00:00Blue Owl reported results this week after joining forces with Meta on AI data centers.
00:06The firm reported a 21% year-over-year jump in AUM as it continues to reinforce its long-term growth pipeline.
00:12Joining us for more is Mark Lipschultz, Blue Owl Capital co-CEO.
00:16Mark, wonderful to have you on this morning.
00:18And look, I know whenever anyone asks about the equity price, you very stately are like,
00:22we don't concentrate on the short term.
00:24But there was a decline after earnings, so we have to address it.
00:26You had record fundraising, maybe a concentration on some of the flat fees.
00:31Why the disconnect between the two?
00:33Yeah, look, we had a great quarter.
00:36We had continued extraordinary growth, 20-plus percent growth on the top line.
00:43I think there is, as you just noted, this disconnect, which is having acquired very successfully and very fortunately
00:50businesses like our digital infrastructure business IPI.
00:53you issue shares, but then you don't have a full year of their results.
00:58So it's actually just math.
00:59As you look at our run rate growth per share, it is continuing to accelerate and continues to be incredibly robust.
01:09So, yeah, there's a little bit of math, but it really is just simple math.
01:12Business is really thriving.
01:13I learned so much from watching Danny's interviews with people like you.
01:18So she had...
01:20To be clear, you're learning more from Mark than you are from me.
01:22Yes, I learned from Danny.
01:23I'm just happy to be there.
01:24And from, you know, Zee and from Henry McVeigh and from John Gray.
01:29You were talking with him, Danny, and he was saying something about easing excess returns in private capital.
01:35And there's a market saturation.
01:36We see very tight spreads and generally lower yields are headed lower.
01:40What do you think about that?
01:42What do you think about that idea?
01:44So I would decompose the question of kind of yields returns into three components, right?
01:51One, of course, is credit quality first and foremost.
01:54At the end of the day, the most important thing is that you're making good loans and getting paid back.
01:59No cockroaches.
02:00So we want a very healthy ecosystem and we have a very healthy ecosystem.
02:05We really do.
02:06And we can certainly come back to that.
02:08So credit quality is excellent in our book.
02:11And that doesn't mean no defaults.
02:13Everyone's going to have defaults now and then.
02:14We all, we said multi-trillion dollar industry.
02:17That's okay.
02:18You just can't have many and you have to get good recoveries.
02:21And that's exactly what we do at Blue Alley.
02:22And by the way, so do our peers and so do the banks.
02:25So the system is in a strong place.
02:27Then, of course, there's base rates.
02:28And, of course, the direction of base rate travel.
02:31Everyone obviously sees it having eased from the peak.
02:34But, again, every time consensus fills to, oh, it's obvious.
02:37You look at the Fed commentary.
02:39Now it's not quite so obvious how fast rates are going to go down.
02:42And then last is spread.
02:43And spreads are on the kind of the lower side of where we operate.
02:47But over a 10-year window, they ebb and they flow.
02:51And remember, we're building portfolios that have hundreds of names in them.
02:54Some are from a couple years ago.
02:55Some are current.
02:56And most importantly, our overall spread, the premium that we offer to the alternative,
03:02the traditional marketplace, has actually been stunningly steady and close to a couple hundred basis points.
03:08So, yeah, we don't live in a vacuum.
03:11And so spreads in the whole world are tight.
03:13Of course, ours are tighter.
03:15Equity markets are at all-time highs.
03:17We don't live in isolation.
03:18And in that world, spreads are a little bit tighter.
03:21But in total, we continue to deliver really outstanding investor results.
03:26And that's why we had record fundraising results.
03:30I really like that point you made about, OK, if we're concerned about private credit, shouldn't we be concerned about equity markets, too?
03:36They both are trading and reflect a large part of this economy.
03:39I would then love to get your take on Meta yesterday.
03:42I know you're not a public stock guy, but when they issued more debt, Meta shares fell.
03:47Do you think that there are starting to creep into the market some concern with Meta, of course, as one of your partner,
03:52but the large hyperscale spending and the amount of financing and debt that they're taking on?
03:57Is there any reason to be concerned?
03:59Because clearly the equity market is starting to show at least a little bit of nerves about it.
04:03Well, there's been several earnings reports this year, this week, from tech companies.
04:07And actually, some of them performed extraordinarily well announcing big capital programs, right, Amazon.
04:14And so I think it's hard to attribute it to one specific action.
04:18In fact, the collective result is, of course, tech is touching all-time highs at the moment where, as of this week, people announced,
04:26you know what, we're actually going to spend a lot more on AI infrastructure than we thought, much more, actually, right?
04:33This continuing curve every time you look, it just keeps going up.
04:35And you listen to the commentary, and the commentary is, we don't think we're spending enough.
04:39Microsoft says we don't have actually enough capacity to even fuel both AI and kind of our core business.
04:47So that gap, while very expensive to cross that Rubicon, of course, is what creates the opportunity for great partnerships,
04:55for us to bring that kind of capital in conjunction with these spectacular companies to build the backbone,
05:02which for us is a very safe way to participate, build the backbone for the infrastructure for this AI future.
05:09I was talking with Z about the intel he gathers, and you obviously are in the same sort of privileged position, right?
05:14You're talking to so many portfolio companies and CEOs, and you have an incredible view of, for example, the labor market.
05:21So what are you seeing in your portfolio companies, or what are you hearing people say about the economy in regards to the labor market?
05:28Are they going to be slowing hiring or even reducing jobs as they replace some of that productivity with AI?
05:34So portfolio companies are, let's start with, very strong and healthy.
05:38We have 400 or so in our portfolio, and on average, growth remains both revenue and earnings in the high single digits.
05:45So it's a very healthy place.
05:46But strong companies can reduce headcount as well.
05:49Absolutely.
05:49So we have not seen any meaningful change in labor practices, but it is certainly the case that technology itself is making a lot of activity already more productive,
05:59and we're at the very front edge.
06:02So, you know, it is certainly the case that when you build and invest this kind of capital, you do ultimately have to get a return on it,
06:08and some of that will disrupt the traditional labor market.
06:11We are not hearing anything I would call systemic or dramatic at this point within the portfolio.
06:18And to the degree it's happening, it's really more about efficiency, technology.
06:23It's not about concern about the economy today.
06:25Blue Owl has also been on the forefront in moving into retail and offering wealth products to a wider swath of investors than traditionally had been.
06:34I just wonder, Mark, because this has been a period where it feels like people are laser-focused with the magnifying glass,
06:39if I can mix all my metaphors, on private credit with Jamie Dimon saying cockroach here, concern about fraud there.
06:46Has it changed at all retail sentiment?
06:48Has it been harder to reach those people just in the volatility of headlines that have been coming out?
06:53So here's the really encouraging part about the wisdom of what you call retail investors, individuals taken together.
07:00You know, I think there's a propensity to want to either sort of people say, oh, they don't understand.
07:06I actually think there's incredible wisdom in the individual investor world.
07:09And by the way, they're advised by really strong people, right?
07:12The financial advisors at the Merrill's and the Morgan Stanley's and the J.P. Morgan's, the Goldman Sachs.
07:19I mean, all these, you know, Wells Fargo, all these fabulous places are advising people on making these choices.
07:24So here's what we're seeing.
07:26Wealth flows are accelerating even now.
07:29This month over last.
07:31We see this every day.
07:32It's a very data-driven business for us.
07:35We are accelerating in wealth this month over last.
07:38So, actually, I think people are seeing through this noise, and it is a lot of noise.
07:43And to your point about, you know, sort of an item here, an item there, you know, I would suggest taking it when we take a step back,
07:50because there's almost this kind of this mass hysteria taking hold about credit in general, private credit in particular,
07:58and it's just not anchored in any facts.
08:01It's anchored by repeating a few anecdotes and then kind of just creating the, well, hey, you never know.
08:07So, and some of that is, you know, intentional.
08:09Some of it, I'm sure, is quite sincere by people that just don't, just aren't sure.
08:13But the truth is that our system, the private credit system, not just blew out.
08:17Our peers are very good at what they do.
08:20The banks are very good at what they do.
08:21And in total, fortunately for the economy, we have a very healthy credit ecosystem.
08:27And to the earlier point, Danny, you repeated what I was saying, it's really important to remember.
08:32You cannot believe that we have an unhealthy credit ecosystem and a healthy stock market.
08:38Those are not compatible ideas.
08:41Well, and I mean, as you point out, the concerns are belied by the fact that investors are still falling all over themselves to get access to funds like yours.
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