Good morning and welcome to the Blue Owl Capital's Second Quarter 2023 Earnings Call. During the presentation, your lines will remain on listen-only. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would like to advise all parties, that this conference call 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, everyone. Joining me today are Doug Ostrover and Marc Lipschultz, Co-Chief Executive Officers; Michael Rees, Co-President; and Alan Kirshenbaum, 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'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation, available on the Investor Resources section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase, and interest in any Blue Owl fund. This morning, we issued our financial results for the second quarter of 2023, reporting fee-related earnings or FRE of $0.17 per share and distributable earnings or DE of $0.16 per share. We’ve declared a dividend of $0.14 per share for the second quarter, payable on August 31, to holders of record as of August 21. During the call today, we'll be referring to the earnings presentation, which we posted to our website this morning. So, please have that on hand to follow along. With that, I'd like to turn the call over to, Doug.

Thank you, Ann, and good morning, everyone. Today, we reported another strong quarter of results for Blue Owl, again demonstrating the steady and resilient growth that we believe sets us apart in the alternative asset management space. When we became a public company, the thesis that we laid out for our investors was a simple one. We would generate substantial growth through a variety of market environments, anchored by our base of permanent capital, and we would provide an earnings stream that looked much less volatile than peers, with earnings supported almost entirely by management fee streams. Over the past two years, markets have shifted rapidly from a zero interest rate environment and robust capital markets to over 500 basis points Fed funds rate and meaningful declines in M&A and public issuance. The world changed overnight multiple times, and many companies face sizable challenges as a result, including supply chain difficulties, inflationary pressure, and capital funding issues. Over this period, Blue Owl was able to step up and increasingly demonstrate the value of our capital solutions to a broad slab of partners. We provided necessary capital to businesses across nearly every industry in our credit business and have seen minimal credit losses as a result of our disciplined underwriting. Our GP strategic capital platform supported the continued growth of the private markets ecosystem. And in real estate, we offered crucial and scaled alternative solutions to large companies seeking liquidity and capital flexibility. It has always been our perspective, that robust private markets support the health of both public markets and the broader economy, and we feel these past few years have been a validation of that view. Also, over this period, Blue Owl strategies provided much needed recurring income, downside protection, and inflation hedging to investors. Our credit and real…

Great. Thank you, Doug. The second quarter was characterized by many of the same themes we saw earlier in the year with uncertainty around the trajectory of interest rates and pace of economic growth constraining overall market activity. In our credit business, we continue to deploy capital into high conviction, attractive opportunities providing essential capital for our portfolio companies. Over the last 12 months, we originated nearly $15 billion of loans providing crucial financing to the M&A market. And during the second quarter, gross originations were $3.4 billion with $1.4 billion of repayments, allowing us to redeploy capital into attractive high yielding opportunities. Gross deployment has slowed a bit in keeping with lower market activity with U.S. M&A down nearly 40% on a year-on-year basis. However, as we've highlighted in prior quarters, direct lending has continued to occupy a larger share of the market. We believe much of the market share the direct lending has taken over the years reflects a permanent shift in borrower behavior, driven by the value of our lending proposition namely the benefits of privacy, predictability, and partnership. Credit quality remains very strong. Despite a more challenging macro backdrop, we continue to see good revenue and EBITDA growth on average at the portfolio companies. We have not seen any meaningful change in our internal watch list, nor have we seen any material step up in amendment requests or non-accruals. Weighted average loan-to-values remain in the low-40s across our entire direct lending portfolio and the low-30s across our tech dedicated portfolio. Across the $78 billion of loans we've originated since inception, annualized realized losses have been approximately six basis points, and those have been fully offset by realized gains over that same period. With regards to performance, the direct lending portfolio achieved gross returns of 4.3% for…

Thank you, Marc. Our GP Strategic Capital business continues to serve as an important resource for the private market’s ecosystem, providing growth capital to some of the largest and most diversified alternative asset managers. Most recently, we announced the minority investment in Stonepeak, a leading alternative investment firm specializing in an infrastructure and real assets with over $55 billion in AUM. With a robust and expanding pipeline, total invested commitments for our fifth GP Stakes fund including agreements and principles, have reached approximately $11 billion of capital or roughly 85% of the funds, and we currently have a line-of-sight into approximately $2 billion of new opportunities, which if all signed, would bring us through the remaining capital available in Fund V. Our focus on larger firms within the alternatives universe has positioned our platform well within the current fundraising environment. Of note, one of our managers, CBC, recently closed its latest flagship fund with 26 billion euros of commitments, surpassing its fundraising target and its private equity's largest ever buyout fund. Performance across our GP Stakes funds remained strong with a net IRR of 24% for Fund III, 49% for Fund IV, and 28% for Fund V, all of which compare favorably to the median return for private equity funds of the same vintages. Looking ahead, we are looking forward to launching conversations on our sixth vintage fund in our GP Stake strategy and continue to anticipate a first close in early 2024. Finally, I would like to address the rumors and speculation that have been in the press. I am 100% committed to Blue Owl’s long-term success and will continue leading the GP Strategic Capital business. As a show of alignment for the long-term, I have elected to receive 100% of my compensation for 2023, 2024, and 2025 in Blue Owl equity. I look forward to continuing to drive value for our shareholders. With that, I will turn things over to Alan, to discuss our financial results.

Thank you. Good morning, everyone. I'm going to start off by walking through the numbers for this quarter and the last 12 months, and then I'll touch on a few other items I want to cover today. I'll be making references to pages in our earnings presentation. So, please feel free to have that available to follow along. To start off, we are very pleased with our second quarter an LTM results, another quarter of strong industry leading growth. Some key highlights of our results through, June 30, include total revenues up 37%, FRE up 34%, DE up 32%, and our dividend is up 33%, all on an LTM versus a year ago basis. All of this was because we built our business differently than our peers. We built our business with the foundation of permanent capital and steady predictable management fee cash flows. So to step through our results through, June 30 in more detail, management fees are up $459 million or 46% for the LTM period versus a year ago. Broken down by strategy, credit management fees are up $272 million or 53%. GP Strategic Capital management fees are up $123 million or 28%, and real estate management fees are up $64 million or 175%. Keeping in mind, we acquired our real estate business at the end of 2021, so we don't have a full year in our prior year LTM results. This is obviously very considerable growth that we've been able to accomplish. Compensation expense came in at just under 28% comp-to-revenue for the LTM period. Overall, we are trending in-line with our guidance of our comp expense ratio sitting in the 25% to 30% comp-to-revenue range, likely towards the higher-end of that range, due to further growth and investment in our business. G&A expense came in…

[Operator Instructions] Your first question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Hi. Thank you. So I appreciate all the commentary. I wonder if you can help us aggregate in terms of your comments on first closed for GP, the next net lease fund being twice a size. And maybe any guesstimates on private credit, maybe just lump that into, I don't know, next 12 months, what kind of numbers does that add up to? And then when thinking about the part of it is market related cyclicality, part of it is rate related cyclicality. But when thinking about the cyclicality of your current mix of business, how do you think about broad or are you thinking about broadening the platform in an effort to reduce that cyclicality? Thanks so much.

Thanks, Glenn. Appreciate the question. Good morning. When we think about our flagship real estate product, Fund VI, we are still fundraising there. We do expect to hit our goal of $4 billion, but we think we can bring that to a $5 billion close, that would double the size of Fund V. So we're super excited about that, especially in the market environment we're in, especially with the real estate sentiment, that's out there right now. GP Stakes Fund VI, we've surpassed the 75% invested. We expect to be out with investors, in the back half of this year, and we expect that we can do a closing in early next year, and maybe we can accelerate that, but let let's see how the next couple of months go. So we're excited to raise a big Fund VI there, and we think -- we certainly have the fund performance to -- that we're excited about to go out to the market with. On the credit side, we're seeing a lot of interest in the credit products as we've talked about previously. And I'm happy to hand that over to Doug, to elaborate.

Yes. Thanks for the question. So look, when you mentioned the word cyclical, we don't really view it as cyclical. It's really just more fundraising, it’s episodic. And when we talk about being a quarter behind, it's really I got to get the exact number, but it's just a few billion dollars of fundraising have a big impact on that delta. But maybe I can just address it, in a little more detail. Look, the pipeline looks really strong, and as I said, it's hard to predict timing, but we are seeing a lot of enthusiasm for the strategies. So, let me just start maybe with private wealth and then I'll roll in to institutional as well. Remember, the funds, they generate a lot of income. They're downside protected. It's definitely resonated. If you look on the wealth side for continuously offered credit products, I think we were up 32% quarter-over-quarter. Now one quarter certainly doesn't make a trend, but we're seeing a lot of positive momentum in our wealth credit strategies and we're expanding the syndicates. Real estate across the industry, I think, because there have been redemptions in funds, lots of chatter about office, real estate quotes have definitely been slower, but we're starting to see some real excitement about our triple net lease strategy, and we're going to have some meaningful growth to our syndicate this quarter. So, I'm really excited, as you know, about what we can do with this product. We're seeing it on the institutional side, and I think now on the wealth side, we're going to be able to grow. Most importantly, we've had minimal redemptions across all of our products. So, in wealth, we're very, very excited about this channel. Again, it's just one quarter, but I'm cautiously optimistic. On the institutional…

And I want to amplify one last thing, which Doug commented on earlier, but just touched on again, which is the nature of the capital. Again, just as we set out to build this business, we really did set out to build a very different kind of ALT's management firm. And I mean, in this context, as a shareholder in terms of the business model, so quality of assets, the fee rate on the assets, the value add, if you will, on the assets, really important. As is that duration, and remember we talked a little bit earlier for every dollar that leaves our system, we are raising $6.5. That's literally multiples of our peer set, and it relates to the fact that we have permanent capital, so you don't have the dollars flowing out, but we do have dollars flowing in. So, when you think about what those two things combined mean for the power and trajectory of this model, and the predictability of that trajectory, set aside any given quarter or quarter-to-quarter, but predict that the steepness of that slope and the predictability of its destination when you have the 1.6% fee rate and $6.5 being raised for every dollar that exits the system, it really is a different business model.

All right. Thank you for all that.

Our next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Hi. Good morning, everybody. Hi, Doug, I was hoping we could build a little bit more on the discussion around how you're thinking about building out institutional credit business for you guys. So, you mentioned SMAs, new fund launches, and obviously there's some next vintages albeit from smaller funds. So, can you help maybe contextualize what that looks like in terms of the pipeline size, LP types, kind of how that's evolved? Just a little bit more meat around the bones, could be helpful there because it's sort of opaque in the context of the whole firm. And it sounds like it could be bigger business for you guys, but some incremental color would be helpful there.

Yes. Listen, As I think about the credit business, in particular, remember in the past, we've done, which has been a good strategy, a lot of BDCs, and now we're transitioning into some more longer duration GP LP strategies. And so, the most obvious, we will be in the market with a diversified strategy really geared towards the international markets. Not going into too much detail, coming up with a structure that really works well. And then, I'm happy, we're not ready to disclose it, but just like in Tech, I think today, we are about $16 billion, $17 billion dedicated software capital. I think you're going to see us launch, other industry verticals that we think could be quite large. So, combination of moving, we're going to do other BDCs, but also introduce more GP LP funds where we can be in the market on a more regular basis. If you think about our peers, they do Fund I, the money leaves, they come back with Fund II. Our BDC is the capital doesn't leave, but there's not always the opportunity to come back with the subsequent funds. So, we'll start to build more of that GP LP sequence and more industry focused funds.

Got you. All right. Thanks for that. My second question maybe is around the real estate business, kind of a two part of there, so I apologize. But I guess, one, an update of where you guys are with adding to the syndicate. It sounded like you plan to add more this quarter and just generally in the back half. But overall flows in the retail channel, for the real estate products have been a little softer, maybe comment in your expectations there. And then when we look at the Fund VI, where are you guys in terms of deployed capital in that fund and how frequently do you ultimately think, the LP GP style funds there could be coming back to the market, seeing how you guys I think are one of the largest players in that market and you could deploy that capital pretty quickly.

So, let me start with the syndicate. I think we are planning to launch on two very large wires. As you know, we've been primarily in one wire, where we've had really meaningful market share there, and we are about to launch on two new wires. I think we've raised about $2 billion, just under $2 billion to-date. Look, I think this is a really exciting product. It's tax advantage. It generates high current income. I think you heard in our comments, even in this rising rate environment, we've been able to sell assets and generate meaningful capital gains. So, I'm really optimistic about where we can take this product on the wealth channel. And, over the next couple of weeks, hopefully, we'll announce who the two big wires are, but we're basically done there. And then, on the institutional side, I'll let Marc comment on where we are in terms of deployment and when we can be back in market.

Look, it's a good environment, Glenn, to your point about, just behind this question, it's a very good environment for what we do in triple net lease. And I say that both from a fundraising point of view because, of course, it's a very predictable, stable, safe product space, but also users of the capital in a world of corporate costs rising, uncertainty about capital availability, triple net lease looks like a -- looks like a fantastic option for many corporate users. So anyway, with regard to the Fund VI, Alex, we have $3.8 billion in the pipeline as we mentioned in our remarks. So, if that comes to fruition, now remember, we do use leverage. So, if I just rough out the math, turn of leverage for a turn of equity, then assuming we hit our $5 billion target, that's $10 billion of purchasing capacity, but $3.8 billion of signed agreements is not a small increment toward that goal, and we have $30 billion in the broader pipeline. So, I'm not -- by any means, we're getting ahead of ourselves, but we're still raising Fund VI. So, we're not here to talk about Fund VII, but we really do have a distinct proposition for the market. We're the very, very clear market leader in triple net lease for strong credit worthy and IG counterparties and demand interest in both the product and the use of the capital is growing. So, we're very excited about this, we're very excited about this channel and much like direct lending over the last year, I think we're now in the year or the period of time where there's this recognition that not all real estate is created equal, not all strategies are created equal. And, again, I think this speaks to the distinctive nature of the Blue Owl business. We really take a view of whatever we’re doing, we’re looking for ways to reduce risk, reduce volatility, increase predictability and basically deliver the same or better returns with lower risks and lower volatility. And triple net lease is shining through. Take a look at our returns for the last 12 months in triple net lease, our triple net lease business in a world of obvious real estate, maybe habit would overstate the case, but it's a pretty chaotic market out there. And we've delivered a 14% return in our real estate business, because of the safety and security and nature of what we do.

I would just add, Alex that all three of our platforms have very strong growth that we've experienced since our IPO and for the foreseeable future. We expect that to continue the real estate platform. We continue to expect to have the strongest growth of the three platforms.

All right. Thanks so much.

Your next question comes from Craig Siegenthaler with Bank of America. Your line is now open.

Thank you. Good morning, Doug, Alan. Hope you guys are doing well. My question is on the international markets. Asian Sovereign Wealth Funds, European Pension Plans, Asian Private Banks, it seems like you have a lot of upside potential with these very large pools of capital. So, including and excluding the potential for GP LP drawdown funds, which you just comment on, can you provide your perspective on current penetrations and the total growth potential for Blue Owl with non-U.S. investors?

Good morning, and thanks for the question. I think you're right. It is a massive opportunity for us. I actually spoke to the firm last night about this. We are really starting to see some significant penetration throughout Asia and the Middle East. And, I don't want to get ahead of ourselves, but as we, for example, as we round out Fund VI in real estate, I think the bulk of that will come from overseas investors and certainly, it's a big area of focus for us. We've spent a bunch of money building out the team throughout Asia, specifically in Korea, Japan, Hong Kong, Singapore. And so to answer your question, I think we will -- as I've always said, I think we will get more than our fair share from those markets.

Thanks, Doug. My follow-up's a quick one. How many large wealth management platforms should we expect Oak Trust and ORCIC to be on by year end?

I think the answer to that, Craig is, we continue to -- we're starting from one, right, on the real estate side. So, we certainly see that increasing significantly over the next, say six to 12 months. By year-end is a little harder to triangulate. We've got a couple new ones that we're onboarding, over the next several weeks months. So, we're going to see a significant growth on the real estate side. I almost said OCIC, to get the right new acronym, is a much more mature product that is on a lot more platforms. So, it's got quite a running head start, on our real estate REIT. But we continue to add platforms where we can opportunistically there as well. So, I certainly see a few being added over the six to 12 months.

Yes. I think the best way to think about it, and I'm sorry I can't give you a number because I'm trying to run through it in my head. But I think we're going be able, and I don't want to put -- I don't want to say it'll definitely happen within six months. But I think, basically, we will be on virtually every major platform in the market with one of our products, which is really significant. And so there have been a few firms that have been somewhat elusive, and we haven't been able to get on. And now they've agreed to put one of our products on. So, I look, we view ourselves as a clear number two player in this marketplace. And I'm, as I said in my comments and early on, we've always been excited about it, and our penetration continues to grow, and we remain, very optimistic about what we can do.

Thank you, Doug.

Thanks, Craig.

Your next question comes from Patrick Davitt with Autonomous Research. Your line is open.

Hi, good morning, everyone. First one, I imagine the pace of credit deployment is at least a part of the reason you're running a quarter behind on the DE target. So, through that lens, it does seem like we're starting to see a pickup in some bigger announcements. So, could you frame how the direct lending pipeline trended through 2Q and how you feel about second half deployment relative to one half deployment, now that it feels like things are unlocking a little bit. Thank you.

Yes. Deployment certainly is part of it. And, we certainly can't defy the M&A cycle as I commented, but direct lending share and our share in particular continues to be really strong. We like where it positions us as the M&A cycle takes the other turn, and it does seem to be firming mean, there's a little doubt our activity and activity in large opportunities has been accelerated. So, it hard to predict that to any given month or quarter, but the movement is the correct direction. Yes, I think you saw out this morning the buyout of New Relic and Blue Owl was leading that financing. Again, our leadership in the world of software, I think continues to shine through. These are great opportunities for us, significant -- and, again, sort of significant signs of life, again, would probably overstate because frankly wasn't that it was more abundant before in these markets, but it's picking up. So, yes, I think another one of the reasons to sort of feel good as we turn into the back half. But again, well, we restate that so as not to get trapped into an excessively quarterly cycle. But, as we turn into the sort of next six and 12 months, yes, it does seem like activity is picking up nicely. And I think there's an awful lot of pent-up demand for PE deployment. And we're in a great position to garner a very large share of that.

Thank you. And my follow-up is a little higher level. It looks like, Europe could finally be picking up some share in direct lending. So, could you update us on your appetite to get much bigger there? Do you think you could do that organically, or do you think you need to buy something? Thank you.

So, let me start with, look, we love the markets we're in. The U.S. market has served very well. It's by far the most robust and largest of course. And very important, I never ever want to not want to miss start any conversation about credit without credit quality. And the credit quality for both the opportunities and the way we have particularly built into this market, over $78 billion of originated credit, our running loss rate is six basis points. And in software, we have never had a loss. So, I put that first and foremost in any decision we make. And that said, do agree that Europe is much like other capital markets sort of starting to follow suit with the U.S. and that presents an opportunity. I think we will look to attack it both ways. We already do a tremendous amount of business with the firm. I mean, these are all global firms and in many cases, even European based firms. So, in our GP Stakes business, for example, we own stakes and firms all over the world, including, for example, CBC, who just raised the world's largest bio fund. So, our network, our ecosystem certainly spans well into Europe. So, organically we already do episodic opportunities there, we readily can build organically by putting more origination resources. It's the same credit work, of course, we have well over 100 people doing credit work. So organically, I think we can and will continue to sort of participate or look to accelerate our participation. But, we're open to an acquisition in the world of lending in Europe. It would be of course a jump start and with the right team and the right platform, we can do as we just talked about with the former Oak Street. Now, real estate business, I think we can do some pretty special things, when we integrate into the Blue Owl platform. So, certainly open minded about it, but otherwise or in addition, we'll pursue it organically over time.

Helpful. Thanks.

Thanks Patrick.

Your next question comes from Brian McKenna with JMP Securities. Your line is open.

Thanks. Good morning all. It would be great just to get some more color on your new PE secondaries business. You made a senior hire earlier in the year to run this business. So, could you talk about this higher? Why now is the right time to start building out this business? And then what the opportunity is longer term in both the retail and institutional channels?

So, we've actually made multiple hires now. So, indeed, we started with, great leadership with Chris Crampton, a multi-decade veteran of the private equity industry. But we've actually, since now, three more people that have joined that team. We have more coming. We've assigned additional internal resources. We have a fully built capability to address what we think is a very, very large opportunity. So, what are we doing specifically in the secondary at all, what we're really supporting are our partner firms, that is to say all the 600 firms that we finance today are the 60 firms we own stakes in and offering them another private capital solution in this Blue Owl ecosystem. People have wonderful assets they bought. I can tell you, I personally have been in private equity since the 90s. And since that time, people have talked about, look, the thing about private equity is you buy a great business, you find out it's a great some number of years later, but then you have to sell it. Everyone wants to keep them. So, GP led secondaries, continuation is the solution to this challenge. It allows the GP to maintain ownership, and as they know well, can manage well and know as a lot of value to create liquidity as an option, but not an obligation for the LPs. So that's flexibility, crystallize returns for prior funds. So, it really is a way of meeting the needs of a lot of different stakeholders in private equity, and there's trillions of dollars of assets. So, just ask yourself this, any given firm, if you could pick one asset to keep managing and owning, compounding your -- carry an opportunity on what would it be? We're here to facilitate people keeping those assets with this strategy. And it's a very distinctive strategy. Because remember, this is what we do every day for the private equity community. We finance the GPs. We finance their portfolio companies. We're adding another solution in that trusted set of partnerships we have, we say, here bring us your trophy asset or we'll elicit from you your trophy asset, and you can continue owning it and we'll provide some liquidity for those who choose not to go forward. We think it's a very, very substantial opportunity and meets the needs of a lot of people in the market today.

Yes. And if you think about how our business our entire model is really set up to be a solutions provider. We have 650 PE firms we cover. On the credit side, we have stakes and over 60 private markets firms. And we're not in the PE business. We're not a competitor. And so, we've gone out and they've said to us, our most pressing need, as Marc was saying, is how do we hold on to our best assets longer? And we think we are we can come in and provide that capital. And I have to tell you, when we look at the market, when we look at the demand from these PE firms to hold on to these assets, the demand for capital is enormous. The supply of capital is de-minimis. And whenever you're in an environment, where the demand is so much greater than the supply of capital, we think we can generate outsized returns for our investors. In terms of fundraising, we are dual tracking it. We're in the institutional market. We're also in the wealth channel. Let's just focus on wealth for a minute. Think about the average investor trying to access the PE market. Maybe they can find one firm, two firms. Usually, it'll be one of the big brands. But we're going to give them a way to come in. We'll go out we're going to say these are the top 150 firms, and we're going to focus on the deal flow from those 150 firms. They'd never be able to get that kind of access. And so, we think we're going to create a better way, especially for the wealthy investor to invest in PE. And, it's early days and, it's not going to have a huge impact on ‘23 numbers, but as Marc alluded to, the [TAM] (ph) here is very, very large. And I think if we come in and we execute and we think we can generate top quartile result, totally better. I think we can create something potentially that's going to be quite large.

Great. Thank you guys.

Thank you.

Your next question comes from Adam Beatty with UBS. Your line is open.

Thank you, and good morning. Just want to follow-up on credit deployment. On the one hand, you've got strong kind of secular tailwinds, and then as Marc mentioned, some choppy deal activity recently, I want to ask about two other aspects. One is, the slower slash episodic fundraising and, IE capacity constraint and how much that might play into the recent deployment trends and whether some of the near-term fundraising that you talked about might loosen that up. And then also just in terms of, pricing and the cost of funds, whether you're seeing any hesitancy on the part of borrowers, just as that's so elevated these days. Thanks very much.

So, Adam, thank you. In terms of activity, I think the fundamental constraint activity has really been just absolute market levels of activity. Our share is high. Our role is distinctive. Blue Owl really plays a pretty special role in that capital solutions center. But at the end of the day, there's only so much activity. The activity has been uptick in as we just talked about. We have capacity, but I will say we and the industry, it's not excess capacity, that is to say, we've talked about this before, the dry powder and private equity very much outmatches the dry powder in private credit. And so, well, I will certainly not suggest that the slower deployment in Q2 was a lack of capacity to deploy capital, I would equally say it's not as if we have excess capacity. Fundraising will continue to be very important to having adequate firepower to support the private markets ecosystem. And, as we continue to go through these disruptions in the banking system, and disruptions in syndicated markets, I think what probably all can take away is to have a healthy economy and to have a healthy capital market system, we need a healthy private lending system. And it's -- thankfully it's very healthy today, but it can use more capital. And that's what we've been talking about and are pursuing, and by putting together GP LP, format funds by accessing the foreign markets. As Doug talked about, places we just have underpenetrated over time, we think that can help us get the capital that not just that we need to pursue our business, but frankly the market needs to have a healthy flow of capital and a healthy available leverage pool.

Yes, Marc talked about the demand from PE versus supply of capital. And I think one thing that is not discussed a lot is, the big players like ourselves who were sitting with these large capital bases, when rates were lower and M&A was robust, we could have 20%, 25% of our loans get refinanced in a quarter. So, we had so much money to deploy because you take what's refinance plus what's coming in. Today, there's very little being refinanced. There's very little M&A. And so, what we have to put to work is really just new capital coming in. So, it's a very good time. And look, the positive for us, our returns are basically on an unlevered basis, have gone from 6%, 7% to about 12%. So clearly, PE firms have to use less leverage, because the interest burden is that much greater. But look, as Marc said, its deployment is really driven by M&A volumes right now. And it feels like it's picking up, but it's too early to tell.

And to your latter question about, it is the absolute cost of capital or the higher cost of capital impacting PE appetite or activity. And I don't want to pretend I know all decision makers decisions. But I would say at a meta level, no, at the end of the day, that's math, right. That gets into the clearing price of an asset. If you know what your cost of capital is and remember, one of the great strengths of direct lending is predictability. We tell you the terms, you know what it will cost. That's positive. Then you can price that into your investment decision. So, I think it speaks more to how you have to price equity transactions and that probably have led to the slowdown when you get these gaps between, what buyers want to pay and sellers want to take. But over time, markets function, and it'll just price in this cost of capital. It will probably mean less leverage to Doug's point, and that'll probably mean lower purchase prices for certain assets, but that all can be solved by change in the numbers on the, so to speak on the page. So no, I don't think cost of capital, cost of debt is likely to provide any meaningful drag. You've got $1.5 trillion of private equity dry powder. Private equity has shown its ability to thrive in high rate environments, low rate environments, strong economies, weak economies, it's good asset class, and it'll be a good asset class going forward.

Very much appreciate it. Thank you, both.

Thank you.

Your next question comes from Ken Worthington with J.P. Morgan. Your line is now open.

Hi. Good morning. Thanks for taking the questions. Maybe to follow-up on Patrick's earlier question, and in terms of activity, to what extent was April an outlier and thus a drag on originations for the quarter? And then to what extent is competition from the banks reemerging in the sponsor direct lending market. And, would you expect as competition sort of reemerges that this will impact sort of pricing, and what you can kind of get on, on your transactions?

The value proposition for us in direct lending is about predictability, privacy, and partnership. I mean, of course, the syndicated market matters. Of course, around the edges people are making decisions that include the fact that in the syndicated market, you might very well be able to achieve better terms, so to speak, as a borrower. But what does better mean? If you're a private equity firm making a long-term decision, I would proffer that the incremental cost of capital for private debt and incremental involvement, depth of diligence, stricter agreements, all of those things are well worth it to have the partnership and the predictability of capital. So, yes, I hope the syndicated markets will return. It's still pretty nascent. We don't see it as a meaningful factor in the marketplace today. It's not meaningful to our business today. But I hope this syndicated market returns. It's not a win-lose proposition. I'm not sure sometimes why whether, alternative asset managers on one hand or banks on the other, kind of turn toward each other and say, oh, well, if I'm winning, you're losing. I think they're about having multiple solutions in a marketplace. We need capital depth, capital depth to unlock M&A. And, we'd be glad to have this syndicated market's return and facilitate a more robust M&A environment. And frankly, there's a lot of things that syndicated market will finance. We won't. We don't finance deep cyclicals. We don't finance businesses that have extreme customer concentration. We don't -- there's a reason that we've been able to deliver six basis points of annualized loss, because we do very specific kinds of credit selection. So, we're not here to solve every capital structure, but for great firms buying great businesses who want a great capital partner, we're here to solve that. So I think it hasn't meant much yet, yes, the banks are probably open a little bit for business now. But, we hope they'll come back sooner and in fuller force. We're quite happy to compete in that arena. We deliver solution that is worth it for the people that use our capital.

Fair enough. And then just on April, was April bad enough that it impacted the overall quarter or was it really not that big an outlier?

Sorry. What specifically about April do you mean?

In terms of, you're sort of in the hangover period from the sort of mid-cap banking crisis, deal activity seems to be on pause.

Oh.

Like, did that -- from your perspective, was that enough of an outlier to what -- I guess maybe it was an outlier in the first place. And if so, was it enough an outlier to impact the overall origination numbers for the quarter, and if we exclude that, do things look better than they would have if April was normal. That's where I was going.

I understand where you're coming from. I can't answer that with any precision, our business unlike trade in markets, the rhythm is not measurable in weeks, maybe not even months, depending on the particular timeline of a transaction. So, I think it would be right for me to say, Oh, okay, well, March directly impacted April. However, there is little doubt that the hangover the malaise, the disruption of the May, I don't bank crisis, mini crisis, certainly impacted markets are included in the sense that it just kind of froze up, right, the system froze up, people froze up and anything that people were deciding on by and large probably got deferred. So I know measure could be a scientific or prescriptive is that I appreciate the nature of the question. Safe to say Q2 suffered from a lot of economic uncertainty, a lot of interest rate uncertainty, and then of course, this shock to the system from banking. So, yes, it was a tough quarter for market participants, not in particular to Blue Owl, of course, but to market participants.

Okay. Great. Thank you very much.

Thanks, Ken.

Your next question comes from Brian Bedell with Deutsche Bank. Your line is now open.

Great. Thanks. Good morning. Thanks for taking my questions. Maybe one on the wealth channel and the unified branding, I guess to what extent do you think, the implementation of that unified branding is, may help over the next, year or so, and interaction with advisors that you're working with currently on those platforms. And then also, does it make it easier for you to extend in new platforms? So I mean, I guess the overall question is, to what extent do you think the unified brand can enhance fundraising over the next one to two years?

Yes. Thanks for the question. Look, you raise a good and important point, and that's why we went to a unified brand. I'm especially in the wealth channel when we were out with different brands. I'm not sure if people even knew, it sat under one roof, but where we really saw it, was in the international markets. And look, our goal is to create a brand that's the equivalent of the Blackstone, the Ares, the KKR, Carlyle, TPG, around the world, and having three or four different brands, we just thought we cumbersome. And I think that ability as you think about wealth or the institutional market, the ability to cross-sell, and to understand and say that's a trusted partner. We've done well with them, when we walk-in with that new strategy, and we have instant credibility. And so, to answer your question, specifically, when we had hired a consultant about, I don't know, 18 months ago to study this for us, and we did go out to the wealth channel and all of them, all of the major wirehouses came back and said it would make their lives so much easier to have it all under one brand. So we've implemented it. We've gotten great feedback. And as I said, I think it'll be help us over time to really cross-sell all of our products.

That's great color. Thank you. And, maybe just one last one on the direct lending. A lot of my questions have been asked and answered there, but any view on, the Basel III endgame rules that were proposed for the banking system? Is it pretty much in-line with what you what you expected. And so the strong secular trend there, of course, longer term for direct lending to become a larger source of bank lending, or do you see things in the proposed rules that make you even more excited longer term about your role in the bank lending?

Look. The continued stabilization and focus on regulation of the banking sector. And look, we just went through March and we saw again, what does happen sometimes when you take very long-term commitments with very short-term capital. And again, I said this before, it's not private lenders versus the banks. It's really not. These are ecosystems that taken together solve problems. And I know some people just seem not to -- don't take it that way but it it's the case. And at the end of the day, look, we have long dated capital, from long dated investors to provide long dated solutions. And that just makes sense. We don't look, we don't have depositor. We don't present systematic risks. We don't have government explicit or implicit guarantees. And so, we can provide a different kind of risk based, different kind of duration capital. And so, look, it does appear that when you look for Basel III and kind of other recent conversations about increased capitalization of banking. Look, we don't have an opinion on that. That is to say that's a world that's adjacent to ours, wonderful banks in this country doing a wonderful job. As I said, we welcome a healthy banking market alongside, the healthy private credit market. So, we're not deep and I don't want to opine on the specifics of the regulations. But I think what we are seeing develop are adjacent systems with different kinds of capital, different kinds of risk, different kinds of providers of capital, and it works. And that's healthy. Private capital has continued its step function climb upward to providing solutions that are durable and therefore healthy for our economy in total. So, I feel good about where we're headed, and I won't call, I'll leave it to the banks to sort out the right answer for the banking sector. But I think that we can co-exist quite healthily in a way that will be good for debt markets in total.

Okay. Great, perspective. Thank you.

There are no further questions at this time. I will now turn the call back over to Doug Ostrover.

Well, thanks, everyone. We appreciate everybody spending so much time and for the excellent questions. Hopefully, we gave you a good overview and hopefully, it comes through just how excited we are about the business and where we can take it. So, we look forward to talking to some of you after the call and, staying in touch. Thanks.

This concludes today's conference call. You may now disconnect.