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Welcome to Innovators and Ideas brought to you by RBC Capital Markets. Today, we're at our Global Financial Institutions Conference here in New York, and we're sitting down with Craig Packer, co-president of Blue Owl Capital Inc. Craig, thanks for being here.
Great. Thanks for having me.
First, why don't we start off with telling us a little bit more about Blue Owl, maybe touch on your vision, your mission, what you're trying to accomplish with your clients?
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Sure. Blue Owl is a publicly traded alternative asset manager. We've got about $160 billion of, the largest piece of that in the piece some day to day responsible for about 80 billion of it is credit. It's primarily direct lending business. We also have a business in taking stakes in private equity firms and private credit firms, as well as a real estate business.
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I started the business with two partners about eight years ago. It was originally called Al Rock Capital, and that was the origination of our credit business. And then we went public about three years ago and became Blue Owl. What we're trying to do is be market leaders in interesting niches in the alternative asset management space and deliver really consistent income generating products for wealth investors, private wealth investors, as well as institutional investors. And we've had great success in doing that.
Excellent. So, you know, you guys are at a very unique spot, I think, and have a very unique view on what's going on in the markets and some of the needs out there. So I wanted to maybe start with maybe take a step back and thinking a little bit more big picture about your outlook and sort of what what you guys are seeing sort of in your space and some of the other needs. And then maybe we could dig a little bit deeper beyond that.
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Sure. It's a really interesting time in the in the alternative asset management space. Imagine we started the firm about eight years ago and we saw a couple of trends that were developing. One was the borrowers that we support are typically private equity backed companies, and there was growing demand for private solutions from that group of borrowers in part because of some changes that came in the regulatory environment where we had banks pulling back and there was a void there at the same time and a low interest rate environment, growing appetite from institutional investors, private wealth investors for yield product.
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And so we started the firm at the intersection of those two trends to provide investment opportunities for our clients, but also lending solutions for our borrowers. What's been really interesting and exciting for us is that trend has been almost accelerating in the eight years that we've been involved. And so the asset class has grown quite considerably and we've been really at the forefront of helping drive that change.
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And so we started a firm from scratch, which, you know, I mentioned earlier today is $80 billion of private credit. And the demand we're seeing both from our investors as well as the borrowers continuing to accelerate and our other asset classes, our GP stakes and real estate. Similar trends Why big institutional investors around the world are taking a relatively small part of their investment portfolio and putting it into alternative assets that they weren't in previously because they like the returns and the non correlated nature of those returns.
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Same thing happening in the wealth side and if anything, the wealth side really in the very, very early innings. So there's more capital seeking these opportunities and they really want to work with high quality managers that can do this in a very consistent, scalable way. And that's the trend that was really fueled our growth over the last eight years.
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So and we all know about the private credit trends. We've talk about them all the time and it's exciting to talk to you about this. And how else are you guys kind of leaning into what's coming next? You know, you talked about a number of different things, but, you know, as you think about other sort of private capital solutions, like there are other trends, you're seeing that you really have your eye on, that you think people really need to be paying attention to that. You may be see opportunities that might get you excited in the future.
Well, I don't want to skip over the one that that we're really executing on right now, and I'll touch on the future a bit. But we continue to see a lot of inflows into our funds from institutions and and the private wealth channel in the here and now.
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And it's growing, you know, quite considerably over the last few years. And we expect that trend to continue. So we're really in the early stages of this evolution of capital seeking private credit opportunities that offer a very attractive yields versus public market alternatives. And so we're going to continue to to lean into that. The way we do that is we're raising more funds and we're raising funds in adjacent sectors.
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For example, one of our biggest growth areas has been in the in the tech space, specifically software lending. We have three funds that are dedicated just for software lending, and that's been an area that's been we've seen a lot of growth in. And so we're going to continue to do that in our in our core direct lending strategies and I think continue to see growth away from that.
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You know, that that business is really primarily lending to private equity backed companies. So away from that, we're growing our exposure to non private equity backed companies, founder owned companies. That's an area that we expect to see growth away from that. There are a number of other private credit asset classes that are not sponsor backed elbows on. We call them alternative credit.
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So think asset based lending, life insurance, settlements, drug royalties, music royalties, aircraft and real car finance, business, these are all sectors that we're in today already in a small way, but we think there's going to be growing interest from our clients to get into some of these other private credit asset classes in these niche strategies where again, you can earn above average return in non correlated matter.
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So I want to turn to one of our favorite topics, M&A consolidation. Do you expect to see more consolidation in in this particular space in the future?
I think there I think there may be. What we have seen is if you went back, you know, we've been around eight years. If you went back ten or 15 years ago, private credit were generally tended to be privately run asset management firms of modest size, doing a really nice job for their clients.
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What's happened over the last handful of years is the opportunity set has got much bigger and it's attracted the attention of the largest asset managers in the world, and they have access this asset class, in some cases by doing acquisitions of these privately owned founder companies. Our firm, we decided to go public and so we're public, but many of the firms have grown quite considerably.
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And it's it's it's created some M&A opportunities for the large asset managers to get into the space. BlackRock, T, Rowe Price have have all acquired their way or built their businesses primarily through M&A. There's been less of what I'll call, you know, industry consolidation from players merging with each other. And so that's a question that gets asked a lot.
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You know, as the space gets bigger, will some of the smaller managers get acquired by other industry players? You know, I don't know. You know, it's not maybe that it seems like obvious that it would. The dilemma we have when we look at acquisitions is, is it more attractive for us to acquire someone else's portfolio that they underwrote and they constructed versus raising capital ourselves or organically building our portfolio?
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You know, and we're we're at no disrespect to anyone else, like we're really picky about our portfolio. And so we have a bias towards wanting to originate the assets ourselves. Not to say we couldn't look at acquisitions, but that's a bit of the tension point. I think the consolidation primarily is going to come from the larger firms that have the scale to be successful getting bigger in an asset class that's growing and the smaller players maybe having a bit of a challenge there as opposed to pure M&A.
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I want to talk a little bit more broadly. I want to talk about maybe some of the the top challenges on your mind and your leadership teams mind. But I think as you look out sort of the next 3 to 5 years, you know, what what are the things that you see as like these are really sort of the top things, top challenges that we think are going to be that not just you, but maybe others in the industry also maybe have to think about.
Well, look, I'll our mission critical that we think about every day is how we execute on the opportunity set.
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That's that's right in front of us. We can continue to have great success at Blue Owl by deploying the capital. We've already raised and doing it in a high quality manner and delivering for our clients. We have a lot of embedded growth in our company simply by executing on our fundraising and investing strategies, and that's what we've been doing.
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We're going to continue to do that. I think to the spirit of your question. One of the things that we think a lot about is we have grown a lot as a firm and so as you as you grow, you know, we want to continue to evolve our company to make sure that we can continue to be successful despite them, despite that growth.
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So what is that? That's additional hiring. That's additional systems. That's, you know, creating some infrastructure to make sure communication is happening, expanded ways we monitor our portfolios. Let me give you an example. And this is maybe maybe it's maybe a simple example, but but I tell you, it's quite powerful. One of the things we hired a chief technology officer for our firm, and the first request I had for him was a lot of our information was an Excel spreadsheets.
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And, you know, like most of us, I'm not sitting in front of my computer all day long as much anymore. And I wanted to have access to information on my phone like I have access to everything else on my phone. And so I asked him, could he build me an app that would allow me to have information on every one of our portfolio companies and every one of our portfolios on my phone.
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And he was able to do that. And so now I have that information that I can access 24 seven wherever I am walking in to see a client sitting at sitting at an RBC conference. Those are the kinds of investments a big firm can make. And, you know, I think those are the challenges. As a business gets bigger, you don't want to be complacent.
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You want to think about how do we manage the growth so we can continue to be to be effective. And so those tools are important. I think we're also thinking about our business globally expanding. There's appetite for our investments around the world. So we're building out our teams in Asia, Europe, the Middle East. And when you go into those markets, sometimes you have to change your product set or tweak the product set to meet the needs of investors that have, you know, different regulatory regimes, different tax regimes.
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And so we don't want to be complacent. We've had wonderful success. But I think to be a leader, you have to look where are things going? One of the essence behind the creation of Blue Owl, again, originally a credit business we merged with Dow Capital is in the stakes business. We acquired a real estate business. You know, we're thinking what products can we offer to the private equity firms that we work with and we want to expand that product set.
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So as they think about who they want to concentrate their relationships and we think they're going to value that wide product set that we can offer and we want to look ahead and continue to be a leader in offering a variety of solutions for them.
You covered a lot of the growth opportunities that you're pursuing as you guys take a step back and think about yourselves, but also the firms in general that will succeed in the sector in the years ahead. What qualities are most important and will differentiate those succeed versus those that may not in the future?
So my partner Doug, says this all the time, so I'm really stealing from him. But, you know, you really we've had wonderful success and we feel very fortunate. You don't want to be complacent. It's easy to feel, you know, happy with your success.
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And markets are innovative. Competitors are innovative. Leading firms in their industries are not thinking, you know, what did we do well last year? What do we need to do well in the next couple of years? And that's product innovation is creating opportunities for your team. It's really listening to your customers. You know, we really want to listen to and ask our customers.
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Our clients are the institutional investors and the private wealth investors and their platforms that we distribute our products on. What are the clients looking for? What are they like? What did they not like, and continue to innovate to provide those solutions. We were a new entrant. We had a clean sheet of paper and we were hungry and that created a catalyst for us to come up with innovations.
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One of the areas we went we went into very significantly. It's become more popular now, but in 2016 Lasso was taking institutional practices and bringing those products to the private wealth channel. Today many are doing that. But 2016, that was an area that was less developed and we went after it and we went after it hard. And now we are we are a major player in that space.
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One of the leader players in that space. You can't just sit on that. You got to think what is what is next? And you have to be willing to invest and think and push your team and take a little bit of risk and invest, invest some money and some time. Honestly, the time is the biggest thing. It's easy to get sort of consumed with today's challenges.
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How do you invest time to think about the future? We're not perfect, but I think we are constantly challenging ourselves to make sure we're not being complacent and think about where the market is going.
Craig You guys went public few years ago, so been great going through that experience. Do you have any particular advice or any lessons that you learned that you might want to pass on to some of our listeners?
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For us, going public in and of itself wasn't a goal that we had set out. We went public because we had a wonderful opportunity to merge the our business that we had started with a business called Dyal Capital, which was owned by Neuberger Berman, and really double the size of our firm and really diversify it and create some wonderful growth opportunities.
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But to do that, it really financially required offering Neuberger value that it could really feel confident in. And then IPO was was a way to deliver that value. And so we it really worked out quite well. If you look back at our IPO was really one of the most successful IPOs of 2021. Our stock, you know, went public at $10 today, give or take.
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We're trading at $18 a share. So, you know, it's been a great financial investment. If you you know, if you look at it from that perspective. But for us, what allowed us to do was grow, diversify the firm, create market leadership, and really catapult us to a level of size and scale that we wouldn't have otherwise been able to do.
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We had previously taken an investment in our company minority investment. And so, you know, we we weirdly had outside investors and I'd like to think that we operated with a lot of the tenets of being a public company as a private company. And so going public in and of itself was didn't transform us. And I'd like to think that we've really worked hard to keep the culture the same.
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But clearly, the visibility of being a public company, you know, puts an additional spotlight on on your performance. You know, we were very pleased that what we've been able to deliver, but I think for, I think going public for the right reasons and that we had we had really good financial reasons can make a ton of sense. And it worked really well for us.
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And I'm really happy we made that decision. But I think going public in and of itself, you know, may not be the right tool for companies, but in our case, it was it was really important catalyst for that next stage of growth. We went public. We're about 50 billion of our, today, 160 billion of you. And you get a sense of, of the scope of the growth we've been able to achieve.
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And I think going public, it also allowed us to do a wonderful acquisition for real estate business, Oak Street, that we wouldn't necessarily have been able to do having that public currency. So it was an important milestone for us and it's really helped us grow. Craig, really appreciate your time today. Thanks for joining us. Great. I appreciate it.
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Thanks for having us. And we really appreciate our relationship with RBC.