Good morning and welcome to Blue Owl Capital Second Quarter 2021 Earnings Call. During the presentation, your lines will remain on listen-only. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I'd like to advise all parties that this conference 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 on the call today. Joining me this morning are Doug Ostrover, our Chief Executive Officer; Marc Lipschultz and Michael Rees, our Co-President 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 would also like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release available on the Investor Resource section of our website at blueowl.com. This morning, we issued our financial results for the second quarter of 2021 and reported adjusted fee-related earnings or FRE of $0.10 per share and adjusted distributable earnings or DE of $0.09 per share. We also declared a dividend of $0.04 per share payable on September 8th for shareholders of record as of August 24th. We'll be referring to the earnings presentation throughout the call today, so please have that on hand. With that, I'd like to turn the call over to Doug.

Thank you, Lian. Good morning, everyone. And thank you for joining us today for our first Blue Owl earnings call. We are very appreciative of the time that you are taking to join us on our call today and we look forward to seeing you all in person, hopefully sometime soon. Given that this is our first earnings call, I thought I would start with a brief introduction to the Blue Owl story and highlight our vision for the combined platform and the tremendous growth we see ahead. Marc and Michael will then provide their perspectives on what we're seeing across the industry before providing color on business performance for Direct Lending and GP solutions. From there, Alan will cover our financial results and then we will be happy to take any questions. So, let me start with a very high-level view of Blue Owl’s position in the marketplace. We are a leading solutions provider for the private markets with $62 billion of assets under management, of which $8.5 billion does not yet earned fees, but will once that capital is deployed. And notably, 97% of our management fees come from permanent capital. So, we have very high visibility into our earnings growth over the next six, twelve and even eighteen months. We support the entire ecosystem of alternative asset managers through two businesses. Direct Lending, where we provide capital to sponsors to finance their portfolio companies and GP solutions. Where we provide capital to the alternative asset managers themselves, essentially, we are selling the picks and shovels to the industry. Or said another way, we are the equivalent of SaaS providers to the alternative asset management space. Our long-term goal is to continue to expand meaningfully in these businesses and add additional capabilities that also fit this mandate of…

Great. Thanks, Doug. I'd also like to extend a warm welcome to our new and prospective public shareholders. One of the questions, we get most often when we meet with shareholders now is this, how do we expect the alternatives industry to continue to evolve? And how does Blue Owl’s business fit within that evolution? So, before I provide some background on our Direct Lending business and talk about where we're going, I thought I’d take a step back and share some thoughts on the broader alternatives industry. I think you all know well the tailwinds that support the continued growth for alternative asset managers, investors are looking for attractive risk-adjusted returns in a market where that can be very hard to find. Allocations to alternatives have continued to rise as investors realize they can trade some amount of liquidity for excess returns and for what we believe is a much better overall risk-adjusted return. As more traditional “alternative products” such as private equity and real assets have grown, new alternatives, market segments such as Direct Lending, GP minority stakes and secondaries and co-investments have really emerged and flourished. At a high level, Blue Owl’s role in the market is to provide capital to the alternatives ecosystem, which continues to expand in size, scale and complexity. And while the larger alternatives industry continues to grow at a robust 12% average annual growth rate, areas such as Direct Lending and GP minority stakes are expected to grow even more quickly. So, let's break that down for Direct Lending. By some estimates, there is $1.5 trillion of dry powder just in private equity alone and $3.3 trillion across private markets more broadly with more been raised every day. Now compare that to the size of the entire Direct Lending market with just…

Thank you, Marc. Let me start by framing the market opportunity in the GP Solutions space and provide some additional color about the history of the Dyal business and then I'll spend a minute on how the business is doing and where we are going from here. Since our founding in 2010, the Dyal team recognized the tremendous growth in the alternative segment and saw a need for growth capital to assist founders and management teams in achieving their business objectives. We launched the Dyal business to be the premier provider of such capital. The strong growth in the alternatives industry and the overall private markets was driven by institutional investors, increasing their adoption rate for the products that these firms offer. With the industry's maturation, that need for our type of growth capital has only increased. We believe that these great businesses, investors in private equity, private credit, infrastructure, real estate and other similar strategies will continue to play a major role in the investment portfolios of institutions and individuals for decades to come. And we want to be the leading provider of capital at the GP level for this industry. Our business model is quite simple. We raise permanent capital funds. We're raising our fifth as we speak, and we invest this money into passive minority stakes in the leading companies in the alternative investment space. We typically take passive minority stakes between 10% and 25%, which allows the investors in our funds to participate in what we believe to be the attractive economics of these businesses. To Blue Owl shareholders, the ability to continue to raise funds to address this market opportunity, drives our fee income and we see a very attractive runway ahead. Across our five funds, we have over 50 minority states, and we believe…

Thank you, Michael, and good morning, everyone. I am going to start off by first, pulling the lens back and framing our business for everyone. Then I’ll take us through the relevant numbers and metrics for this quarter. When I get to the numbers, I'll make references to pages in our earnings presentation, which we posted to our website this morning. So please feel free to have that available to follow along. At a high level, we have a very simple business model. One, we earn management fees to manage our BDCs and funds, which are [Technical Difficulty] to Blue Owl shareholders. Of course, we care very deeply about how our funds perform. But unlike other wealth managers, the returns of our funds do not really matter to our Blue Owl’s shareholders. That said, our strong performance has continued to support our fundraising goals. And three, virtually all of the capital we manage with permits. This also helps provide significant visibility into future earnings. Now to break off this down a little more, we are a 100% FRE business. Our revenues come from steady, consistent, predictable management fee cash flow streams. We have built a strong high cash flowing business. 97% of our management fees are from permanent capital. When we raise capital, it's like a layer cake, adding to our existing AUM. We are not on a hamster wheel having AUM fall away every quarter. We demonstrate best-in-class growth and best-in-class EBITDA and FRE margins. We expect to pay a strong competitive quarterly dividend with the potential to double our dividend by the fourth quarter of next year. We have a very strong balance sheet with a significant amount of liquidity. We are well aligned with our Blue Owl shareholders. We as the management team hold about 25% of…

[Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs.

Great. Thanks for the question. Good morning, everybody and congrats in the first quarter. So, first, I was hoping to start with a question around Direct Lending. Obviously, the pace of origination has been running well above historical levels and from the RCC call, it sounds like that base to sort of continued so far into the third quarter. So, I was hoping you could expand on your sort of expectations for origination pace for the rest of the year. How Owl has been differentiating itself in the marketplace to make sure you gain sort of incremental share deal flow without taking excessive risk? And I guess, secondly, Alan, to your point about the fact that it will take only three quarters to deploy sort of the shadow AUM here. How are you thinking about the sources of additional fundraising here to make sure that you have enough sort of dry powder to meet the need of the channel? A- Alan Kirshenbaum Great. Well, listen, thank you, Alex, for the questions. So, first off, the Direct Lending pace as you just observed really continues very robust. We continue to see activity this quarter that's at least consistent with the levels of last quarter and while the timing in any given quarter what’s happening, what will close in terms of a new level and what'll will happen in terms of repayments it's hard to know with precision. We're continuing to see elevated activity to the kind of durability question, again, understand that there is a notable rhythm to the pace of a certain number of investments. The backdrop is extremely strong. If you look at fundraising in private equity, we're now looking at probably about a 1.5 trillion from the dry powder and $400 million of year-to-date private equity fundraising, which…

And, hey, this is Doug Ostrover. Maybe I can comment just on growth in general in answering your question specifically about raising additional capital. Certainly, our biggest growth initiatives - our business is relatively simple and I like to think about it as we have five things we're trying to accomplish in the near term. So one is, you mentioned this, get the $8.5 billion of assets that we've raised, we're not currently earning management fees on yet get that deployed. Marc talked about the elevated deployment levels. We think that will continue for the rest of the year hopefully for some time. And Alan touched on this that's one $120 million of incremental revenue per year. Obviously, Fund V, which Mike will touch on at some point, I'm sure in Q&A, but our deployment there has been excellent. The existing funds, both the funds III and IV, the performance has really been exceptional. So, highly confident in that fund raise. In terms of replenishing our capital, I think you know and we can spend some time on this if you'd like, we're getting ready to launch a retail product into the wire houses. And again, I'd like to maybe further in Q&A spend a little more time on this. It's called our core income fund. And I think Blackstone has been raising $4 billion a month. We've been raising about $100 million a month and we think it's - we're early in the process. But we were hopeful we can exceed people's expectations with what we can do in retail. Then, I think you we have a number of BDCs that we're earning discounted fees on until they list. Alan touched on our tech fund at some point that will go public and we think we have the ability to go out and raise additional BDCs. So, we're cautiously optimistic on what we can do in the next number of quarters. But, I think on those five initiatives, we are highly confident that you'll see us execute over the next three or four quarters on each of those.

Great. Thank you, both. And maybe, just touching on the other side of the ledger and talk about the GP Solutions business and Dyal. So, Mike, I think this is probably for you, but one of the questions we get the most from investors is really about the addressable market for Dyal here. Given the fact that the markets obviously very large, you mentioned $7.5 trillion in AUM. But as you think about what's really addressable for Dyal, and more importantly, how much in fee-paying AUM relative to your sort of $19-ish billion today in the second quarter. Do you think you will require to support the growth, I'll call it - call it, over the next three to five years to support the growth in this GP Solutions space?

Yes. Good morning, Alex. Thanks for the questions. We look at the GP Solutions space as one of the most underpenetrated spaces in all of alternatives. When you - when we estimate the TAM, the addressable market, we think it's about $500 billion of total capacity now growing to $750 billion over the next five years. When you look at our fund, which we can come back to our current fund – we are raising Fund V, targeting a $9 billion cover and our competitors, which are substantially smaller and they are really only two major competitors. You are looking at a tiny, tiny percentage of the addressable market being met by the existing fund. So, we see a really long runway, not just Fund V, but on into VI, VII, and VIII. And a lot of conversations that have been developing and percolating for years. It's quite often that a relationship of ours will take anywhere from three, four, five years to ultimately result in a GP stake. So, we have a really long runway and our eyes on the horizon and we think there is plenty of capital to raise and deploy over time.

Great. Thanks again. And then, maybe be the last question for me. Doug, you mentioned this, but clearly there is a lot of interest and appetite in the retail channel for private markets funds. It feels like in the last two to three quarters, that's been a theme that folks have talked about for one time, but it feels like it's sort of finally here. So, maybe spend a minute sort of what differentiates Blue Owl and your credit products in the retail channel? And sort of how you expect that to evolve over the next few quarters and years?

Okay. Well, if it's okay with you, and I just want to spend a moment on retail in general, because, I know you are familiar with what we've built. But I am not sure everybody else on the phone is. We've been in the retail space since we've launched and we've had really good success in the channel. As I mentioned, we're currently in the market with our core income fund. Our sales have exceeded over $100 million month. But most of those sales have been in the independent broker/dealer channel. As I mentioned now we are expanding into wire house distribution. And then, we're expecting that to go well. But at this point, we are reluctant to get ahead of ourselves in terms of predictions. But I'm hopeful over the next few quarters we'll have some good news there. But if you take a step back, there is no doubt. Retail is a huge opportunity. We believe it's as large as the institutional market, but with much lower adoption rates. I mentioned Blackstone earlier that had tremendous success. And I think I mentioned it was $4 billion a quarter. It's actually they're raising $4 billion a month between their non-traded REITs and their credit product. So it gives you a sense of the numbers that can be achieved in these channels. So, we think our products are very competitive. Marc talked about our lending performance. We think it's a best-in-class. We actually think it's tough yet. From day one, we built our platform to serve the institutional and the retail investors in the same way. This is different than many of our peers. If you look at what we’ve built, retail and institutional own the identical securities at the same price. And we think that makes a big difference in terms of what the retail experience will be. Our goal is to bring a true institutional experience to that retail market. So, we are really optimistic as it relates to retail. But again, we are not ready yet to make any big predictions. To give you an idea of scale, today, we have over 40 professionals focused exclusively on retail and I think by the end of the year, that number will approach 50 professionals. We're also building out our Asian and European retail distribution and we expect to raise a significant amount of capital abroad. And then finally, we're currently only working on distributing lending products through retail and Dyal has some strategies that we think could fit really well in the retail channels. They are certainly the market leader and so, that's something that we'll also be spending a lot of time on, as well.

Perfect. Well, thank you very much for taking all my questions.

Thank you, Alex.

Your next question comes from the line of Patrick Davitt.

Hi good morning, guys. From Autonomous Research. So I guess, that you are stuck with the 2021and 2022 guidance, but if we take the $180 million of 2Q management fees, compared to the guidance like $956 million I think for the year, which is you are tracking well below that. So, could you help bridge the gap between the kind of 2Q management fee runrate and sticking with the 2021 guidance?

Sure. Of course, Patrick. Thank you. It’s Alan Kirshenbaum. So, the annual guidance - we are right on track for the quarter of where we expect it to be for management fees. You can't take – you can't take our annual numbers and divide by four for a growing business. We should expect each quarter putting aside one-time items. Each quarter revenues and FRE and DE will be higher than the previous quarter with the growth that we've projected out and we expect of our business for to the next year, for the next few years. So, this quarter, we right on top of our management fee numbers that we expected. Expenses came in a little lower and transaction fees came in a little higher. And so, that's really the headline story for the quarter. And what you should expect is, when - and Marc touched on this earlier, when we have elevated originations on the Direct Lending side of our business, you should expect higher transaction fees and the same goes the other way as we have lower originations you should expect lower transaction fees. And so, 2Q, as Craig and I were on our call last week for Owl Rock Capital Corporation, we talked about record numbers for 2Q and we noted that 3Q will be roughly the same or it could be higher than 2Q. So, as we think about the 3Q numbers for Blue Owl, we could have the opportunity to have elevated transaction fees again in three 3Q.

And is there still a fee holiday issue without Fund V, could you remind us of that?

Of course. Yes, there is a fee holiday. So, Michael talked about $9 billion as our target fund raise for Dyal Fund V. We've closed that. That is subject to a fee holiday about $2 billion. And we expect there could be another $0.5 billion give or take. And so that fee holiday is for initial closures or those investors who were around the first close, but couldn't get closed for the first close. That runs through the end of this year.

Got it.

And so, those will - all investors in Dyal Fund V will pay the full 2% fee starting Jan 1.

Got it. Very helpful. Great. Doug, you mentioned, I think the retail product running it about $100 million a month. Am I right that that's basically just one month at this point?

No, we have been - that's what we've been running for a while. But that's in the independent broker/dealer channel. And we are just getting ready to go into the wires. It will be in a few big wire houses between now and the end of the year. And then, I think you'll see this syndicate grow in a very meaningful way starting January 1. So, hopefully, as I said, we'll a lot more to talk about in the upcoming quarters. But, we're cautiously optimistic. And based on our track record and the feedback we're getting so far, we're expecting it to go relatively well.

Got it. Thanks. And last one I have is a little bit broader. But - and I know it's early days and who knows what's going to happen and do you see? But do you guys have any thoughts on how a change in the carried interest tax rate could have on the cash flow of the Dyal portfolio? Is there any concern that could meaningfully impair the yields on those vehicles?

So, thanks Patrick. It's Michael. What really happens, when different tax legislation is proposed is that you have a tremendous amount of thinking and activity from the owners’ perspective in planning out they will own and continue to run their businesses and it generates incremental activity, not just a pull forward of some conversations that may have been longer in duration, but also a number of players that get off the fence and do want to think about GP stake deals that wouldn't have actually done so. So, we see a very strong uptick in the actual volume of opportunities for us, both near-term and medium-term. But as it relates to our investment yield, our investors are predominantly passive across all of the Dyal Funds. And so for that reason, look, at least any of the carriers interest legislation is proposed, to-date, it wouldn't impact a passive investor in a Dyal Fund. So, it actually continues to have very attractive cash flow profile. It wouldn't be impacted or impeded by anything that's currently been proposed in Washington or quite frankly any of the European districts or jurisdictions, as well.

And Patrick, this is, Marc.

Go ahead.

I am sorry. To follow-up a thought and just a refresher which you know is to be true, but for Blue Owl shareholders, the underlying yields and performance in our products, whether on the Direct Lending side of the Dyal side within recent ranges really don't matter. Remember, carried interest is zero percent of the revenues of Blue Owl. And so, while it is certainly relevant that we keep a close eye on it as it bears on delivering performance. And as you know Dyal Fund V, for example, is currently running over 60%. So I think we're feeling very good about that performance. But that performance in earnest to the benefit of the LPs from a Blue Owl shareholder point of view, we are the picture shareholders for the SaaS offer we get paid a recurring fee to manage those products on a permanent basis.

Right. Got it. Thank you.

And at this time, there are no further questions. I will turn the call back over to Doug Ostrover for closing comments.

Well, thanks so much everyone. It was a treat having some time to speak with you today. We look forward to working closely with all of you and hopefully continuing to seed your expectations. Thanks again.

Thank you. That concludes today's conference call. You may now disconnect.