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Blue Owl: A hedge against inflation W

Blue Owl Capital (OWL, Financial) is a rather unique company that focuses on lending for large private transactions. It has over $102 billion in assets under management (AUM). The company’s size acts as a significant competitive advantage and, in an environment of high inflation and rising interest rates, its floating rate assets are poised to outperform.

business model

Blue Owl Capital (OWL, Financial) is a private market lender that operates in three main segments:

  • Direct lending – $45 billion AUM.
  • GP Capital Solutions – AUM of $41 billion.
  • Real estate – $16 billion AUM.

An example of one of his past deals was the acquisition of Anaplan by Thoma Bravo for $10.7 billion. Funding for this operation was provided by Blue Owl Capital and Peers.

Blue Owl Capital has also become a credit specialist for technology and software companies. Since 2016, they have loaned over $19 billion to tech companies.

They have over 34,000 high net worth clients and over 500 institutional clients. Their clients are well-diversified with a third of wealth management and the rest split between public pensions, family offices and more. Customers come mainly from the North American region, which represents 77% of their customer base.

Source: Blue Owl Capital Investor Materials

Blue Owl Capital has announced plans to list its Dyal Capital Partners division on the London Stock Exchange in the first half of 2022. This will result in the sale of approximately 10% of Dyal to the public, and Blue Owl will own the 90% remaining. .

finance

The particularity of Blue Owl is that it is anchored in a solid base of permanent capital which generates 95% of its management costs. So as they continue to raise capital, it contributes to what the company calls the “layer cake” effect.

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Source: Blue Owl Capital Investor Materials

In 2021, the company generated $523 million in after-tax distributable profits, with $300 million in additional management fees. In direct lending, their gross issuance totaled $23.6 billion, compared to $8.6 billion in 2020.

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Their funds have all delivered incredible results in each strategy:

  • Direct loans: ORCC 11.8%; ORTF 15.2%.
  • GP Capital Solutions: Dyal III Fund 31.8%; Dyal IV Fund 127.3%.
  • Real Estate: Fund IV 27.2%; Net rental property fund 22.5%.

They aim to raise more than $50 billion in fee-paying assets under management in 2022 and 2023, which would represent an increase of more than 80% from December 31, 2021.

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Their balance sheet is strong with close to $1 billion in cash.

Blue Owl pays a healthy dividend yield of 3.65%, more than double the S&P 500 yield of 1.56%. Additionally, they have adjusted their corporate structure to allow for possible inclusion in the Russell indices.

Evaluation

In terms of valuation, Blue Owl Capital trades at an enterprise value-to-income ratio of 9.61, which is below historical levels.

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Blue Owl Capital is a fantastic alternative asset manager that is poised to take advantage of the continued growth in private markets. Their permanent financial base provides them with additional security and offers growth potential thanks to the “layer cake” effect. Blue Owl also pays a strong dividend of 3.65%, which is above the industry average. All things considered, I think the stock is undervalued at current levels.

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