Blue Owl highlights business beyond private credit after profit beat
By Isla Binnie and Manya Saini
NEW YORK, April 30 (Reuters) - Blue Owl executives on Thursday emphasized growth in its businesses beyond direct lending, a form of private credit that has come under rising scrutiny, after the alternative asset manager beat Wall Street expectations for first-quarter profit.
Private credit funds for retail investors have faced historic outflows, triggered by concerns about lending standards and fears that artificial intelligence poses an existential threat to the software sector, where many lent heavily.
Blue Owl's assets under management jumped 15% to $314.9 billion driven by the real assets business, which invests in real estate including data centers and other infrastructure.
The New York-based firm traditionally raises around 40% of the money it manages from wealthy people, a high share by industry standards, with the balance coming from institutions.
"Nearly 3/4 of equity capital we've raised over the last 12 months have been outside of direct lending," co-CEO Marc Lipschultz said on a call with analysts.
TD Cowen analysts seemed cheered by this, saying the earnings suggested "contagion risk beyond elevated (direct lending) redemptions are not spilling into other asset classes".
The direct lending strategy, where Blue Owl provides loans outside the traditional banking system to finance buyouts, growth or refinancing, suffered a net loss of 1.1% in the quarter versus 5% gains in the 12 months to March 31.
While the asset pile grew overall, growth in the segment that Blue Owl earns fees to manage came in 2% short of market expectations, Barclays analysts said.
In its credit platform, repayments from existing borrowers outpaced origination of new loans, dragging so-called net deployment down about $500 million.
SOFTWARE LOANS IN FOCUS
Chief Financial Officer Alan Kirshenbaum said the company is "working down" its exposure to the software sector given market uncertainty. That exposure has not changed significantly from the 8% of total assets it reported in February, a person familiar with the matter said.
Across all sectors, Kirshenbaum said Blue Owl had "seen no material negative developments in our portfolios".
Its shares extended early gains. They were last up 11%, after Lipschultz said Blue Owl made roughly 10 times on a 2021 equity investment in SpaceX. Investments like that can offset credit losses, he said.
PRIVATE CREDIT UNDER STRAIN
Blue Owl, which was formed from a 2021 merger between Owl Rock Partners and the Dyal Capital division of Neuberger Berman, has become emblematic of the Wall Street private credit selloff that intensified after it decided to merge two of its private credit funds late last year.
The merger was later abandoned after its shares tumbled.
Oppenheimer analysts said its results were in line with expectations and "didn't at all reflect the doomsday scenarios that were so widely propounded". The brokerage added that in the future it expects funds to allow retail investors to withdraw a maximum of 5% of their holdings each quarter. Blue Owl imposed that limit on withdrawals from two funds earlier this month after a historic level of redemption requests.
On an adjusted basis, Blue Owl's fee-related earnings per share rose to 25 cents in the quarter, compared with 22 cents, a year ago.
Private wealth added $2.9 billion in equity, compared with $6.1 billion from institutions.
Adjusted distributable earnings per share rose to 19 cents in the three months ended March 31. That compares with analysts' views of 18 cents, according to data compiled by LSEG.
(Reporting by Manya Saini in Bengaluru and Isla Binnie in New York; Editing by Arun Koyyur and Shailesh Kuber)