Mohammed Anjarwala
Good afternoon, everyone. My name is Mohammed Anjarwala, and I lead Advent Global Opportunities. I'm excited to be back at Sohn and present Blue Owl.
1. Blue Owl Leads Private Credit
Blue Owl is a leading alternative asset manager, and more specifically, it's the leader in private credit. It's a highly attractive, annuity-like business model with high recurring revenues and long-term visibility. It's exposed to 2 of the fastest-growing trends in finance: private credit gaining share from the syndicated loan market and retail investors increasing their allocation to alternatives.
We think it's a business that's both defensive and resilient, and it's got high growth. It's rare to get both of those things at the same time. We expect earnings will double by 2028, and given its resilience and defensibility, we think it warrants an attractive trading multiple as well.
For those of you who don't know, Blue Owl manages a series of private credit funds. These funds take in capital from external investors and lend it out for a variety of uses, including financing LBOs. The management company sits on top of these funds and receives fees from them. The management company takes no balance-sheet or credit risk, so it's an asset-light model.
Ninety percent of the capital that they manage is permanent. For example, think of a publicly traded BDC where investors don't have the right to redeem capital, but they can trade in and out. One hundred percent of earnings are fee-related, so there are no volatile investment gains or losses happening in the management company.
The vast majority of fees are highly predictable fixed management fees. There's very little carry here, so it's a very stable and attractive annuity-like earnings stream. This annuity stream is growing, and it's growing very quickly.
2. Private Credit Takes Market Share
Private credit has been gaining share from the syndicated loan market. The primary reason for this is that it's simply a much better product, where the duration of the loans and the duration of the funding are far better matched. Importantly, it does not rely on bank warehousing to make the initial loan commitment.
In times of stress, like we had a couple of months ago with the tariff announcement, the syndicated loan market basically shut down. But because these private lenders have long-term capital, they continued to make loan commitments even during this volatile environment. They offer partnership and flexibility for borrowers.
As a result, private credit's share of the market has gone from about 10% to 20% over the last 5 years, and we think that trend will continue to go up within this market. Blue Owl has been doing even better. They're growing much faster than the rest of the market—more than double the growth rate—and so they've been gaining a lot of market share.
That's because they focus on the highest end of the market. These are the scale transactions, where billion-dollar-plus checks are written. Very few players can do that, and we also think it's the highest-quality segment of the market. They're gaining share because they can write in size, move with speed, and offer a one-stop shop for borrowers.
3. Retail Investors Expand The Opportunity
Who are the investors in these private credit funds, and why do they invest here? It's a really attractive yield product. Dividend yields for one of their products are 10% right now, and that 10% breaks down into 4 points of base rate—the base rate is going to move around based on the interest-rate environment—and 6 points of spread.
That spread is remarkably stable and resilient, so we think it's a very attractive and diversifying return stream for investors. The investors here are both institutional investors and retail investors. Retail, in particular, is very interesting. Retail allocation to alternatives is very low—3%—but growing. Institutions are at 20%.
If we can get even halfway there, that's a massive opportunity: $10 trillion to $15 trillion of potential inflows into alternatives. This 3%, we think, could easily be several times larger.
Blue Owl has done really well in this channel, and they've been very successful here. Retail is hard. It's about brand and distribution, and Blue Owl has built both. Their monthly inflows into their evergreen product, which is a retail-channel product, are up 5 times in the last 3 years—more than $700 million of inflows every single month.
Today, about 20% of their overall capital is from retail, so we think this is really exciting.
4. Acquisitions Open New Markets
I've only talked about the private credit business here so far. That's the core business, but there are some other exciting things going on as well. The company has made some acquisitions that could really turbocharge growth. These acquisitions open up new markets for them where they can run their playbook: build retail products and grow the institutional funds organically.
There's a lot of opportunity here, and in particular, the asset-backed market. We think that's really interesting. It could easily be multiple times larger than where it is today.
5. The Stock Offers Asymmetric Upside
So, what does this mean for the stock? The company did $0.77 of earnings last year. We think that's going to about double by 2028. Almost all of that is coming from asset growth, and a big chunk of the asset growth is coming from the private-wealth retail channel.
The stock is currently at around $19 a share. That's about a 20-times forward P/E. Ares is a direct comp and has been trading in the mid-to-high 20s. Given the resilience of this business and its growth, we think a 25-times P/E is appropriate here.
At a 25-times P/E, the stock is $36. That does not include the $3 of dividends you receive on the way. So it's more than a 2-times multiple of money, and more than a 30% IRR in less than 3 years.
Remember, this is a business that's really resilient. It's a dividend payer, and so we think the return outcomes here are asymmetrically attractive. There's another $4 to $5 of incremental upside if those acquisitions I talked about go well.
I'll stop there. That's Blue Owl. Thank you for listening.
Speaker 1
Thank you, Mohammed. And thanks to all of you who have invited us today to support this great cause. My question is: You started by talking about Blue Owl as an alternative asset manager. You also said that they don't have much carry in the products that they sell, particularly in the credit products. If that's the case, how should investors think about the valuation of Blue Owl versus other alternative asset managers like Blackstone, Apollo, Carlyle, and Ares that have a much higher percentage of carry?
Mohammed Anjarwala
It's a great question, and this has been an evolution in the industry. When these alternative asset managers first went public, there used to be a lot more carry in the publicly traded entities. Over time, those entities—which initially used to be limited liability partnerships—transitioned to becoming corporations, and they switched much of the carry over to the employees. The publicly traded entities now have more management fees.
The equity-oriented alts do have a lot more volatility because they sometimes have a balance sheet and a lot more carry in the earnings stream of the public company. The credit-focused players are better in that sense. Ares and Blue Owl, we think, are purer in that sense because the management-fee stream, the earnings stream, is far more stable. It has less volatility from either a balance sheet or carry.
That's why we think Ares probably should trade at a premium multiple to some of the equity-oriented alternative managers.
Speaker 1
Very good. If you could all join me in giving a big round of applause to Mohammed, we'll bring up the last speaker. Thank you.