Blue Owl to raise secondaries, co-investment funds

The funds will complement the GP stakes business, which co-president Michael Rees called 'one of the most underpenetrated spaces in all of alternatives'.

Blue Owl Capital is set to expand its private equity offering, just three months after its formation via a merger.

The listed investment manager, which currently has divisions dedicated to direct lending and GP stakes, is to launch funds focused on secondaries, co-investments and GP-lending, co-president Michael Rees said on the firm’s debut earnings call.

An earnings presentation refers to the Strategic Capital business line, which sits on the GP stakes side of Blue Owl and is scheduled to launch in 2021. This division encompasses secondaries and co-investments, a spokesperson confirmed.

“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,” said co-president Marc Lipschultz, adding that while it sees the broader alternatives market growing at 12 percent a year, direct lending and minority stakes will grow much quicker.

Blue Owl came into being in May through the merger of direct lender Owl Rock Capital Partners and Dyal Capital Partners via a special purpose acquisition vehicle, affiliate title Private Equity International reported.

Blue Owl’s assets under management hit $62.4 billion at the end of the second quarter, an 8 percent quarter-on-quarter increase, driven primarily by capital raising, deployment in direct lending and portfolio appreciation.

“[Fee-related earnings] currently constitute 100 percent of our earnings, meaning our revenues come from management fees, which are highly predictable each year,” said chief executive officer Doug Ostrover, highlighting the firm’s differences from the typical fundraising model. “When it comes to AUM, we are not on the hamster wheel raising capital, because when we raise incremental AUM we keep it since almost all of our AUM is permanent.”

Blue Owl’s GP Solutions business earns management fees when capital is raised, not deployed. The Direct Lending business earns management fees once the capital is deployed based on total assets, he said.

Rees described GP stakes as “one of the most underpenetrated spaces in all of alternatives”, putting the total addressable market at $500 billion, growing to $750 billion over the next five years. The firm is in market targeting $9 billion for its fifth fund.

“You are looking at a tiny, tiny percentage of the addressable market being met by the existing funds. We see a really long runway, not just Fund V, but on into VI, VII, and VIII.”