Blue Owl Capital (OWL, Financial) is a rather unique company that focuses on lending for large private deals. It has over $102 billion in assets under management (AUM). The company's scale acts as a meaningful competitive advantage, and in a high inflation, rising interest rate environment, their floating rate assets are poised to outperform.
Business model
Blue Owl Capital (OWL, Financial) is a private-market lender that operates in three main segments:
- Direct Lending - $45 billion AUM.
- GP Capital Solutions - $41 billion AUM.
- Real Estate - $16 billion AUM.
An example of one of its past deals was when Anaplan was acquired by Thoma Bravo for $10.7 billion. The financing for this deal was provided by Blue Owl Capital and Peers.
Blue Owl Capial has also become a specialist in lending to technology and software companies. Since 2016, they have lent over $19 billion to technology companies.
They have over 34,000 wealth clients and over 500 institutional clients. Their clients are well diversified with one third from Wealth Management and the rest split between Public Pensions, Family Offices and more. Customers hail primarily from the North American region, which makes us 77% of their customer base.
Source: Blue Owl Capital investor materials
Blue Owl Capital has announced plans to list their Dyal Capital Partners Division on the London Stock Exchange in the first half of 2022. This will result in the sale of approximately 10% of Dyal to the public, and Blue Owl will hold the other 90%.
Financials
The unique thing about Blue Owl is they are anchored by a strong permanent capital base which generates 95% of their management fees. Thus, as they continue to raise capital, this contributes to what the company calls the “layer cake” effect.
Source: Blue Owl Capital investor materials
In full-year 2021, the company generated $523 million in after-tax distributable earnings, with $300 million in incremental management fees. In direct lending, their gross originations totaled $23.6 billion, which was up from $8.6 billion in 2020.
Their funds all returned incredible results across each strategy:
- Direct Lending: ORCC 11.8%; ORTF 15.2%.
- GP Capital Solutions: Dyal Fund III 31.8%; Dyal Fund IV 127.3%.
- Real Estate: Fund IV 27.2%; Net Lease Property Fund 22.5%.
They aim to fundraise over $50 billion in fee-paying AUM in 2022 and 2023, which would be an increase of over 80% from Dec. 31, 2021.
Their balance sheet is strong with almost $1 billion in liquidity.
Blue Owl pays a healthy 3.65% dividend yield, which is over double the S&P 500 yield of 1.56%. In addition, they have adjusted their corporate structure to enable potential inclusion into the Russell indices.
Valuation
In terms of valuation, Blue Owl Capital trades at an enterprise-value-to-revenue ratio of 9.61, which is lower than historic levels.
Blue Owl Capital is a fantastic alternative asset manager which is poised to take advantage of the continued growth in private markets. Their permanent capital base gives them extra security and offers growth potential thanks to the “layer cake” effect. Blue Owl also pays a healthy 3.65% dividend, which is higher than the industry average. All things considered, I believe the stock to be undervalued at current levels.
