Blue Owl Capital Inc

NYSE:OWL

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Joseph, and I will be your conference operator today. At this time, I would like to welcome everyone to the Blue Owl First Quarter 2022 Earnings Call. [Operator Instructions]

Ann Dai, Director of Investor Relations. You may begin your conference.

[Ann Dai, Director, IR]

Thanks, operator. And good morning, everyone. Joining me today are Douglas Ostrover, our Chief Executive Officer; Marc Lipschultz and Michael Rees, our Co-President; and Alan Kirshenbaum, our 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.

This morning we issued our financial results for the first quarter of 2022 and reported fee related earnings or FEE of $0.12 per share, and distributable earnings or DE of $0.11 per share. We also declared dividend of $0.10 per share payable on May 27 to shareholders of record as of May 20.

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.

[Douglas Ostrover, CEO]

Thank you, Ann. And good morning, everyone. As you see captured on Slide 9 of our earnings presentation, we reported another quarter of strong results for Blue Owl with AUM up 76%, private wealth fundraising up 172%, management fees up 51%, and FRE up 56% on a year-over-year basis. Pro forma for the Wellfleet acquisition, which closed on April 1, AUM, would have been approximately $109 billion. Originations for the quarter more than doubled versus a year ago, and private wealth fundraising reaching $2.2 billion. And with permanent capital driving 95% of our management fees and an earning stream consisting of stable and growing fee-related earnings Blue Owl’s financial profile stood in stark contrast to a volatile public equity and debt market backdrop during the first quarter.

Our strategies, focused on income generation and downside protection, continued to perform well. Investment pipelines across the platform have been robust, and fundraising for the quarter was strong, but more importantly, as we look ahead, there are some meaningful fundraising initiatives starting to bear fruit which I will highlight in more detail in a few minutes.

First, let me start with some commentary on the broader market environment, which has been top of mind for shareholders. Over the past quarter, we have witnessed volatility and dispersion in the public markets resulting from high and persistent inflation, a shifting interest rate environment, geopolitical events, and ongoing impact from COVID globally. These factors unsurprisingly created some near-term headwinds to industry-wide M&A and capital markets activity as investors paused to react to updated information, market expectations and a changing investment landscape.

Given our scale and patient permanent capital, Blue Owl has been a beneficiary of this market volatility as an increasing number of sponsors and private companies have looked to direct lending for flexible and dependable financing. We are having dialogues on larger deals than we’ve ever seen. And in particular, this has been a very robust environment for our tech lending strategy. And the increasing number of public to private transactions have driven incremental market share towards direct lenders who can offer certainty of execution through what can be a lengthy process.

For our GP Solutions business, the pipeline for investment has only strengthened as alternative asset managers evaluate the options they have for liquidity and growth capital in today’s market. And the opportunity for alternative asset managers to put dry powder to work has improved, pulling forward deployment activity and setting firms up for the next round of fundraising.

In real estate, rising corporate borrowing costs should drive incremental demand for our net lease solutions. So in aggregate, we’re seeing positive impacts to the investment landscape across Blue Owl as a result of the current market environment. And with regards to the rising interest rate environment, as we discussed last quarter, we anticipate a net positive impact across the platform. We expect direct lending to be a beneficiary of rising rates as investor demand increases for senior secured floating rate assets, focused on downside protection. And over time, the effective rising rates would be positive for the net interest income of our loan portfolios, which Alan will touch on shortly.

For GP Solutions, market volatility should drive demand for products managed by large diversified managers benefiting the types of firms Dyal has typically taken stakes in. With respect to our real estate business, we believe there will continue to be strong demand for real estate strategies with long-term contractual income that are positively correlated to inflation and backed by investment-grade tenants.

Moving on to our first quarter results. We continue to demonstrate steady robust growth, hallmarks of the Blue Owl business model as a result of our permanent capital and FRE-centric earnings. Since we don’t have the volatility of carried interest running through our revenue, we just continue to add to the layer cake of earnings through new capital raised and deployed.

Fundraising for the quarter was well diversified, with nearly $4 billion of equity capital raised primarily from our diversified lending, technology lending and GP minority stake strategies, bringing our last 12 month equity capital raise to $11.3 billion. And for the second quarter to-date, we’re up to a great start, raising $2.8 billion across the platform. In direct lending, we have raised an additional $2.2 billion subsequent to quarter-end across institutional and wealth channels. As we have spoken about in prior quarters, we anticipate that tech lending will be one of the fastest-growing parts of our business over the next few years as our strong performance and exceptional credit quality in that strategy resonates with a wide spectrum of investors.

As it relates to our growing private wealth distribution, which we’ve also spoken about frequently as an important focus for Blue Owl, we continue to make very good progress in expanding our platform across products and geographies. $2.2 billion of the capital we raised in the first quarter or over half of the total was driven by private wealth. This is over 4x the amount we raised through wealth in the second quarter of 2021, less than a year ago. We are generating over 9% annualized organic growth just from our current private wealth flows, which are permanent capital and which we think we can grow meaningfully over time. And this doesn’t take into account any institutional fundraising, new products that we plan to introduce to the market or continued expansion of our wealth distribution platform globally.

As of May 2, we raised a further $2.1 billion from private wealth across direct lending, GP Solutions and real estate in the second quarter. As you’ve heard from us before, and will continue to hear going forward, we are very excited about the opportunity ahead in private wealth and look forward to sharing more developments at Investor Day on May 20. Looking forward, as I think about the key elements of our growth over the next few years, I truly believe that each of our businesses has significant growth ahead.

We see meaningful runway to raise capital across institutional and wealth channels as investors look for income, inflation-hedge solutions and downside protection in an uncertain market environment. Each of our businesses has generated scale and offers real competitive advantages that translate into differentiated investment performance. And the returns have resonated with our investors. Today, we have multiple products raising capital on various platforms globally in private wealth. Dyal V fundraising continues, and we are well on our way to fully deploying that fund and being back in the market for Fund VI. We also have, and will have a number of funds raising capital from institutional investors across direct lending and real estate over the course of the year.

Later this month at our Investor Day, we plan to lay out some key growth goals and get into greater detail on the investment and fundraising landscape that we see for each of our businesses. We hope to see all of you there in person or on the webcast and look forward to spending some time highlighting our strategic vision and the substantial growth we see ahead.

With that, I’d like to turn the call over to mark, to give you an update on our direct lending and real estate businesses. Mark?

[Marc Lipschultz, Co-President]

Thanks, Doug. As you can see on Slide 16, we continue to expand our direct lending business with gross originations of $4.9 billion, more than double what we originated in the first quarter of 2021. Industry-wide the first quarter was a seasonally lighter quarter for M&A, and was also affected by market volatility. As Doug alluded to in his remarks, we continue to expand our market share, driven by the predictability, privacy and partnership that we offer to borrowers. We’re also seeing larger deals come to the direct lending space, which we are very well-positioned to address given the scale of Blue Owl’s platform and capital base.

For context, last year we evaluated over 40 investments with facility sizes in excess of $1 billion and signed or closed on roughly half of them. Just in the first quarter of 2022 we sourced over 20 investments with facility sizes in excess of $1 billion and committed to roughly half of them. And of those greater than 20 opportunities, 5 had facilities sizes in excess of $2.5 billion. We expect some of these to close during the second quarter.

For the last 12 months, gross originations and direct lending have been $26.4 billion or 3x what we originated in the prior 12-month period. And we continue to see an extremely active pipeline, setting ourselves up for a robust quarter in 2Q. Performance remains strong, with growth and net appreciation of the direct lending products of approximately 1% and 0.2% for the first quarter respectively, and 14.1% and 9.7% respectively for the last 12 months. And we’ve continued to focus on downside protection with a weighted average loan-to-value in the low 40s across direct lending portfolios.

Credit quality remains very robust, with annualized net realized losses of approximately 5 basis points since inception. We raised $1.9 billion in direct lending strategies during the first quarter, of which retail constituted $1.4 billion, primarily for our Core Income Fund, one of our diversified lending BDCs. Also contributing to the fundraising during the first quarter were closes in tech lending. As of May 2, we raised a further $2.2 billion across direct lending in the second quarter so far. Also on April 1 we announced the closing of our Wellfleet acquisition, which will add almost $7 billion of AUM to our second quarter numbers. Our direct lending business continues to broaden in size and scope, and we remain optimistic about the growth opportunities we see ahead, supported by robust demand from both retail and institutional investors.

Now moving on to our real estate business. We continue to a robust opportunity set with roughly $2 billion of transaction volume under letter of intent or contract to close and a near-term pipeline of more than $20 billion of potential volume. As of today, we’ve invested over half of the equity in our fifth closed-end fund, bringing us closer to launching our real estate fund 6.

As Doug mentioned in his remarks, our real estate strategy should benefit from investor demand for inflation-protected cash flows backed by investment-grade and credit-worthy tenants. And our investment opportunity set continues to improve as corporate borrowing costs increase. Contractual rent escalations are structured into all of our triple net leases. And 100% of all operating expenses, including cost increases are borne by the tenant, which further limits the strategies from any adverse effects of inflation.

Since inception, we have never had a tenant miss a rent payment, go bankrupt or default on a lease. And we’ve generated a net IRR of 26% on average across our fully realized closed-end funds. And gross and net appreciation across our real estate portfolio of 5.7% and 5% respectively for the first quarter and 36% and 32.1% respectively for the last 12 months. These are remarkable risk-adjusted returns for the underlying credit profile of these portfolios.

As we look ahead, we expect to launch our sixth real estate closed-end fund in the latter half of the year, and continue to accept capital into our open-end fund net lease property fund. We’re also in the process of working on new products that we will look to discuss in greater detail at Investor Day. With that, let me turn it to Michael to discuss GP Solutions.

[Michael Rees, Co-President]

Thank you, Marc. Our GP Capital Solutions business has continued to benefit from the secular tailwinds across the alternative asset manager space as more firms enter our investible opportunity set and as these managers needs for capital continues to expand. Across our partner managers, we continue to see robust fundraising and deployment, particularly as the market sell-off created new and interesting investment opportunities. As of today, we have invested, committed or have an agreement in principle to commit approximately two-thirds of what we expect to raise for Dyal Fund 5. And the pipeline remains strong. Performance remains similarly strong with a gross and net IRR of 32% and 24% respectively for Fund III and 127% and 81% respectively were Fund IV. In addition to the $1 billion raised for Fund V during the first quarter, we have closed on a subsequent $400 million of capital in April, bringing us to $7.2 billion raised for the fund. We remain confident in our prior capital raising expectations for this strategy.

Further, we look forward to launching a follow-on vehicle sometime in 2023, as we become more fully committed in this current fund. As we look ahead, we’re very optimistic about what the next year holds for the GP Capital Solutions business, given the constructive trends for growth and the demand we’re experiencing for our strategies. Market volatility and shifts to the status quo will continue to create interesting fundraising and investment opportunities and we will benefit from that environment as the premier capital solution provider to these managers.

With that, I will turn things over to Alan to discuss our financial results.

[Alan Kirshenbaum, CFO]

Thank you, Michael. Good morning, everyone. I’m going to start off by walking through the numbers for this quarter, 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 as Ann mentioned. So please feel free to have that available to follow along.

Okay, let’s start off by covering our quarterly results. We closed our acquisition of Wellfleet on April 1. So you won’t see those numbers in our results until the second quarter. Our first quarter was another quarter of strong growth for our business. Management fees are up $41.1 million or 19% from last quarter, and up over 50% from the first quarter a year ago when you adjust out catch-up fees for Dyal Fund V. Broken down by divisions, direct lending management fees are up $12.8 million or 11% from last quarter, and up 41% from the first quarter a year ago. GP Capital Solutions’ management fees are up $11.1 million or 12% from last quarter and up 42% from the first quarter a year ago again when you adjust out catch-up fees and Dyal Fund V. And real estate management fees, which began contributing to our results on Jan 1 of this year were $17.2 million. FRE is up 4% from last quarter, and up 56% from the first quarter a year ago. FRE margins are up a little from last quarter as well.

Our ratio of compensation as a percentage of revenue came down a little this quarter to 27.5%. I expect for 2022 we will be in the lower half of the range that we’ve previously guided to, which was 25% to 30%. And we announced a dividend of $0.10 cents per share for the first quarter. All of this is in line with our expectations in what I noted on our earnings call last quarter. We have started off the year in making good progress towards reaching $1.3 billion of revenues for 2022, which would be a 45% growth rate year-over-year and an FRE margin of 60-plus percent for 2022.

As it relates to our AUM metrics, on Slide 13, we reported AUM of $102 billion, repaying AUM of $65.6 billion and total permanent capital of $85.6 billion. AUM not yet paying fees was $7.7 billion as of March 31. As Doug mentioned, inclusive of the Wellfleet acquisition, our AUM would be approximately $109 billion. AUM grew $7.5 billion to $102 billion, an 8% increase from last quarter and a 76% increase from the first quarter a year ago, driven primarily by deployment of capital and debt raised in direct lending, the addition of our real estate division and capital raising across the firm.

Fee-paying AUM grew $4.1 billion to $65.6 billion, a 7% increase from last quarter, and a 64% increase from the first quarter a year ago, driven primarily by deployment in direct lending, the addition of our real estate division and capital raising across the firm. Permanent capital grew $6.8 billion to $85.6 billion, a 9% increase from last quarter and a 61% increase from the first quarter a year ago, driven primarily by deployment in direct lending, the addition of our real estate division and capital raising across the firm.

AUM not yet paying fees was $7.7 billion, including $5.4 billion in direct lending, $0.7 billion in GP Capital Solutions and $1.6 billion in real estate. This AUM corresponds to an expected increase in annual management fees totaling approximately $105 million, primarily upon deployment for direct lending and real estate. As I’ve mentioned in the past, if our tech BDC were to go public, we expect that could be another incremental $65 million of annual management fees due to the fee step-ups. With the launch of our new tech lending BDC, ORTF II and combined with ORCC III, upon the listing of all 3 of these BDCs, we expect that could be a total incremental $185 million of annual management fees. I plan to get into this more on Investor Day, so please stay tuned for that.

As Marc highlighted earlier, we had another strong quarter of deployment in direct lending with gross originations of $4.9 billion and net funded deployment of $3.4 billion. This brings our gross originations for the last 12 months to $26.4 billion with $14.7 billion of net funded deployment. So as it relates to the $5.4 billion of AUM not yet paying fees in direct lending, it would take us less than 2 quarters to fully deploy this based on our average net funded deployment pace over the last 12 months.

Turning to our balance sheet. We continue to be in a strong capital position. As you can see on Slide 23, we currently have almost $1 billion of liquidity with a very long-dated capital structure. On another note, as Marc touched on, we have raised a significant amount of equity in our direct lending business year-to-date, in particular since quarter end. There are 2 items here I wanted to flag for everyone on this point. The first item, as we continue to fund raise, there will be varying levels of distribution replacement costs associated with different raises for our various BDCs. So to provide more clarity here using the example of raising $1 billion and assuming we pay out $25 million to $30 million in onetime upfront distribution replacement fee expenses on certain equity dollars raised, this will generate over time approximately $50 million of management fees, including Part I fees per year, every year, it’s permitting capital.

So just making the point here that for our second quarter of 2022, based on what we’re seeing so far, we expect to show a potentially large nonrecurring expense in our G&A line related to these fundraises and a much smaller amount of incremental management fees for that quarter due to this timing mismatch. I’ll be sure to call this out in my prepared remarks when and as this happens, so it’s visible and transparent to everyone. The second item, more specifically, as it relates to our ORTIC product, just a reminder here that we have a fee waiver in place for this product through October 31 of this year, so we’re not earning management fees on this product for almost all of this year. Full fee start up on November 1. Both of these items were part of the 2022 outlook that I discussed on our last earnings call in February.

So to wrap up here, before getting to Q&A, there’s a few last items I want to cover. First, at our Investor Day coming up on May 20, we’ll be talking about a number of different ways in which we believe we can drive shareholder value. One of the areas we identified was the potential to be included in the Russell indices. On April 11 we announced the change to the voting power of our Class A shares, which represents our public float. When we initially looked into this, we believe we had satisfied all of the other required criteria to be included in the Russell indices with this one exception. We did this to open the potential to be included in the newly reconstituted Russell indices at the end of next month.

Next, our stock buyback program. During the first quarter, Blue Owl bought back 2 million shares of stock at an average cost of $12.09 per share. Pulling the lens back a little on this topic, starting this year we generally expect to buy back stock that we issue in connection with stock compensation. We’re not trying to get this exactly right on a quarterly basis or even annually, but over the course of time we expect to buy back shares to offset dilution from stock compensation.

Finally, Doug touched on inflation and rising rates in his remarks, so I wanted to hit this with everyone. Our business is very well positioned for a rising rate environment. If you look at Slide 17 of our earnings presentation, you will see that our 1Q annualized FRE revenue could increase by 2- to 4-plus percent if rates increase by 200 to 300 basis points. This would all be incremental to anything we have previously discussed. We didn’t include potential rate changes in our forecast, but not included in the 2022 revenue target given in February of $1.3 billion.

Summing it all up, we are very pleased with our results for the quarter. We are hitting in all of our key metrics, and we continue to have very exciting growth plans ahead of us, which we feel we are well positioned to execute on. We look forward to seeing everyone later this month at our Investor Day event. Thank you again to everyone who has joined us on the call today.

With that, operator, can we please open the line for questions?

[Operator]

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler.

[Craig Siegenthaler, Bank of America Merrill Lynch]

This is Craig Siegenthaler from Bank of America. So Doug, I was actually hoping that you could elaborate on your bullishness on the tech lending backdrop because I’m just thinking if economic conditions moderate, and there’s a period of slower underlying profit growth from the portfolio companies and less investment activity from the private equity industry, which you lend to, I was just curious behind your confidence in the robust growth trajectory in tech.

[Marc Lipschultz, Co-President]

Craig, it’s Marc. I’ll take that one. So I think it’s both our expectations, but it’s also the reality. The activity levels right now, we have never seen more large and high-quality opportunities, and they’re almost entirely in the software space, and we are the market leader in terms of capabilities in that space. So both sitting here now and just to give you a statistic to go with this, again, the preponderance of this being driven by software. If you look at last year, there’s a total of 40 private financings that we saw of $1 billion or greater, again, very heavily driven by software. This first quarter alone, we see over 20 that are $1 billion or greater. And now a new category has entered $2.5 billion or greater. And the reason that matters is not just the size, it does speak to deployment opportunity, but these are incredibly large market-leading global companies. So I couldn’t -- and we’re not trying to comment on whether their growth rates be exactly what the sponsors think better, worse, 20%, 15%, 25%, that’s not what matters to us. It’s the durability and attractiveness of the long-term franchise in our tech portfolio, our tech -- Own Rock Tech I we lend on average in the low 30% level. So if one just took an abstract $5 billion buyout, which is no longer large in the tax sector, that would be $1.5 billion of debt with a $3.5 billion equity check. So our bullishness comes from both the current activity level, which is quite exceptional. Our outlook, which is with all the dry powder, $2 trillion of dry powder in the hands of private equity, again with a particular concentration, heavily tipped towards software and tech that needs to be and will be deployed. Many of the sponsors see this disruption in the market as a moment of opportunity. The time will tell if that’s true or not, but that is clearly the action that’s been undertaken. And that’s leading to some of the best things we’ve seen, frankly. And I guess just add one more, remember, we also have this structured capability in tech. This is our yield-enhanced capability that was really built for this exact environment, which is companies that are great private tech companies that maybe got ahead of themselves on valuations. It doesn’t mean they are deeply valuable. And these are some of our most exciting lowest-risk opportunities where we also get equity upside. So I’m really not trying to overstate it. We feel like now is exactly kind of the pinnacle moment for the tech opportunity.

[Douglas Ostrover, CEO]

Yes. And I’ll just chime in for 30 seconds. Marc, really hit on all the high points. But I think it’s important to remember, when we talk about technology, we’re talking mostly about enterprise software. We don’t do start-ups. We look for things that have high recurring revenue, very little churn, high predictability of cash flow. And so as we look out across the lending landscape, we actually think these businesses are some, maybe the best things we can lend to. So we’re excited about it, and we’re excited about our position in the market.

[Marc Lipschultz, Co-President]

And I apologize [indiscernible] small comment on that point, which is in our tech lending platform, Owl Rock Tech I, we have since inception still never had a default. We’ve never had a loan in arrears. So the durability, again, isn’t really a case of theory. It’s been the most durable sector in our portfolio and broader than that. But I think there’s a lot to like right now.

[Craig Siegenthaler, Bank of America Merrill Lynch]

And Marc, if we broaden that conversation out to include the whole credit business, all of Owl Rock, and it’s nice to know there was never a default in the tech business. And also, I think you said earlier that realized losses are pretty much very low. But if we move earlier into this -- the credit quality stage, so early stage credit quality like delinquencies, nonaccruals, what you’re seeing with covenants. How does the portfolio look today versus 6 months ago just because economic conditions have moderated a little bit?

[Marc Lipschultz, Co-President]

Yes. A couple of things. It’s a great question, of course. So first, let me take one step back and as a Blue Owl matter I think it’s really important for the shareholders. Remember, Blue Owl as a firm, we are essentially 100% fee-driven revenue, management fee-driven revenue. And so we care deeply about the performance of our products. But actually, the question you’re raising doesn’t affect the earnings of Blue Owl. We don’t have carry. So that question is going to be very salient for firms that are carry centric and have a variety of products that go up and down with the answer to a question like that or an equity valuation changes. We don’t, we get paid fees. So for Blue Owl shareholders on this call, the fortunate answer to questions like what happens if credit quality issues tick up or what happens with inflation, the answer doesn’t matter to people on this call. Now it matters to us matters, it matters to all of us when we think about growth of products. So let me still answer your question because of course we care a lot about it as a firm and for our LPs. So credit quality has remained very strong, very robust. We continue to run at extremely low delinquency rates, default rates. I mean, any measure you want to use, we continue to feel extremely good. The portfolio is in robust shape. Across our platform in total, we’re running at loan to values in the low 40s. We refer to 30s for tech. It’s in the low 40s across the whole firm. As we go into this, most of our borrowers are in very strong shape. Remember, we’ve always built at Owl Rock, Blue Owl in particular, a very defensive strategy. That is to say we’ve always erred on the side of low risk, which, to summary you can say hasn’t mattered over the last several years. Well, now it’s going to matter. And we have built into our franchise on, look, we want the best companies with low loan to values and you can give us 50 extra basis points to get us to take impairment risk. That’s just not how we operate. And those differences are going to start to show amongst managers. So here again, let’s go with the statistics, we’re in $56 billion of loans, and we’re running at a 5 basis point realized loss rate and the losses in total associate with $300 million of original notional loans. So of course, a more rocky environment. Of course, that’s an uptick. I don’t think any of invest planning for what amounts to [indiscernible] 0 losses. But portfolio is looking very strong and final statistics as we go into this across the broader portfolio, EBITDA to interest coverage. We’re heading in with an average of 2.7x. So there’s a lot of room in that statistic for both declines in EBITDA, even though these are generally pretty robust businesses that we invest in as well as rising rates off a low floor. So again, we’re not being dismissive. We’re thinking real hard about the volatile environment, but we’re feeling quite good.

[Operator]

Your next question comes from the line of Alex Blostein.

[Alex Blostein, Goldman Sachs]

So, I wanted to start maybe with a question around real estate. There’s a couple of stats I think, Marc, you mentioned in your prepared remarks. I just wanted to understand them a little better. I think one of the things you mentioned was around a $20 billion [indiscernible]. I want to say it was for deployment, but it wasn’t 100% clear. So can you maybe contextualize that a little bit more? And maybe taking a step back, how are you guys thinking about prospects for real estate platform over the next 12 to 18 months, given your comments around the new fund raise and the opportunities seen in retail.

[Marc Lipschultz, Co-President]

Sure. Very happy to, Alex. Thank you. So first off, the $20 billion really refer to sort of pipeline. So it really speaks, I mean, it has to flow through, of course, like in every investment business, we end up doing a very small portion of the things we look at and consider. But really the point of the statistic is it remains a very, very robust opportunity set much, much larger than our target deployment levels. So book-to-bill, so to speak, not quite book, but the opportunity set is very robust as we sit here. So that was really the purpose of that statistic, remains very strong compared to historical standards. As to the outlook to your very good point, so there’s a few forces at work. By and large, this environment is quite appealing for our real estate business. It’s appealing because as cost of capital within the corporate structure rises, then of course our triple net lease solutions may in many cases, look more competitive to what, I guess, we might have thought of before as low, maybe kind of oddly low borrowing costs for strong corporate borrowers back last year, last quarter for that matter. So as those costs come up, I think our solutions actually look more competitive, number one. Number two, in a more volatile environment, people obviously look for other ways to finance outside of what might be just the obvious, okay, well, I’ll go issue a bond, I’ll just go borrow from a bank. And so we offer these structured solutions that for those who have real estate assets, they could tap into. So we look at the backdrop as quite positive for the point of deployment. And from the point of view of what that means, though, for the quality of the assets and the performance, here is the beauty of it. First off, since inception of Oak Street we were very excited about our credit performance of 5 basis points realized loss. In Oak Street, we’ve never had a single rent payment missed, a single rent payment missed, let alone a default. I mean that durability is, I would say, pretty extraordinary. And so what we like about this composition is more people are looking for creative solutions, cost of capital are up, so that gives more room for us to put our solutions in place. And then the durability of having both the asset and the corporate counterparty on a 15-, 20-year net lease feels in a volatile environment to a true flight to safety.

[Alex Blostein, Goldman Sachs]

Got it. Great. The other question that I had, and this is probably for you, just wanted to dig in a little bit more into the kind of these placement fee structures and really just kind of trying to understand if we’re going to be in this pretty robust retail fundraising environment, are these placement fees going to be fairly then recurring and sizable for the next sort of several quarters? Or is it more a function of once you get on to a certain platform, there’s a larger upfront cost that you pay and then it kind of goes down a bit. But help me just kind of understand the distribution in place in fee cost that I guess you guys are going to start calling out in future quarters?

[Marc Lipschultz, Co-President]

Sure. Thanks, Alex. The lumpiest ones or the larger upfront ones are really on our private to public BDC raises. And we’ve had this a couple of times in the past over the last 7 years, and it could continue from time to time. I expect you’ll see that in 2Q. I don’t know that you’ll see it again for the rest of this year on a private to public. And then some of our permanent privates, we will have some wirehouse costs. They won’t be the big lumpy upfronts like you’ll see in the private to public, but we’ll have that on an ongoing basis as well. That again is not as lumpy as the private to public.

[Douglas Ostrover, CEO]

Yes. One -- and Alex, good to chat with you. Look, when you take a step back, I don’t think they’ll be recurring per se. But for the near term, we’re kind of hoping for large numbers because that means we’ve raised quite a bit of capital and the payback is relatively quick. And obviously, we do our best to drive that cost as low as possible. But it’s a competitive market out there, and we’re not paying any more than any of our peers. But we’re hopeful in the near term to have big numbers, and then I think it will slow down over time. The biggest numbers, as Alan was alluding to, are not really from our recurring funds, our core income funds. It’s when we’re doing a specific BDC, and it’s more of an episodic fund raise. So you’ll see those less frequent and a much smaller number for the funds that are perpetually offered.

[Alan Kirshenbaum, CFO]

I’m expecting the biggest number, Alex, and we’ll see how the year plays out. But I would expect the biggest number this year comes in 2Q, and that could bring a 15- to 20-plus percent G&A number as a ratio to revenues. And then I would expect it ticks down significantly from there in 3Q and then again in 4Q.

[Alex Blostein, Goldman Sachs]

Got it. All right. That makes sense. Just one other cleanup for me. A little nuance, but on the equity-based comp, if we look at the back of the deck, I think it’s running quite a bit higher than what we’re used to seeing. I think it’s like $96 million for the quarter. Can you just flush out one more time what the equity-based comp run rate should be on a kind of go-forward basis and why it was elevated this quarter?

[Alan Kirshenbaum, CFO]

Yes, you’re going to start to see now, and this is all GAAP numbers, obviously, Alex, you’re going to start to see amortization of some of our earnouts for both Oak Street and coming up Wellfleet. But that piece you’re seeing is largely Oak Street.

[Alex Blostein, Goldman Sachs]

Okay. But that’s run rate, so like $90-plus million a quarter?

[Alan Kirshenbaum, CFO]

It should be run rate, yes. We closed that at the very end of December, so you have a full quarter in for 1Q.

[Operator]

Your next question comes from the line of Robert Lee.[Ph]

[Unidentified Analyst]

Maybe, Doug, I kind of probably missed some of it, but could you maybe unpack a little bit some of the quarter-to-date fundraising? And I think I probably missed some of the numbers, but if you could just step through it, was the $2.8 million total so far, the right total. I kind of missed some of it.

[Douglas Ostrover, CEO]

I’m going to let Alan do it because I’ll make a mistake.¦

[Alan Kirshenbaum, CFO]

Robert, how are you?

[Unidentified Analyst]

Good. Thank you.

[Alan Kirshenbaum, CFO]

So we’ve got, year-to-date is about $6.7 billion. The quarter-to-date in 2Q is $2.8 billion. It’s obviously through a couple of days ago. We have some products that closed on the 1st of the month like a core income product and some products that closed mid-month like Dyal Fund V. So it’s a little bit of a mixed bag, whether that’s 1 month or 2 months in our quarter-to-date numbers. But of the $2.8 billion, you’ve got $2.2 billion of that that was raised in direct lending, about $500 million of that in GP Capital Solutions and then a very small contribution from real estate.

[Unidentified Analyst]

Great. And then maybe on the GP Solutions business for Mike. Can you maybe -- you touched on it a little bit, but maybe drill a little bit deeper how this environment, and I don’t know if it affects it at all, but how maybe the performance of the public managers impacts deployment or pricing as you see in the private markets? And then maybe as you think about Fund VI starting up in 2023, is there any reason to expect a different side targeted fund raise versus Fund V, I guess, call it the $9 billion? How should we think of that as we look ahead to next year?

[Michael Rees, Co-President]

Yes. Thanks, Rob. Good to speak with you. Sorry to give you a boring answer, but the GP Solution business, these partnerships come together after years and years of relationship building, a lot of deep thought on the side of these GPs that are the biggest and most important leaders in this space. So the wheels get set in motion, not just quarters ago, but years ago. And so there is very little market -- very little that the market volatility will do to impact the long-term strategic planning of these relationships. So our deployment is very sort of consistent when you look at it over multiple quarters or years. We’re not seeing any slowdown. In fact, if anything, deal activity is quite robust. There’s season seasonality in these conversations. We typically have -- since 2015, we’ve only deployed about 10% of our capital in the first quarter and close to 65% to 70% of it builds as we move past the summer. So we see that happening now and why we’re pretty confident that we’ll be on the Fund VI in 2023. So sizeable TBD, as we’ve talked about our goals for V, our Fund V are $9 billion, and we’ll see exactly where we land in that plane. Certainly confident in that number. And we’ll see if we go above. But that will then sort of take us to our views on the size of Fund VI as we get into ‘23.

[Unidentified Analyst]

And maybe digging into that a tiny bit, I mean how -- maybe how is this environment impacting your pace of fundraising. I mean I think there’s been just generic -- some concern out there, not specific to the industry obviously, about the pace of fundraising given the volatility. And I think given your -- the nature of your LP base, maybe you find this as a kind of extending it a little more than it normally would? Or how should we think of that?

[Michael Rees, Co-President]

Yes, Rob, as you look at the performance of the funds, I mean, they’re quite exceptional, we believe. And so the demand is there. We’ve heard other peers talk about the denominator effect and how total commitments might be down. We don’t see that. We don’t see that at all across Blue Owl as you’ve heard a big focus on retail. And as we focus on institutional fundraising, we’re not seeing a slow -- we’re not seeing a lower total commitment from large institutional investors. What we’re seeing is a crowded market where bandwidth is the key constraint across the institutional set. As an example, we’re working with a large institution that’s going to make a commitment. They did all their work in January and February, and they’ve just been trying to get us a slot on their investment committee calendar knowing that others in the market are having closes before ours. So we’re -- for our product lineup, we don’t see any real denominator effect, and we’re raising capital ahead of the need for it from a deployment perspective. And we’re able to think about a sooner raise for Fund VI than we had anticipated when you look back a couple of years.

[Operator]

Your next question comes from the line of Glenn Schorr.

[Glenn Schorr, Evercore ISI]

So when I look at Slide 16 on the direct lending originations, you see it down sharply for the last couple of quarters and down a little bit year-on-year. But I heard your comments about the big pipeline and the second quarter looks good. So I wonder if we could talk about what produces that type of volatility. And if you could talk about whether it be second quarter or the rest of ‘22 in relation to some of the better quarters that you’ve had.

[Marc Lipschultz, Co-President]

Sure. Well, first, let me just kind of level set and then call on to sort of kind of where it goes from here. Actually this quarter, remember, there is definitely a seasonality to the private equity business and therefore the lending business. The fourth quarter will almost always be the strongest market conditions, obviously considered in terms of people closing before year-end and then restarting new transactions into the beginning of the year. So let’s just take kind of a step back and compare numbers. Year-over-year, our originations were double last year. And our net originations were the second highest we’ve ever experienced as a firm. So I just want to clarify and probably reframe the interpretation of Slide 16. This is actually -- if you look, this would be for 4 quarters running. If I do the comparison year-over-year, so added one more bar, the origination this quarter actually doubled, and the $3.4 million, as I said, is the highest -- second highest net we’ve ever had. So starting point. Part 2, as I noted, how busy we have been, and it’s been extraordinarily productively busy, I guess, not just busy. The tails though, to close things -- first of all, it always takes some amount of time between, hey, we started something in the beginning of the year, did a war breakout in February, obviously, and -- but importantly, and this is actually part of the strength of our model, a lot of these deals, the really large ones, are now take privates, as you know. And take private by their nature, of course, take longer from sign to close. That’s quite fine by us. We obviously plan accordingly in terms of deployment of the capital. That’s one of the great advantages of private capital over the syndicated market in a volatile environment like this, someone who doesn’t actually want to own the risk is trying to make 2 points hoping they can clear the trade out to somebody else having to do that for 4, 5, 6 months. I don’t think seems very appealing. For us, we’re trying to own the paper. Now whether we have to wait a few months, 3 months on or 6 months in the context of our 5- to 7-year loan is quite fine. So with all that said, I think we expect Q2 to be a very robust quarter and into Q3, frankly, given the tails of some of these things. So the forward pipeline and this sets pipeline of signed but not yet closed, is extremely strong.

[Glenn Schorr, Evercore ISI]

And that very robust, could we take that as similar year-on-year growthish?

[Marc Lipschultz, Co-President]

I can’t give you guidance on exactly because of the timing of each of these deals, some are quite large. I just don’t know. But I think you can take it as a definitely strong indication that we’re heading into Q2 and Q3 with a typically large amount of paper already committed to not yet closed.

[Douglas Ostrover, CEO]

I think it’s important to remember, we are primarily funding new buyouts. And with over $2 trillion of dry powder sitting in the PE market, we expect M&A to remain robust, and we’re really at the epicenter of all that. And so I think as you think about direct lending, I would focus a lot on PE fundraising. And as long as that stays strong, we expect over time to continue to have record originations. As Mark said, timing it quarter-to-quarter is nearly impossible. But I can tell you when we look at the amount of activity out there and the amount of dry powder, we expect the pipeline for financing and the pipeline for capital to -- or the capital needs to remain really robust.

[Alan Kirshenbaum, CFO]

And I would also add, Glenn, that as you saw, transaction fees come down in 1Q, commensurate with gross originations. Marc is talking about atypical levels in 2Q and 3Q. You could generally expect transaction fees will follow that.

[Operator]

Your next question comes from the line of Patrick Davitt.

[Patrick Davitt, Autonomous Research]

Most of my questions have been answered. Maybe just one on the tech lending side. So you’ve got RTF 2 in the market right, ORTIC launched and the hope that ORTF I could go public. So as we look to the IPO of ORTF I in particular, how do we think about the potential for that to actually happen given the amount of fundraising you’re doing for ORTF II or ORTIC. And I think the latter has lower fees than ORTF I would have once it goes public. So could you kind of unpack all those dynamics? And does it push out, I guess, the view to ORTF I going public?

[Alan Kirshenbaum, CFO]

Thanks, Patrick, and good question. Look, we can’t comment publicly on the exact timing of an IPO, obviously, ORTF has had a [CC registrant]. Just pulling the lens back on that for a moment, though, obviously right now the markets aren’t the right type of markets to try to do an IPO. That portfolio is fully invested, it’s fully levered. Our shareholders are enjoying a low fee structure. So we’re not in a rush to get out an IPO. We want to make sure we have the right markets to do that. And we’re done fundraising there. We’re done fundraising. We’re done with deployment. We’re just replacing paydowns at this point. So again, fully invested, fully levered portfolio. And we’re obviously fundraising now for ORTF 2. So exact timing, TBD, we’ll have to see what the markets hold in the back half of this year, but obviously right now is not the right time to take it out.

[Marc Lipschultz, Co-President]

Maybe just adding a comment, stitching it together. It is certainly true that the market volatility has implications for the exact timing of when we list it, and I [indiscernible] really as opposed to IPO because once listed is when the fees step up. And that can be done obviously in quite different environments from potential IPO. But we’re not going to try to do anything that doesn’t make good sense for everyone, for all the investors. And so with that said, I mean, could it vary by a quarter as to when that step up, which then lasts permanently comes in. It could. I mean, so within a quarter, as Doug keeps saying, we don’t try to think about our business quarter-to-quarter that way, but we know where the destination is with that one. But that same volatility is what’s creating so much opportunity for investment in the tech space. But we already talked about this, I won’t rehash it, but the enormous amount of activity to purchase software companies and then what we think will be the significant need for private businesses intact for structured capital, that volatility is quite [the front] for what we think will be the strong results we can deliver in OR Tech II and ORTIC.

[Douglas Ostrover, CEO]

And just one quick thing. And I think on the 20th at Investor Day we will give everyone a lot more color about our expectations of fundraising in all of those products.

[Alan Kirshenbaum, CFO]

The other thing I’d add, Patrick, when I gave my guidance on our February call about the $1.3 billion of revenues that we would expect to post for 2022, I’ve talked separately about the $65 million fee step up. There’s very little of that $65 million in my $1.3 billion.

[Operator]

[Operator Instructions] Our next question comes from the line of Adam Beatty.

[Adam Beatty, UBS]

Probably just 1 for me today about Wellfleet. And just wanted to understand, obviously we saw a business, a good addition to the franchise. I want to understand how you’re thinking about synergies on the product side and maybe the distribution side as well. We’ve been talking a lot about retail and other product development. How does Wellfleet fit into that kind of bigger picture?

[Douglas Ostrover, CEO]

Well, thanks for the question. Well, there’s just a tremendous amount of synergies with our direct lending business, especially in our core income product where we provide some liquidity. So we really needed the public market expertise. And we were debating, do we build it internally or do we go out and acquire it and have a group that has a dedicated track record, a great track record, by the way, pays for themselves, and we think we can grow that business significantly. So they just joined recently. I think it was April 1. It’s been a seamless transaction. We’re really excited about having that team on. And it’s a relatively small business, 6 and change billion of assets. I think we can create a tremendous amount of value there. And I think we can make multiples of a return on our investment. But it was a relatively small investment. So I don’t think it’s going to have a material impact on our earnings, but I think it will be highly accretive. And again, on Investor Day, we’ll spend some time going through that in a lot more detail.

[Operator]

There are no further questions at this time. CEO, Doug Ostrover, I turn the call back over to you.

[Douglas Ostrover, CEO]

Well, we appreciate everybody spending about an hour with us. We’re grateful for everybody listening in. And as always, our goal is to try to exceed expectations. I really encourage all of you, if you can make it to Investor Day on the 20th, I think you’d find it worthwhile. You’ll be able to watch it over Zoom as well, and we’re excited to really share the vision of what we think we can build here. So we look forward to following up again in a few weeks. Thanks again, everyone.

[Operator]

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