

So our question is on the topic of privates in the channel on your new partnership with Voya. So we're curious, where are you? And what are your thoughts on the build-out of a target date fund? And do you think target date funds are going to require one manager partner or do you see a world where there's multiple partnership models that are more likely?

Yes. So the opportunity ahead, which, of course, is something of great importance to us and others is the ability to bring the products we have been successfully delivering to a wide range of institutions and individuals for a very long time.

And we live in a world right at this moment where institutions have benefited from decades for access to products like ours. We have pioneered access by individuals 10 years through that journey and are probably #2 in the world in the wealth channel. And that's -- and so we can address a lot of investors, and we've got structures, and we have particularly well-suited products, right?

We have income-oriented, low volatility, downside protected, that is Blue Owl, and it is the perfect marriage to this channel and even the more perfect marriage to the beginning of what happens in the 401(k) market.

This is an area where, frankly, everyone ought to be thinking, look, this is a methodical process to match the right product, the right structure to this very important market. $12 trillion marketplace and credit, private credit, alternative credit, digital infrastructure, triple net list real estate. These are the perfect products for exactly that channel.

And so we see this in Voya together as a way to bring this group that sort of for excluded from the opportunity. In fact, it's kind of an oddity, right, in fact not a good thing, which is if you are a defined benefit pensioner, you've been benefiting from what we do for years, you've been bounding from alts for decades.

If you're an affluent individual investor, just with your own assets outside of a retirement account, you're benefiting from what we do. And if you're an institution, a sovereign wealth fund, you benefit. But somehow, if you have a 401(k), you don't get this chance. Sorry, you're out.

That not a good result. It's not fair. It's not a asset. And I don't have to make that sound too high brow. Of course, it's a business that we want to access. Of course, we're trying to build access to this capital, but doing well and doing good at the same time are a good thing. So we really think we can bring a great complementary solution, a prudent solution to 401(k)s, and that's going to be really a winning strategy.

Now for target date funds -- as for target date funds, yes, that's certainly one very good way and naturally, given the structure of the 401(k) market, the entry point, that's why with Voya which, by the way, like just to pause on this for a moment, Voya had their choice of every partner around. They're a phenomenal firm. It was an extremely competitive process, and they're with us.

And we're with that. We feel very lucky about that. They're an incredible firm, and they're a prudent firm, right? We're going to do this right, just like we did in the individual investor market away from 401(k). That's important, too. Who you're working with, not just their products. Do they understand the individual and know this is about making the individual a winner?

That will be a win for us over time. So with that partnership, we're going to begin, as you know, with these collective investment trusts, and that does allow us to immediately bring that product into target date structures. So that is the pathway forward.

Will there be multi-manager structures? Sure. I mean, I think there'll be a lot of innovation in this arena. I would again be an advocate for a little bit of collectively walking before we run. Let's go with safe products within the hands of good managers, with good partners like Voya, and let's deliver a great experience, a great result for our 401(k) investors and then we can continue to innovate ever better products.

And people can evaluate more exotic or more aggressive strategies in alts. But let's start safe. Let's start smart, and let's do for 401(k) what we've been doing for defined benefit and what we're doing today for individual investors. We have 150,000 individual investors today. This is not new, but we got to include this group that's been excluded.

The next question comes from Brian McKenna with Citizens.

So we're a few quarters removed here from the series of acquisitions you made. There's clearly been a lot of upfront cost and investment, and I appreciate it will take some time for all these to scale. But what should we be looking for from the outside in terms of the integration and the scaling of these businesses really starting to inflect? Is it the trajectory of fundraising in flows? Is it an acceleration in management fees or is it as simple as an inflection in that FRE margin?

Well, I'll start and Alan will join, too. But let me just baseline for a moment. It's already happening. It already even happened. If you look at this quarter, you're already seeing the fruits of those benefits. These businesses are fully integrated, and we are getting benefits from those integrations for all LPs.

So it's both for the LPs, for example, of asset-backed by being married to this much broader credit origination engine. Remember, we have companies -- with 400-plus companies in our portfolio, many of whom need asset-backed financing solutions. And behold, they are part of the bx family.

So the benefits flow to, for example, in that case, asset-backed. Same thing the other way. We work with companies who are looking at asset-backed solutions and also, of course, the corporate solutions. So that integration has already happened. Look at digital infrastructure and our real estate business, our fastest growing real assets business in total. Look at our project with Oracle and OpenAI in Texas, biggest data center project in America.

And that is for both products are participating in that because that is a great project that reflects an opportunity for a generalized, a diversified triple net lease real estate business and for a deep vertical digital infrastructure business, and we're coming now with the adjacent continuously offered product, again, seeing this movie, we know how to do this.

And we're going to bring what today we do think is best risk-return opportunities that we've probably ever seen. And this is the moment, and we have both the unique talent and we have the structures and experience to deliver it. So I guess I would say it's already happened. In terms of the inflection, you'll get -- we grew our fee revenues by 30% this quarter. If I translate that maybe into kind of which you said where else you start to see it?

Well, remember, the one place you won't see it fully until we wrap through the year is in per share only because we buy the businesses first, and then, of course, you have to get a full year. But I mean that's nothing but a passage of time exercise. So the integration has happened, the new product innovation, the origination and then in terms of what comes beyond that may just turn to Alan and say, now we talk more of the other follow-on benefits as it goes to new product launches and the like anything, Alan, you want to add?

Sure. And to Marc's a good point, we're already seeing even a benefit when you think about the -- something like FRE versus FRE per share, DE versus DE per share. That gap has meaningfully narrowed when you look at 2Q versus 1Q? And then, Brian, to your good point when you think about -- we've acquired these 4 businesses over the past year, they put us in the largest secular growth areas in our industry. .

And as we've talked about on prior calls, we've continued to reinvest in our business and put valuable resources back into growing institutional and wealth fundraising platforms. And we're still at a 57% margin. And so that is still -- continues to be among the highest in the industry. We feel really good about that.

And over the long term, we feel there are margin expansion opportunities. So we think we're sitting in a great place a more diversified business, a much broader product array, as everyone can see from this quarter with the strong fundraising numbers, and we're very well positioned.

And just to wrap that back up and anchor it. Look, we have already done this, right? We have demonstrated that we know how to make this all work, again, for the investors, and that works for us. So look ORENT. ORENT is the #1 net fundraising real estate REIT in the world today and the continuously offered basis. And because it's a great product and it has the right support. .

We're doing the same thing in digital infrastructure. So I think you can start to see if you -- doesn't happen overnight. As you know, these have kind of these hyperbolic sort of curves, but it's already happening. And I think when you look back 3 years from now, you're going to under see like, "Wow, they did it again. Oh, look, they did it again. They did it in asset backed, they did it in digital infrastructure."

So I think we feel like we have not only all the building blocks, but the building blocks cemented in, the foundation built, and we're already starting to come out of the ground. And that's a pretty exciting place for us to be.

The next question comes from Crispin Love with Piper Sandler.

In real estate, focusing on triple net lease, can you just talk about the competitive environment there? And if you're seeing more activity from others? You've definitely been a leader in net lease, but BlackRock recently did a deal with So curious if you're noticing any shifts in the competitive landscape or others trying to grow just versus the overall opportunity that would seem to have increased meaningfully just based on the data center opportunity that you mentioned?

Yes, the data center opportunity has expanded dramatically and in the right format like the Oracle project, that's well suited to triple net lease real estate. In many instances, it's better and will be suited to the digital infrastructure product. But as for triple net lease, to go direct to your question, the market is absolutely expanding and candidly, no, we're to go to.

We're not seeing any change. We see our pipeline growing. We see ever more trust built with partners, making us the partner of choice. We continue to have every one of the largest funds where, as you saw, we already have launched our newest fund already and the first close of $2 billion.

So I think investors have observed. This is a great opportunity. It's growing and there is an unquestioned market leader. So I never question all the people will try to do things that I would underestimate that, but no, our leadership is accelerating, not the other way around.

The next question comes from Bill Katz with TD Cowen.

Great. Maybe just to circle a little bit more of a narrow part of the conversation. I wonder if you could talk a little bit about activity levels on direct lending maybe how the quarter itself transpired maybe the exit velocity and what you might be seeing into the third quarter? One of your peers had a very constructive update for the month of July. Any relatedly, I'm wondering if you could maybe speak to what you're seeing in terms of spreads on incremental capital deployed?

Absolutely. So this environment, as you would broadly expect is extremely good for the direct lending business with the abstracts being okay, but we need that return of M&A activity to just more to do. But credit quality is exceptional that we've known, we've seen it and we've said it, but it remains absolutely true today.

At some point, people are going to have to stop trying to find the bogeyman because it's not there. The private credit portfolio and our credit business is doing really, really well, and it partly reflects the macro environment in the U.S., and it reflects really disciplined investment management.

We're not indices. We're picking very specific businesses in very specific industries. This past quarter, our portfolio on average grew over 10% EBITDA. This is really -- and we're the lender through 40% on average, closer to 30% in software. So the setup is excellent. And yet you have a world where there's certainly some meaningful what we'll call more exogenous and hard to predict variables, right?

You have flash zones and war zones around the world. You have obviously the resolution of trade and tariff. And when those things come together and maybe a moment people get nervous, that kind of uncertainty for now is yet another reason people use our products. So in the quarter, we had very high credit quality in terms of new opportunities.

We like the deals, we're doing very much. We are obviously, of course, seeing a slowdown in refinancing because that that has moved through the system very heavily. And while the quarter itself was moderate and given disruptions in April, probably not surprising, moderate in terms of originations, yes, we likewise have seen in the last few weeks quite a meaningful pickup in activity, really interesting companies, in some cases, quite large.

So let's not get too far out of ourselves, but there's some reasonable indicators that maybe that moment has finally come and the surrounding would suggest that, too, right? At this point, 6 months ago, lots of debates about where is the economy? We now know the economy is strong. Lots of debates about where are we with interest rates and inflation? It's all settling into a tight range.

And that brings us to a good environment to transact. And now the trillions of dollars in dry powder, it's got to go to work. So I think, yes, we are seeing current signs, but they're early. So it's not overspend that statement yet. But yes, so right now, I think there's cause for optimism on that last which is just overall volume in the market.

The next question comes from Patrick Davitt with Autonomous Research.

My question is on flows. I think last quarter, you've been talking about the picture looking much better in the second half than the first half. But given the big 2Q beat, is that still your view or did that pull some of that view forward?

Thanks, Patrick. We feel very good about the second half of the year. I think the obvious outlier here is ORF VII closed, that closed a little sooner than expected on the first close. We continue to feel very good about the back half of the year, both for institutional as well as for our wealth products.

More of the products out of both our existing strategies and new strategies are hitting stride, and you can see it and you can see it in the wealth channel and you can see in the institutional channel. Note that we have had continued great strength in both. And in fact, this quarter, actually, the majority of our capital came from institutional.

So there's -- the beauty of the model is this having balance and having access and success in both. At the same time, by the way, that's in the context of wealth, having a fantastic 4 continuing to grow, record quarters. So we're -- yes, we're in a very good place to continue the strength as we roll forward, we think.

The next question comes from Steven Chubak with Wolfe Research.

So maybe to start just on digital infra framing the opportunity. Certainly, Marc, you gave a constructive message around how you're thinking about the deployment opportunity longer term. I was hoping to contextualize it a bit more. Just how quickly could you be back in the market raising for your next flagship vehicle?

I know you've talked about as early as next year. And just evaluating the deployment opportunity over a multiyear horizon, how much capacity is there to increase future fundraising relative to prior vintages?

Yes. So we -- as you know, we did the final close of Fund III on March 31, and half that money is already circled and is good stuff. And so we're -- and the pipeline, the opportunity set that we're working on, it's hard -- the scale is so massive. And -- of course, you all know this, listen, there are 3 tech companies that just, over the last 2 days, that announced and every one of them, for reasons we all understand, are talking about just how big, important and heavily focused and invested they are in data centers, well, AI and the capacity to drive it.

And there are only a few people in the world that have both the operational technical skill and the capital to meet that need. And by the way, don't forget, we also have the year history and triple net least of structuring exactly these kinds of partnerships and have been at the business of building these hyperscale data centers for the world-class hyperscalers longer than just about anybody. It's been 10 years now.

IPI had the idea of hyperscalers before that was a word to any of us were talking about. So we're in a very, very distinctive position against what amounts to a hundreds and hundreds and hundreds of billions of dollar opportunities. And that is -- and so therefore, we have room to deliver great results for massively larger pools of capital than we have access to today. What will that translate into? What size next fund? I don't know that yet. As I said, we will do this the wealth product.

I think that's going to be a an incredible opportunity for individual investors and institutions alike. So it basically get downs to this: as much capital as we can assemble we can largely put to work with extraordinary -- and we're talking about companies, right, with on average AA kinds of ratings. It's pretty special.

Now 5 years from now, we'll see. I mean, there's -- for the years to come, though, there's a lot, a lot to do, and it kind of does fit the category of it's not something to miss. You look, there's going to be a lot of -- maybe even excess excitement about AI and some of the valuations in venture land, we'll see.

But what I know for sure is that when you sign a 15- or 20-year lease with -- in every case, these hyperscalers are amongst the largest market caps in the world and you have a commitment to a stream of income with escalators, you're going to have a good experience.

The only thing I would add to that, Steven, is from a timing perspective, we continue to be on track with everything we've previously said. The next vintage, we expect we will be out in the market next year, talking to investors about. And prior to that, between now and the end of this year, early next year, we do expect to be out with that digital infrastructure wealth-dedicated product that we're also very excited about.

The next question comes from Alex Blostein with Goldman Sachs.

I wanted to zoom out a little bit. The franchise continues to fund rates through more kind of vehicles than what we've seen in the past across more strategies, I guess. And the fact that it's shown up and kind of fees yet to be deployed or yet to be turned on upon deployment increasing nicely helps as well. So maybe help unpack the bridge from last quarters to this quarter is $379 million, quite sizable.

What are kind of some of the bigger buckets? And importantly, I guess, how quickly do you guys think you will put that to work and also if there are any offsets against that? You talked about a couple of step downs that obviously impact the net number, but I'm just kind of trying to put the $379 million in the context of the firm's overall management fee growth over the next 18 to 24 months.

Sure, Alex. Thanks for the question. We're really excited. We saw a record fundraise quarter $12-plus billion. About half of that went right into AUM not yet paying fees, so excited about the future deployment opportunities and getting that money to work. The $380 million of management fees upon the deployment of that almost $30 billion of AUM not yet earning fees that's almost $100 million increase from last quarter.

The ORF VII vintage -- the seventh vintage fund in that lease, that was obviously a big contributor to that, raising over $2 billion in the initial close at the end of June. And the total $380 million once deployed, that gets deployed at a blended fee rate of 130 basis points. And so once that $380 million is deployed, that would represent over a 15% increase from our LTM management fees today.

So we feel really excited about not just the fundraise that impacts us today, and we continue to put those dollars up, but the AUM not-yet-earning fees, the trajectory over, let's say, 12, 18, 24 months, we feel really encouraged about that as well.

And we are seeing, as Marc pointed to, as we heard on a previous earnings call, the deployment opportunities continue to look a little better. It looks like there's a pickup in the environment, and so that could pull that time frame forward a little bit.

Your next question comes from Kyle Voigt of KBW.

So Marc, there was an FT article in secondaries published this morning, it's quoting that you would have a very open -- you would be very open to a full suite of large acquisitions or building a business organically. I was just wondering if you could clarify whether that comment was specific to secondaries or simply a broad-based comment?

And then maybe you could just update us on how you're thinking about M&A right now? Are there certain areas that you find attractive or want to accelerate your growth in? And how should we think about your appetite for larger M&A versus bolt-ons right now?

Great. Thank you. So with regard to -- let me start with the broader topic of M&A, and then come down to the secondaries topic specifically. So with regard to M&A, as, of course, you all have observed, it's been a very, very successful part of our overall strategy. It's a minority part of our overall strategy. Recall that while we did several very important strategic acquisitions in terms of capabilities last year. .

It was less than 10% of our market cap that was invested to create those opportunities and look at the benefits that are already yielding for us. And so I think for us, look, we are all about risk management as a firm, like that's our DNA. Everything we do is about how do we create products, how do we manage a firm, permanent capital, fee-based income. So we're always focused on risk management.

So that includes what we buy, the culture fit, the nature of the product, the ability for us to then in turn grow it. And so all of those are variables and we will continue to evaluate M&A opportunities. It's quite clear that consolidation is a real part of the landscape for alternatives.

And we're one of the few, frankly, demonstrated people who can truly do it successfully, not just for our shareholders. but for the teams that join us and then thrive as a part of this platform. So we are -- we continue to be active. We will always be looking, though, for our strategy that is consistent with our DNA, again, about those durable, protected strategies, culture fit for sure.

And we will always be looking for things, therefore, that are a place where we can bring an advantaged result for the investor. We are not going to be all things to all people. We don't want to be. We are going to be the best for what we do for the people that we're lucky enough to work with.

So we're better, we're deeper, and you can see that in these adjacencies and the synergies we're getting synergies being origination synergies as well as infrastructure and capital raising. So we don't have like a goal to "acquire" things. We have an extremely open mind about when we see a place where we want to skate to because that's where the puck is going. We're always going to look at organic; we'll look at small, as you call them bolt-on; and we'll look at large acquisitions.

All of those are options, whichever one is the winning strategy to both, on the one hand, win for the investors, the LPs and by extension win for Blue Owl. So it will continue to be a part of our game plan and our strategy, but you should expect us to continue to be highly selective, but also not to be lost, we've proven we know how to do it.

Again, these acquisitions -- last year, we had a lot of questions about this during last year's calls very understandably. But look where we are now: real estate credit, thriving, right? We've already got that thriving. Insurance, we just talked about the origination power that we're already delivering.

We talk -- of course, talked a lot about digital in pressure and asset-backed where we already have now raised our new interval fund. So we've got skilled the template and the plan. Now as for secondaries, the comment in that article was particular to secondaries in talking about the full sweep from organic to large Look, we think that is a good business for us because it's another solution for the exact ecosystem that we serve.

And don't forget, we're already pioneering back to the point of buy versus build, what we think is actually probably one of the most interesting new areas within the broadly defined secondaries, that's GP-led secondaries. This is an area with no market leader, and we plan to be the market leader. We are now already up to $1.7 billion, and that's from a standing start creating this business.

We've already deployed meaningful amounts of that capital in portfolio companies that are doing really well. And I think that market has got enormous room to run because that solves the liquidity issue that is binding up the system with the same time allows the PE sponsor to keep their best in trophy assets.

And that's a place where we're building and the scalability, it's early days, but the scalability of that business is enormous as we think about this next phase of PE, which is not like the older phases, right? There's going to be a lot more about how do you -- what do you do with these accumulated assets? There's going to be less -- relatively speaking, less acceleration in capital raise for PE. It's a different stage, needs different tools, we have it.

So secondary will be a very complementary strategy. Last thing I'll say, just because you cited the article is: With all that said, and you'll hear this in everything we ever talk about. We are not interested in hype. We are not interested in doing anything other than deliver fundamentally great results for investors. Secondary can be done really well. It's a good business, but there is an element today where like some of you'll think they're just harvesting free money because part of it is there's this accounting work to the way you buy something at $0.80 and then the nanosecond later, it's $1.

And so it was nothing wrong with that account fact. But it's creating the sense that people are just like picking up free money and almost mania. And we're not playing into that. That is not the answer. But we're sure is a great business to be had being a really thoughtful buyer of secondary interest when you have more sellers today than you've ever had in the past.

The next question comes from Brian Bedell with Deutsche Bank.

[indiscernible] but maybe just to circle back on 401(k) and the partnership with Voya. You've got good leadership in retail vehicles already. So I'm just wondering to what extent you could sort of activate these into the market sooner rather than later? And I say that just because they're -- and I'd be interested in your perspective on this.

But obviously, there's a longer-term development time line for plan sponsors to be comfortable with adding these vehicles into target date products. But are you -- do you feel like you're positioned so that you might be able to target, let's say, the small plan market with financial advisers and model portfolios. Maybe if you could just sort of comment on that dynamic?

Yes. It's a very keen question, Brian, because actually, given our leadership position in the world of BDCs, BDCs are already eligible products. I mean, in fact, today, someone done right in a partnership like a Voya. If someone wanted to through their 401(k) buy a BDC share, they could.

Now most people don't run their 401(k)s that way, right? Most people tend to run with target date funds. So the bulk of that capital doesn't live in a place we are making those kinds of decisions. But actually, you're spot on. The nature of both our strategies and our product structures mean we're already in position to start to meet the needs of that market.

And as you note, too, we already work with a very wide sweep of FAs, increasingly with wonderful partners like Voya. So yes, I think we're in a place to be on the front edge of the -- what might be a minority portion of that $12 trillion. But then, of course, again, also have the products that are correct and are now being formatted, right, for what you're right.

It's going to be a more medium-term development to get into these target portfolios and work with fiduciaries and do the education that we should do to make sure that people are prudently using these products as part of their retirement strategy. So yes, we like the setup. It does max hand in glove with Blue Owl in particular.

The next question comes from Benjamin Budish with Barclays.

Just a couple of maybe housekeeping items on the modeling side, thinking about the back half of the year. On the transaction fees, this quarter was a little bit better sequentially despite softer net deployment. I know there's a lot of factors that go into that number beyond the magnitude of deployment itself, but anything you can share in terms of what that means for that revenue line for the next couple of quarters?

And then similarly, just on the FRE margins, trending kind of at the lower end of the full year range, but I assume there's some benefit from OTF turning on and giving you a full quarter of fees. Any other considerations there in terms of what that means for the full year?

Thanks, Ben. On the margins, obviously, I touched on that, the guidance is 57 to 58 for this year. And we feel good about where we are. We've printed 57 this quarter, we feel good about that overall. On the first question, just remind, Ben, the first part of the question.

Just on the transaction fees were up a bit sequentially despite net deployment down a little bit. Just anything to read into there, how to think about that in the back half of the year?

Sure. As you know, that moves around and moves up a little moves down a little, largely tied to gross originations. I think this quarter is as good of a leaping off point for the balance of the year as I could probably guess.

Our next question comes from [ Chris Kotowski ] with Oppenheimer.

Marc touched on it a little bit, but I wonder, I'm looking at Page 4 of your release, and I wonder if you can add a little color on the right-hand side of the page? And in particular, I'm wondering about the $1.7 billion vintage and the $3.5 billion of new funds raised.

And so like, first, I imagine those are in the 12.1 that we saw. But in particular, on the strategic equity fund, I was wondering, is that a traditional drawdown fund? Or is it evergreen? And how do you plan to scale it? And I guess just in general, on all these things also like when and where do we see them in the P&L? And when do we start seeing revenues? And where should we expect them in your accounting geography?

Great. So the Slide 4 on that right side is something that is very much worth highlighting. So I appreciate the question because, well, there's a lot of macro talks about alternatives and questions rightfully so about strategies and acquisitions.

The right-hand side is the answer, which is now you can see already, as I said, this is point about it's not a -- we're not laying the pylons of a foundation, the foundation is built and the building is coming out of the ground.

And candidly, we think it's going to be one heck of a skyscraper over time. And so you can see here some of those pieces of that puzzle because these are things we didn't even have before. So to answer first, like on the $3.5 billion, that is primarily in our that is that $1.7 billion in the strategic equity, which I'm going to come back to, that is net lease Europe.

Again, taking our world-class franchise on the road, so to speak, and then with our GP mid-market business. So those are all new strategies that are just beginning to blossom. With regard to the $1.7 billion in strategic equity, we get really excited about this product. That is the GP-led secondary product, I actually was just also referencing, as you know.

We call that BOSE, Blue Owl Strategic Equity. And at the end of the day, it's the greatest hits of private equity. It is the product that allows us in partnership with the firms that we are go-to partners with today to facilitate a really important solution. LPs want liquidity Others want to carry forward, and we're the ones that provide that liquidity to bridge between those 2 well in a self-selected basis, the PE fund says, "I already know what my best asset is. And of course, I want to keep that for the benefit of the investors who want to stay in it."

And then we get to come in with that hindsight benefit already and provide the capital to, if you will, the LPs that don't want to stay exit. I think this is one of the more enormous -- very immature, but enormous opportunities in the alt market because this lives on the 50-year run in PE.

Everyone, you all have the stat on the thousands and thousands and thousands of companies owned by PE and the trillions of dollars held. And this is a way of saying, "You know what, for the very best of those assets, how do I get those on a self-selected basis by the people to know best?" That is the people that already own them. And so candidly, I think it's the best way to participate in private equity today, but it's a young strategy, and I we're in a very good place to I think be the market leader because it takes an origination engine, which we clearly have, for reasons that are quite obvious given our role in the PE marketplace.

It also takes an ability to do the work. This is very, very different from LP secondaries, very different. This is buying an individual asset. So you have to do the deep dive multi-month work, which is what we do every day, right, in the world of credit and have done thousands and thousands and thousands of times.

And then you need the PE capability to drive the final PE decision on the back of all of that work, and we have built a team of world-class PE professionals here to do that. So we got the combination, we have the capital and that product, to answer your last question, has both a drawdown strategy and a continuously offered format.

It's not opportunity, yes, but there's -- it combined 2 vehicles and one vehicle ends up in the place where it becomes to continuously offered version of it.

Okay. So 2 follow-ups on that. One is, is it like a traditional private equity fund where people pay on the committed amount or is it on the deployed? And then secondly, how do you -- can you invest equity in transactions where you're also a lender or do you keep those 2 houses separate?

Yes. Thanks, Chris. So look, these are some of the products. The structure is a GPLP institutional product, and then there's a product that will be a RIC over time that, as Marc mentioned, under a continuously offered phase.

These are all products that Marc is pointing out that helped contribute to the long-term goals. These are great adjacent opportunities, organic initiatives that we've been drilling, as Marc pointed out, that will contribute over the long term to the management fee line. So these are some of the reasons why we continue to be really excited and remain on track with our long-term goals that we outlined back in February at Investor Day.

This concludes the question-and-answer session. I'll turn the call to Marc Lipschultz for closing remarks.

Thanks so much. Look, it was a tremendous quarter, and we expected that, which is to say that this is what we talked about at Investor Day. This is the journey we're on. The building blocks are quite clear. And well, the block is recently describable now, you can start to see the benefits of the block, so to speak.

We are delivering and have consistently been delivering outsized growth. We are on track toward our long-term goals, as we talked about. Just keep an eye on the North Star, it's the $5 billion roughly of revenue and the $3 billion roughly of FRE. That's our north star, and we're pointed right at it, and this quarter took us another step closer.

Look, it seems clear off the market either hasn't seen it or has whatever remaining questions. I hope some of which got answered today because our performance in the market doesn't reflect these attributes today. But we're going to keep delivering and we're going to try to be as available and communicative as we can. Any questions? We love the questions. We want a chance to explain.

Anything people wonder about, we want to explain it. we feel really great, and we see the visible track. The acquisitions are working. The integrations are completed. The synergies are being realized. Over time, we'll continue to add those opportunistically. But it worked like that's been another successful building block in this business.

And I guess the last thing I'd close on because it is timely to the moment, is this generational AI -- generational change adoption what's happening, look, on the cutting edge, there's going to be some gigantic winners and some gigantic losers, but it's going to transform the economy.

And what's quite clear, the necessary tool to get to the arms race to super intelligence or whatever term of art you want to call it, it does take the pixes and shovels. In this case, it takes the modern version, the data centers. and we are the best placed firm to help develop and to help fund those data centers and they are with the best companies to have as your partners and we are committed to being their best partner.

So we have our way of delivering an exceptional risk-result, risk-return opportunity for investors have massive scale, and it's a bit of a once in a lifetime. And so sitting here today, this quarter, more than any, you can -- it's tangible.

Again, we just heard the biggest tech companies announced and the theme couldn't be clearer. And we're in position. I don't know how be this business will be, but we think it has the potential to be a mighty, mighty large one. And certainly, we intend to do a really great job with it.

So I think with that, we'll close. Thank you all, again, for the time, the questions, and we look forward to continuing the conversation.

This concludes today's conference call. Thank you for joining. You may now disconnect.

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.