OWL - NYSE

Good morning, and welcome to Blue Owl Capital's Second Quarter 2025 Earnings Call. [Operator Instructions] I'd 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 to everyone. Joining me today are Marc Lipschultz, our Co-Chief Executive Officer; 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 Shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund. This morning, we issued our financial results for the second quarter of 2025 reporting fee-related earnings, or FRE, of $0.23 per share and distributable earnings, or DE, of $0.21 per share. We declared a dividend of $0.225 per share for the second quarter payable on August 28 to holders of record as of August 14. 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 Marc.

Great. Thank you so much, Ann. The results we reported for the second quarter of 2025 reflect a continued expansion of the breadth and depth of Blue Owl's business and highlights the increasingly essential role the firm plays within a modern capital markets landscape. We raised $14 billion of new capital during the quarter, bringing us to a record capital raise of $55 billion over the last 12 months or 28% of our assets under management a year ago. And these numbers do not yet reflect any meaningful contributions from our acquisitions this past year where we are anticipating significant synergies over the next couple of years. We have grown our FRE revenues by 29%, FRE by 23% and DE by 20% year-over-year on a last 12 months basis, continuing the steady march up and to the right, supported by our substantial permanent capital base. This momentum has been driven by the continued strength we see across fundraising and deployment reflecting 2 critical concepts. First, for investors, we are leveraging the benefits of Blue Owl's scale and incumbency in respective markets to drive differentiated results, and we are creating product structures to serve varying investor needs across the risk return spectrum. And second, we have placed ourselves in a position to offer the bespoke and scaled solutions that are increasingly in demand for users of our capital, and we have even more of those solutions on offer today as a result of the strategic actions taken last year. I want to spend a moment on some of the early wins from strategic investments we have made organically and through acquisitions over the past year, which we've summarized on Slide 4. Starting with alternative credit. We closed a private offering of $850 million for our new interval fund stemming from a diversified and global set of investors. We are pleased with this remarkable fundraising, which reflects both the strength of our global private wealth platform and investor confidence in our approach to credit solutions. It's been an incredible start for this product and even more impressive considering the market disruption we saw during April. In our view, alternative credit is a highly complementary addition to fixed income portfolios given its diversified collateral, modest correlation to other credit asset classes and attractive risk return anchored by current income. These alternative credit capabilities further diversify our product suite, and we should benefit greatly from the incumbency and leading position we've built in the private wealth channel to date. For our digital infrastructure strategy, the first half of the year was active from a fundraising and deployment perspective, leading us to a final close of our third flagship fund in April at a $7 billion hard cap. Notably, the fund has already soft circled more than half of the capital raised for investments. Looking ahead, we're working expeditiously towards the launch of a well-focused product in the foreseeable future, similar to the process we undertook with ORENT with significant investor interest already observed. Our real estate credit strategy has been extremely active deploying over $3 billion year-to-date, including opportunistic deployment during the market dislocation that generated outsized spread. Both real estate and alternative credit have been extremely active for our insurance channel with these teams and others across Blue Owl driving roughly $2 billion deployed in the second quarter alone at a spread of more than 200 basis points above similarly rated public corporate bonds. And as it relates to organic new strategy development, we have now raised $3.5 billion of capital across strategies that did not even exist 2 years ago, including $1.7 billion for GP-led secondaries, our BOSE strategy. We believe the strong reception we've encountered for these new offerings reflects the partnership-driven solutions-based mentality that anchors everything we do at Blue Owl. Taken together, you can see a substantial amount of forward movement in the early days of these new initiatives, and we are just getting started. The combination of these initiatives and broad-based momentum across our more established businesses drove the robust capital raising we saw during the second quarter. Alan will walk through our flows in greater detail, but let me call out some notable items. We held the first close of the next vintage of our net lease flagship strategy ahead of schedule with $2.1 billion raised and another $1 billion of co-invest. The total size of our 2020 vintage of this strategy was $2.5 billion in commitments and the entire net lease business was $12 billion of AUM when we announced that acquisition. We have more than tripled the size of this business in 3.5 years, a testament to the platform synergies generated through scale and access. This acceleration has not gone unnoticed with the recent PERE article naming Blue Owl as the third largest real estate capital raiser globally over the last 5 years, trailing only Blackstone and Brookfield. In aggregate, we raised $5.1 billion of equity in net lease during the second quarter and a record $5.8 billion across our real assets platform. Mirroring the expansion trend in real assets, we also raised $5.8 billion of equity across credit in the second quarter, a record quarter for credit. On a year-over-year last 12-month basis, equity raised in credit has increased by 55% and flows have been balanced quite evenly between the private wealth and institutional channels. Last 12-month capital raised from EMEA and APAC investors has increased to 23% from 14% 2 years ago, reflecting the ongoing globalization of our business, embedded in the platform investments we've made for the long-term growth. And broadly, we saw resilience across our investor base despite fairly disruptive capital markets during the quarter, which speaks to the continued and secular demand for the strategies we offer and the strength of our private wealth channel. Turning to business performance. In direct lending, we continue to find high-quality deployment opportunities despite a relatively lackluster M&A backdrop, speaking to the advantages of being a partner of choice due to our scale and incumbency. As a reminder, M&A is only 1 component driving deployment activity for us. We continue to see sponsors pursue bolt-on and organic investment opportunities for their portfolio of companies, driving add-on activity for Blue Owl. And in the case of continuation fund transactions, the breadth of our loan portfolio means that we're often the existing lender and therefore, a logical and frictionless partner for new financing. Gross origination in the quarter was roughly $10 billion, bringing gross origination over the last 12 months to nearly $47 billion and net to $13.5 billion. Credit quality and direct lending remains strong with average annual realized losses at 13 basis points. We are not seeing any meaningful changes in the underlying metrics. This has been a constant theme over the last few years. In alternative credit, we continue to see positive network effects benefiting deployment with more partners looking to engage in repeat and larger financings with us. Recently, we renewed and upsized a forward flow agreement with LendingClub for up to $3.4 billion, yet another substantiation of the expanding role that private lenders are being asked to play in the alternative credit markets and across capital markets more broadly. This marks our alternative credit fund's third investment with LendingClub since 2023. Blue Owl also provided meaningful funding solutions to small business lenders. We recently upsized an existing transaction with a U.K.-based lender, Capital on Tap that funds both U.S. and U.K. small businesses. The alternative credit business continues to see strong demand for stable capital partners and benefited from the volatility in the public securitization markets during the second quarter. In real assets, we continue to see highly attractive deployment opportunities across net lease, digital infrastructure and real estate credit. As I mentioned earlier, our digital infrastructure flagship fund has already soft circled more than half the capital raised for investment despite its final close having just occurred. The tremendous capital needs in the data center space are creating an incredible moment in time where our investors can own mission-critical assets for tenants with an average credit rating of AA across 10-plus year durations and earn opportunistic returns for doing so. As we've said before, we truly believe this is the best risk reward setup we've seen in our careers and feel fortunate to have such a scaled and experienced team at Blue Owl with which to lean into this generational opportunity. Across our digital infrastructure funds, we have leased capacity of 3.8 gigawatts or approximately 5% of the current capacity leased globally making us one of the leading players in this rapidly evolving technology landscape. We expect to meaningfully participate in this evolution through our net lease strategy as well, which is financing the largest data center project in the United States. In aggregate, we believe there are very few firms that can provide the breadth of technical expertise and scale of capital we offer across Blue Owl to address the needs of hyperscalers today. And these strategies present a differentiated proposition, offering the ability to fund the leading edge of innovation, but to do so on products and structures that are designed to be income-oriented and downside protected. Our GP Stakes strategy closed on a second investment during the second quarter and on another one subsequent to quarter end. In total, these investments bring us to nearly 30% invested on our target size. We've continued to invest in some of the premier names in the alternative industry, household names with decades of experience and long track records of success and we believe these firms are the ones that will continue to be beneficiaries of this consolidation trend we have discussed. Over the years, we've seen validation of our strategy through the outsized growth of the partner managers in our funds relative to the broader industry. We've also generated positive outcomes as it relates to liquidity with our GP Stakes flagship funds having distributed more than $2.9 billion over the past year in a market where return of capital has been scarce, situating our funds within the top quartile on this important metric. There are 2 final items that I'd like to mention before Alan covers the financials for the quarter. And I think it's a testament to the very dynamic quarter we had across Blue Owl that we are only coming to these now. First, I'd like to mention our recent announcement of a new strategic partnership with Voya focused on delivering private market strategies in vehicles tailored for defined contribution retirement plans. We've observed the growing demand for alternative investment solutions within retirement portfolios and see this as an important first step to broadening access, to supporting plan participants in their quest to build more resilient portfolios and optimize outcomes. We are very excited about the long-term potential for the new frontier in Private Wealth and see Voya as an ideal partner given their leadership and deep expertise in the retirement market. Our strategies have also been included in multiple model solutions, Morgan Stanley, Wells Fargo, Sotera, iCapital and Case, just to name a few. This success is evidence of the strong strategic positioning we have in improving access to Blue Owl products via the scale of our Evergreen Fund franchise, our strong distribution footprint and our industry-leading education. Finally, during the second quarter, we completed the listing of our technology-focused BDC, OTF, which is now the second largest publicly traded BDC by net assets and largest tech-focused BDC in the market. Over the past 6 months, our teams have worked relentlessly to merge the formerly private OTF and OTF II vehicles, evaluate efficient liquidity paths for all stakeholders and execute the listing seamlessly, all while navigating serious market turbulence. I want to acknowledge the efforts and collaboration we saw across the firm that culminated in this very successful endeavor. With that, let me turn it to Alan to discuss our financial results.

Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter, marking our 17th consecutive quarter of management fee and FRE growth. Over the last 12 months, management fees increased by 32% and 87% were from permanent capital vehicles. FRE was up 23%, DE was up 20% and this was a record quarter of equity fundraising for us. We raised over $12 billion of equity in the second quarter and over $36 billion over the last 12 months, an increase of nearly 90% from the prior year. Recognizing that fundraising is not linear, we also looked at the statistics on a multiyear basis. And as you can see on Slide 6 of our earnings presentation, equity raised over the last 2 years is about 50% higher than equity raised over the prior 2-year period. Each of our institutional and private wealth channels experienced record high quarters of equity raise with $7.6 billion across institutional, primarily driven by products in our net lease, direct lending, strategic equity and digital infrastructure strategies. And in private wealth, we raised $4.4 billion of equity during the quarter with substantial market volatility. To break down the second quarter fundraising numbers across our strategies and products: In credit, we raised $5.8 billion, a record quarter for our credit platform; $4.3 billion was raised in direct lending, of which over $2 billion came from our non-traded BDCs, OCIC and OTIC. The remainder was primarily raised across diversified lending, our GP-led secondary strategy, our newly launched interval fund, investment-grade credit and our first lien strategy. In Real Assets, we also raised $5.8 billion, a record for our real assets platform as well. Over $900 million was raised from ORENT. And as Marc mentioned, we held a first close for the seventh vintage of our flagship net lease strategy, bringing in over $2 billion. The remainder was in additional net lease products, digital infrastructure, insurance- focused products and co-invest dollars. And in GP Strategic Capital, we raised $0.5 billion during the quarter, bringing the latest vintage to over $7.5 billion. As we said on last quarter's earnings call, we expect the fund raise here to come in at similar levels in 3Q and then to wrap up with our $13 billion total fundraise goal through mid-2026. Turning to our platforms. In credit, our direct lending portfolio gross returns were 3% in the second quarter and 13.5% over the last 12 months. Weighted average LTVs remains in the high 30s across direct lending and in the low 30s specifically in our software lending portfolio. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits to low double digits with no material increase in signs of stress, such as increased nonaccruals, stress amendments, conversion requests or watchlist names. And as Marc mentioned earlier, none of these metrics have changed meaningfully over the past several years. Turning to alternative credit. Our portfolio of gross returns were 2% in the second quarter and 15.7% over the last 12 months. In Real Assets, our first close of the seventh vintage of our flagship net lease strategy occurred less than 15 months after the final close of Fund VI, demonstrating both a strong pipeline for investment and robust interest from investors. We expect that Fund VI will have nearly committed to all of its available capital for investment by year-end and has deployed roughly 40% through June 30, with much of the remainder are slated for deployment over the next 12 to 18 months, as various build-to-suit projects reach completion. And our net lease pipeline continues to grow with nearly $41 billion of transaction volumes under letter of intent or contract to close. During the second quarter, in net lease, we committed $4.2 billion, bringing commitments year-to-date to $8 billion at a roughly 8% cap rate on average. Concurrently, we monetized over $320 million year-to-date at a 6% weighted average cap rate, continuing to drive spread compression at the point of sale. With regards to performance, gross returns in net lease were 4.1% for the second quarter. In real estate credit, we invested $1.4 billion in public securities at an 8.1% yield to maturity and 11.1% debt yield. During the first half of 2025 we maintained a leadership position in our area of focus, anchoring roughly 40% of the single asset, single borrower CMBS deals that priced during that period and about 1/4 of total CMBS deals. And in digital infrastructure, we held a final close for our third digital infrastructure flagship fund at its hard cap of $7 billion. In GP Strategic Capital, we continue to deploy out of the sixth vintage of our flagship GP Stake strategy, having made 3 investments thus far. Performance across these funds remain strong to net IRR of 22.5% for Fund III, 36% for Fund IV and 15.3% for Fund V. Moving on to some housekeeping items for the quarter. We want to be sure to point out a few things that we think will be helpful. During the second quarter, we listed OTF, which we had previously said, would drive approximately $135 million of incremental annual management fees for roughly $33 million per quarter. Given the timing of the listing in mid-June, we saw approximately $6 million of this in the second quarter. In conjunction with the listing, we saw a de minimis impact to NTI during the second quarter and the anticipated step-up of approximately $3 million in the third quarter. As a reminder, the capital raised for the seventh vintage of our net lease strategy primarily earns fees on deployment. In conjunction with the fee step down for the prior fund OREF VI, we expect third quarter management fees in these 2 funds to be roughly flat compared to the second quarter. And for our alternative credit strategy, we anticipate seeing the impact of management fees from the private offering of the interval fund in approximately 12 months, similar to a fee waiver. Finally, we had a little over $7 million of catch-up management fees in the quarter. And as it relates to G&A, we had a few million dollars of onetime items. So to wrap up here, we feel like we're hitting on all cylinders across the business. Blue Owl sits at the intersection of many of the secular trends that we believe will define alternatives for the next decade, and we feel fortunate to be an incumbent across a number of these areas. Now all of these things take time and what you've heard from us today is that the investments we've made over the past year are beginning to bear fruit. But this type of progress is measured in years, not quarters and for shareholders, our setting and predictable financial profile allows you to focus on the big picture evolution of this market, not on the quarterly swings of realizations or capital markets fees. To us, that is a very valuable thing, and we think that over time, our stock will reflect the value of that certainty. Hopefully, what we've provided you today is a helpful mile marker on the growth road map we outlined during Investor Day. As you heard that day, we intend to grow FRE management fees to over $5 billion and FRE to over $3 billion, and we feel that we are very much on track with those long-term goals. Thank you very much for joining us this morning. Operator, can we please open the line for questions?

[Operator Instructions] Your first question comes from Glenn Schorr of Evercore ISI.

I wonder -- I heard your comments on the topping up of the Lending Club and Cap on Tap relationships. We're seeing a lot of scaling, a lot of growth in the asset-backed market, and you have a new toy to play with here. So I wonder if you could step back and talk about what you have now in terms of an asset origination channel? And I don't know if you want to break that up on platforms, forward flow agreements or just portfolio purchase? And then what you're really trying to build as you scale towards this big opportunity across asset-backed finance.

Thanks, Glenn. The opportunity in asset-backed is huge, as you observe, and we are in a very distinctive position to win, for lack of a better term. And of course, winning means delivering the best results for our LPs, our investors and that in turn leads to building a very big business. And we have the template, right? You've seen us already do it, and now we're steps down the road, which is to bring -- to have first onboard the best team in the business. So we have the -- or former Adelie team, as you know, been at this for 20 years. And that is -- this is a high barrier to entry business. This is not an amateur area. And so we have the best in the business as the team driving it. It's a team deep on data and data science expertise. We're using cutting-edge technology. We have the structures and to your point and this will partly touch origination, we originate, and this has been one of the great powers of 20 years of doing this, across just about every subchannel within the world of asset-backed finance. So we're in those markets and already have the pipeline. The difference here has been they've had the pipeline built, but not the endpoint for the capital. They've had this series of now very successful. We have our ninth opportunistic fund, which is doing fabulously. But now we are broadening the home and doing that with this new interval fund, which as you saw, we closed with enormous success just this quarter. So we have the template, right? We have the same exact thing with triple net lease, a business where, as you heard us say, we have tripled the assets just in 3.5 years with that business with the same template, take the best-of- breed participant that's a market leader, continue in that traditional institutional drawdown wrapper, put an adjacent accessible wrapper for individual investors and then turn on the Blue Owl origination infrastructure and Blue Owl placement infrastructure. All of that is already happening with asset backed. So it's also -- as you know, it depends with subset or numbers you want to use. But overall, it's a market $7 trillion, $10 trillion, it depends on what you're addressing, it's bigger than the direct lending market. So we have a very long way to run, and we now have it all stitched together. We have our asset-backed business fully integrated with our direct lending business and in turn, tied in with all the pipes built to our insurance platform. So we now have every piece in place. We saw it produce value this month, billions of dollars of, for example, in that case, IG-equivalent product at more than a 200 basis point spread to the liquid alternative. This is going to be a very, very good investment for our investors, and it's a wonderful complement to other strategies people have. It's a good, durable, much less correlated strategy with the same income and even faster amortization attributes, which is also why this is the exact right product for an interval fund. And so hence, you've seen us put this in the wrapper that we think is going to be very, very successful.

The next question comes from Craig Siegenthaler with Bank of America.

Congrats on the record fundraising quarter.

Thank you.

So our question is on the topic of privates in the 401(k) channel and your new partnership with Voya. So we're curious, where are you? And what are your thoughts on the build-out of a target date fund? And do you think target date funds are going to require one manager partner or do you see a world where there's multiple partnership models that are more likely?

Yes. So the opportunity ahead, which, of course, is something of great importance to us and others is the ability to bring the products we have been successfully delivering to a wide range of institutions and individuals for a very long time. And we live in a world right at this moment where institutions have benefited from decades for access to products like ours. We have pioneered access by individuals 10 years through that journey and are probably #2 in the world in the wealth channel. And that's -- and so we can address a lot of investors, and we've got structures, and we have particularly well-suited products, right? We have income-oriented, low volatility, downside protected, that is Blue Owl, and it is the perfect marriage to this channel and even the more perfect marriage to the beginning of what happens in the 401(k) market. This is an area where, frankly, everyone ought to be thinking, look, this is a methodical process to match the right product, the right structure to this very important market. $12 trillion marketplace and credit, private credit, alternative credit, digital infrastructure, triple net list real estate. These are the perfect products for exactly that channel. And so we see this in Voya together as a way to bring this group that sort of, for lack of a better term, excluded from the opportunity. In fact, it's kind of an oddity, right, in fact not a good thing, which is if you are a defined benefit pensioner, you've been benefiting from what we do for years, you've been benefiting from alts for decades. If you're an affluent individual investor, just with your own assets outside of a retirement account, you're benefiting from what we do. And if you're an institution, a sovereign wealth fund, you benefit. But somehow, if you have a 401(k), you don't get this chance. Sorry, you're out. That not a good result. It's not fair. It's not a democratized asset. And I don't have to make that sound too highbrow. Of course, it's a business that we want to access. Of course, we're trying to build access to this capital, but doing well and doing good at the same time are a good thing. So we really think we can bring a great complementary solution, a prudent solution to 401(k)s, and that's going to be really a winning strategy. Now for target date funds. As for target date funds, yes, that's certainly one very good way and naturally, given the structure of 401(k) market, the entry point, that's why with Voya which, by the way like just to pause on this for a moment, Voya had their choice of every partner around. They're a phenomenal firm. It was an extremely competitive process, and they're with us. And we're with that. We feel very lucky about that. They're an incredible firm, and they're a prudent firm, right? We're going to do this right, just like we did in the individual investor market away from 401(k)s. That's important, too. Who you're working with, not just their products. Do they understand the individual and know this is about making the individual a winner? That will be a win for us over time. So with that partnership, we're going to begin, as you know, with these collective investment trusts, and that does allow us to immediately bring that product into target date structures. So that is the pathway forward. Will there be multi-manager structures? Sure. I mean, I think there'll be a lot of innovation in this arena. I would again be an advocate for a little bit of collectively walking before we run. Let's go with safe products within the hands of good managers, with good partners like Voya, and let's deliver a great experience, a great result for our 401(k) investors and then we can continue to innovate ever better products. And people can evaluate more exotic or more aggressive strategies in alts. But let's start safe. Let's start smart, and let's do for 401(k) what we've been doing for defined benefit and what we're doing today for individual investors. We have 150,000 individual investors today. This is not new, but we got to include this group that's been excluded.

The next question comes from Brian McKenna with Citizens.

So we're -- a few quarters removed here from the series of acquisitions you made. There's clearly been a lot of upfront cost and investment, and I appreciate it will take some time for all these to scale. But what should we be looking for from the outside in terms of the integration and the scaling of these businesses really starting to inflect? Is it the trajectory of fundraising in flows? Is it an acceleration in management fees or is it as simple as an inflection in that FRE margin?

Well, I'll start and Alan will join, too. But let me just baseline for a moment. It's already happening. It already even happened. If you look at this quarter, you're already seeing the fruits of those benefits. These businesses are fully integrated, and we are getting benefits from those integrations for all LPs. So it's both for the LPs, for example, of asset-backed by being married to this much broader credit origination engine. Remember, we have companies with -- 400-plus companies in our portfolio, many of whom need asset- backed financing solutions. And lo and behold, they are part of the Blue Owl family. So the benefits flow to, for example, in that case, asset-backed. Same thing the other way. We work with companies who are looking at asset-backed solutions and also, of course, the corporate solutions. So that integration has already happened. Look at digital infrastructure and our real estate business, our fastest growing real assets business in total. Look at our project with Oracle and OpenAI in Texas, biggest data center project in America. And that is for both products are participating in that because that is a great project that reflects an opportunity for a generalized, a diversified triple net lease real estate business and for a deep vertical digital infrastructure business, and we're coming now with the adjacent continuously offered product, again, seeing this movie, we know how to do this. And we're going to bring what today we do think is best risk-return opportunities that we've probably ever seen. And this is the moment, and we have both the unique talent and we have the structures and experience to deliver it. So I guess I would say it's already happened. In terms of the inflection, you'll get -- we grew our fee revenues by 30% this quarter. If I translate that maybe into kind of which you said where else you start to see it? Well, remember, the one place you won't see it fully until we wrap through the year is in per share only because we buy the businesses first, and then, of course, you have to get a full year. But I mean that's nothing but a passage of time exercise. So the integration has happened, the new product innovation, the origination and then in terms of what comes beyond that may just turn to Alan and say, now we talk more of the other follow-on benefits as it goes to new product launches and the like anything, Alan, you want to add?

Sure. And to Marc's a good point, we're already seeing even a benefit when you think about the -- something like FRE versus FRE per share, DE versus DE per share. That gap has meaningfully narrowed when you look at 2Q versus 1Q? And then, Brian, to your good point when you think about -- we've acquired these 4 businesses over the past year, they put us in the largest secular growth areas in our industry. And as we've talked about on prior calls, we've continued to reinvest in our business and put valuable resources back into growing institutional and wealth fundraising platforms. And we're still at a 57% margin. And so that is still -- continues to be among the highest in the industry. We feel really good about that. And over the long term, we feel there are margin expansion opportunities. So we think we're sitting in a great place, a more diversified business, a much broader product array, as everyone can see from this quarter with the strong fundraising numbers, and we're very well positioned.

And just to wrap that back up and anchor it. Look, we have already done this, right? We have demonstrated that we know how to make this all work, again, for the investors, and that works for us. So look ORENT. ORENT is the #1 net fundraising real estate REIT in the world today and the continuously offered basis. And because it's a great product and it has the right support. We're doing the same thing in digital infrastructure. So I think you can start to see if you -- doesn't happen overnight. As you know, these have kind of these hyperbolic sort of curves, but it's already happening. And I think when you look back 3 years from now, you're going to under see like, "Wow, they did it again. Oh, look, they did it again. They did it in asset backed, they did it in digital infrastructure." So I think we feel like we have not only all the building blocks, but the building blocks cemented in, the foundation built, and we're already starting to come out of the ground. And that's a pretty exciting place for us to be.

The next question comes from Crispin Love with Piper Sandler.

In real estate, focusing on triple net lease, can you just talk about the competitive environment there? And if you're seeing more activity from others? You've definitely been a leader in net lease, but BlackRock recently did a deal with ElmTree, so curious if you're noticing any shifts in the competitive landscape or others trying to grow just versus the overall opportunity set what seems to have increased meaningfully just based on the data center opportunity that you mentioned?

Yes, the data center opportunity has expanded dramatically and in the right format like the Oracle project, that's a well suited to triple net lease real estate. In many instances, it's better and will be suited to the digital infrastructure product. But as for triple net lease, to go direct to your question, the market is absolutely expanding and candidly, no, we're the go to. We're not seeing any change. We see our pipeline growing. We see ever more trust built with partners, making us the partner of choice. We continue to have every one of the largest funds where, as you saw, we already have launched our newest fund already and the first close of $2 billion. So I think investors have observed. This is a great opportunity. It's growing and there is an unquestioned market leader. So I never question all the people will try to do things that I would underestimate that, but no, our leadership is accelerating, not the other way around.

The next question comes from Bill Katz with TD Cowen.

Great. Maybe just to circle a little bit more of a narrow part of the conversation. I wonder if you could talk a little bit about activity levels on direct lending maybe how the quarter itself transpired maybe the exit velocity and what you might be seeing into the third quarter? One of your peers had a very constructive update for the month of July. Any relatedly, I'm wondering if you could maybe speak to what you're seeing in terms of spreads on incremental capital deployed?

Absolutely. So this environment, as you would broadly expect is extremely good for the direct lending business with the abstracts being okay, but we need that return of M&A activity to just get more to do. But credit quality is exceptional that we've known, we've seen it and we've said it, but it remains absolutely true today. At some point, people are going to have to stop trying to find the bogeyman because it's not there. The private credit portfolio and private credit business is doing really, really well, and it partly reflects the macro environment in the U.S., and it reflects really disciplined investment management. We're not indices. We're picking very specific businesses in very specific industries. This past quarter, our portfolio on average grew over 10% EBITDA. But this is really -- and we're the lender through 40% on average, closer to 30% in software. So the setup is excellent. And yet you have a world where there's certainly some meaningful what we'll call more exogenous and hard to predict variables, right? You have flash zones and war zones around the world. You have obviously the resolution of trade and tariff. And when those things come together and maybe a moment people get nervous, that kind of uncertainty for now is yet another reason people use our products. So in the quarter, we had very high credit quality in terms of new opportunities. We like the deals, we're doing very much. We are obviously, of course, seeing a slowdown in refinancing because that has moved through the system very heavily. And while the quarter itself was moderate and -- given disruptions in April, probably not surprising, moderate in terms of originations, yes, we likewise have seen in the last few weeks quite a meaningful pickup in activity, really interesting companies, in some cases, quite large. So let's not get too far ahead of ourselves, but there's some reasonable indicators that maybe that moment has finally come and the surrounding would suggest that, too, right? At this point, 6 months ago, lots of debates about where is the economy? We now know the economy is strong. Lots of debates about where are we with interest rates and inflation? It's all settling into a tight range. And that brings us to a good environment to transact. And now the trillions of dollars in dry powder, it's got to go to work. So I think, yes, we are seeing current signs, but they're early. So let's not overspend that statement yet. But yes, so right now, I think there's cause for optimism on that last to Lastricks which is just overall volume in the market.

The next question comes from Patrick Davitt with Autonomous Research.

My question is on flows. I think last quarter, you've been talking about the picture looking much better in the second half than the first half. But given the big 2Q beat, is that still your view or did that beat pull some of that view forward?

Thanks, Patrick. We feel very good about the second half of the year. I think the obvious outlier here is OREF VII closed, that closed a little sooner than expected on the first close. We continue to feel very good about the back half of the year, both for institutional as well as for our wealth products.

With more of the products out of both our existing strategies and new strategies are hitting stride, and you can see it and you can see it in the wealth channel and you can see in the institutional channel. Note that we have had continued great strength in both. And in fact, this quarter, actually, the majority of our capital came from institutional. So there's -- the beauty of the model is this having balance and having access and success in both. At the same time, by the way, that's in the context of wealth, having a Fantastic Four continuing to grow, record quarter. So we're -- yes, we're in a very good place to continue the strength, killing, as we roll forward, we think.

The next question comes from Steven Chubak with Wolfe Research.

So maybe to start just on digital infra framing the opportunity. Certainly, Marc, you gave a constructive message around how you're thinking about the deployment opportunity longer term. I was hoping to contextualize it a bit more. Just how quickly could you be back in the market raising for your next flagship vehicle? I know you've talked about as early as next year. And just evaluating the deployment opportunity over a multiyear horizon, how much capacity is there to increase future fundraising relative to prior vintages?

Yes. So we -- as you know, we did the final close of Fund III on March 31, and half that money is already circled and is good stuff. And so we're -- and the pipeline -- the opportunity set that we're working on, it's hard -- the scale is so massive. And of course, you all know this, listen, there are 3 tech companies that just, over the last 2 days, that announced and every one of them, for reasons we all understand, are talking about just how big, important and heavily focused and invested they are in data centers, well, AI and the capacity to drive it. And there are only a few people in the world that have both the operational technical skill and the capital to meet that need. And by the way, don't forget, we also have the 15 year history and triple net least of structuring exactly these kinds of partnerships and have been at the business of building these hyperscale data centers for the world-class hyperscalers longer than just about anybody. It's been 10 years now. IPI had the idea of hyperscalers before that was a word to any of us were talking about. So we're in a very, very distinctive position against what amounts to a hundreds and hundreds and hundreds of billions of dollar opportunities. And that is -- and so therefore, we have room to deliver great results for massively larger pools of capital than we have access to do today. What will that translate into? What size next fund? I don't know that yet. As I said, we will do this -- the wealth product. I think that's going to be a an incredible opportunity for individual investors and institutions alike. So at basic get downs to this: as much capital as we can assemble we can largely put to work with extraordinary -- and we're talking about companies, right, with on average AA kinds of ratings. It's pretty special. Now 5 years from now, we'll see. I mean, there's a -- for the years to come, though, there's a lot, a lot to do, and it kind of does fit the category of it's not something to miss. You look, there's going to be a lot of -- maybe even excess excitement about AI and some of the valuations in venture land, we'll see. But what I know for sure is that when you sign a 15- or 20-year lease with -- in every case, these hyperscalers are amongst the largest market caps in the world and you have a commitment to a stream of income with escalators, you're going to have a good experience.

The only thing I would add to that, Steven, is from a timing perspective, we continue to be on track with everything we've previously said. The next vintage, we expect we will be out in the market next year, talking to investors about -- and prior to that, between now and the end of this year, early next year, we do expect to be out with that digital infrastructure wealth-dedicated product that we're also very excited about.

The next question comes from Alex Blostein with Goldman Sachs.

I wanted to zoom out a little bit. The franchise continues to fund rates through more kind of vehicles than what we've seen in the past across more strategies, I guess. And the fact that it's shown up and kind of fees yet to be deployed or yet to be turned on upon deployment increasing nicely helps as well. So maybe help unpack the bridge from last quarter's to this quarter is $379 million, quite sizable. What are kind of some of the bigger buckets? And importantly, I guess, how quickly do you guys think you will put that to work and also if there are any offsets against that? You talked about a couple of step downs that obviously impact the net number, but I'm just kind of trying to put the $379 million in the context of the firm's overall management fee growth over the next 18 to 24 months.

Sure, Alex. Thanks for the question. So we're really excited. We saw a record fundraise quarter $12-plus billion. About half of that went right into AUM not yet paying fees, so excited about the future deployment opportunities and getting that money to work. The $380 million of management fees upon the deployment of that almost $30 billion of AUM not yet earning fees that's almost $100 million increase from last quarter. The OREF VII vintage -- the seventh vintage fund in that lease, that was obviously a big contributor to that, raising over $2 billion in the initial close at the end of June. And the total $380 million once deployed, that gets deployed at a blended fee rate of 130 basis points. And so once that $380 million is deployed, that would represent over a 15% increase from our LTM management fees today. So we feel really excited about not just the fundraise that impacts us today, and we continue to put those dollars up, but the AUM not- yet-earning fees, the trajectory over, let's say, 12, 18, 24 months, we feel really encouraged about that as well. And we are seeing, as Marc pointed to, as we heard on a previous earnings call, the deployment opportunities continue to look a little better. It looks like there's a pickup in the environment, and so that could pull that time frame forward a little bit.

Your next question comes from Kyle Voigt of KBW.

So Marc, there was an FT article in secondaries published this morning, it's quoting that you would have a very open -- you would be very open to a full suite of large acquisitions or building a business organically. I was just wondering if you could clarify whether that comment was specific to secondaries or simply a broad-based comment? And then maybe you could just update us on how you're thinking about M&A right now? Are there certain areas that you find attractive or want to accelerate your growth in? And how should we think about your appetite for larger M&A versus bolt-ons right now?

Great. Thank you. So with regard to -- let me start with the broader topic of M&A, and then come down to the secondaries topic specifically. So with regard to M&A, as, of course, you all have observed, it's been a very, very successful part of our overall strategy. It's a minority part of our overall strategy. Recall that while we did several very important strategic acquisitions in terms of capabilities last year. It was less than 10% of our market cap that was invested to create those opportunities and look at the benefits that are already yielding for us. And so I think for us, look, we are all about risk management as a firm, like that's our DNA. Everything we do is about how do we create products, how do we manage our firm, permanent capital, fee-based income. So we're always focused on risk management. So that includes what we buy, the culture fit, the nature of the product, the ability for us to then in turn grow it. And so all of those are variables and we will continue to evaluate M&A opportunities. It's quite clear that consolidation is a real part of the landscape for alternatives. And we're one of the few, frankly, demonstrated people who can truly do it successfully, not just for our shareholders but for the teams that join us and then thrive as a part of this platform. So we are -- we continue to be active. We will always be looking, though, for a strategy that is consistent with our DNA, again, about those durable, protected strategies, culture fit for sure. And we will always be looking for things, therefore, that are a place where we can bring an advantaged result for the investor. We are not going to be all things to all people. We don't want to be. We are going to be the best for what we do, for the people that we're lucky enough to work with. So we're better, we're deeper, and you can see that in these adjacencies and the synergies we're getting, synergies being origination synergies as well as infrastructure and capital raising. So we don't have like a goal to "acquire" things. We have an extremely open mind about when we see a place where we want to skate to because that's where the puck is going. We're always going to look at organic; we'll look at small, as you called them bolt-on; and we'll look at large acquisitions. All of those are options, whichever one is the winning strategy to both, on the one hand, win for the investors, the LPs and by extension win for Blue Owl. So it will continue to be a part of our game plan and our strategy, but you should expect us to continue to be highly selective, but also not to be lost, we've proven we know how to do it. Again, these acquisitions -- last year, we had a lot of questions about this during last year's calls very understandably. But look where we are now: real estate credit, thriving, right? We've already got that thriving. Insurance, we just talked about the origination power that we're already delivering. We talk -- of course, talked a lot about digital infrastructure pressure and asset-backed where we already have now raised our new interval fund. So we've got skilled, the template and the plan. Now as for secondaries, the comment in that article was particular to secondaries in talking about the full suite of -- from organic to large. Look, we think that is a good business for us because it's another solution for the exact ecosystem that we serve. And don't forget, we're already pioneering back to the point of buy versus build, what we think is actually probably one of the most interesting new areas within the broadly defined secondaries, that's GP-led secondaries. This is an area with no market leader, and we plan to be the market leader. We are now already up to $1.7 billion, and that's from a standing start creating this business. We've already deployed meaningful amounts of that capital in portfolio companies that are doing really well. And I think that market has got enormous room to run because that solves the liquidity issue that is binding up the system with the same time allows the PE sponsor to keep their best in trophy assets. And that's a place where we're building and the scalability, it's early days, but the scalability of that business is enormous as we think about this next phase of PE, which is not like the older phases, right? There's going to be a lot more about how do you -- what do you do with these accumulated assets? There's going to be less -- relatively speaking, less acceleration in capital raise for PE. It's a different stage, needs different tools, we have it. So secondary will be a very complementary strategy. Last thing I'll say, just because you cited the article is: With all that said, and you'll hear this in everything we ever talk about. We are not interested in hype. We are not interested in doing anything other than deliver fundamentally great results for investors. Secondaries is -- can be done really well. It's a good business, but there is an element today where like some of you'll think they're just harvesting free money because part of it is there's this accounting quirk to the way when you buy something at $0.80 and then the nanosecond later, it's $1. And so it was nothing wrong with that account fact. But it's creating the sense that people are just like picking up free money and almost a mania. And we're not playing into that. That is not the answer. But we're sure it is a great business to be had being a really thoughtful buyer of secondary interest when you have more sellers today than you've ever had in the past.

The next question comes from Brian Bedell with Deutsche Bank.

Most have been asked and answered. But maybe just to circle back on 401(k) and the partnership with Voya. You've got good leadership in retail vehicles already. So I'm just wondering to what extent you could sort of activate these into the market sooner rather than later. And I say that just because they're -- I'd be interested in your perspective on this, but obviously, there's a longer-term development time line for plan sponsors to be comfortable with adding these vehicles into target date products. But are you -- do you feel you're positioned so that you might be able to target, let's say, the small plan market with financial advisers and model portfolios? Maybe if you could just sort of comment on that dynamic.

Yes. It's a very keen question, Brian, because actually, given our leadership position in the world of BDCs, BDCs are already eligible products. I mean, in fact, today, someone -- done right in a partnership with like a Voya. If someone wanted to through their 401(k) buy a BDC share, they could. Now most people don't run their 401(k)s that way, right? Most people tend to run with target date funds. So the bulk of that capital doesn't live in a place we are making those kinds of decisions. But actually, you're spot on. The nature of both our strategies and our product structures mean we're already in position to start to meet the needs of that market. And as you note, too, we already work with a very wide sweep of FAs, increasingly with wonderful partners like Voya. So yes, I think we're in a place to be on the front edge of the -- what might be a minority portion of that $12 trillion. But then, of course, again, also have the products that are correct and are now being formatted, right, for what you're right. It's going to be a more medium-term development to get into these target portfolios and work with fiduciaries and do the education that we should do to make sure that people are prudently using these products as part of their retirement strategy. So yes, we like the setup. It does match hand in glove with Blue Owl in particular.

The next question comes from Benjamin Budish with Barclays.

Just a couple of maybe housekeeping items on the modeling side, thinking about the back half of the year. On the transaction fees, this quarter was a little bit better sequentially despite softer net deployment. I know there's a lot of factors that go into that number beyond the magnitude of deployment itself, but anything you can share in terms of what that means for that revenue line for the next couple of quarters? And then similarly, just on the FRE margins, trending kind of at the lower end of the full year range, but I assume there's some benefit from OTF turning on and giving you a full quarter of fees. Any other considerations there in terms of what that means for the full year?

Thanks, Ben. On the margins, obviously, I touched on that, the guidance is 57% to 58% for this year. And we feel good about where we are. We've printed 57%, this quarter, we feel good about that overall. On the first question, just remind me, Ben, the first part of the question.

Just on the transaction fees were up a bit sequentially despite net deployment being down a little bit. Just anything to read into there, how to think about that in the back half of the year?

Sure. As you know, that moves around and moves up a little, moves down a little, largely tied to gross originations. I think this quarter is as good of a leaping off point for the balance of the year as I could probably guess.

Our next question comes from Chris Kotowski with Oppenheimer.

Marc touched on it a little bit, but I wonder -- I'm looking at Page 4 of your release, and I wonder if you can add a little color on the right-hand side of the page? And in particular, I'm wondering about the $1.7 billion vintage and the $3.5 billion of new funds raised. And so like, first, I imagine those are in the 12.1 that we saw. But in particular, on the Strategic Equity Fund, I was wondering, is that a traditional drawdown fund? Or is it evergreen? And how do you plan to scale it? And I guess just in general, on all these things also like when and where do we see them in the P&L? And when do we start seeing revenues? And where should we expect them in your accounting geography?

Great. So the Slide 4 on that right side is something that is very much worth highlighting. So I appreciate the question because, well, there's a lot of macro talks about alternatives and questions rightfully so about strategies and acquisitions. The right-hand side is the answer, which is now you can see already, as I said, this is point its about, it's not a -- we're not laying the pylons of a foundation, the foundation is built and the building is coming out of the ground. And candidly, we think it's going to be one heck of a skyscraper over time. And so you can see here some of those pieces of that puzzle because these are things we didn't even have before. So to answer first, like on the $3.5 billion, that is primarily in our BOSE that is that $1.7 billion in the strategic equity, which I'm going to come back to, that is net lease Europe. Again, taking our world-class franchise on the road, so to speak, and then with our GP mid-market business. So those are all new strategies that are just beginning to blossom. With regard to the $1.7 billion in strategic equity, we get really excited about this product. That is the GP-led secondary product, I actually was just also referencing, as you know. We call that BOSE, Blue Owl Strategic Equity. And at the end of the day, it's the greatest hits of private equity. It is the product that allows us in partnership with the firms that we are go-to partners with today to facilitate a really important solution. LPs want liquidity, some others want to carry forward, and we're the ones that provide that liquidity to bridge between those 2 well in a self-selected basis, the PE fund says, "I already know what my best asset is. And of course, I want to keep that for the benefit of the investors who want to stay in it." And then we get to come in with that hindsight benefit already and provide the capital to, if you will, the LPs that don't want to stay exit. I think this is one of the more enormous -- very immature, but enormous opportunities in the alts market because this lives on the 50-year run in PE. Everyone, you all have the stat on the thousands and thousands and thousands of companies owned by PE and the trillions of dollars held. And this is a way of saying, "You know what, for the very best of those assets, how do I get those on a self-selected basis by the people to know best?" That is the people that already own them. And so candidly, I think it's the best way to participate in private equity today, but it's a young strategy, and I we're in a very good place to I think be the market leader because it takes an origination engine, which we clearly have, for reasons that are quite obvious given our role in the PE marketplace. It also takes an ability to do the work. This is very, very different from LP secondaries, very different. This is buying an individual asset. So you have to do the deep dive multi-month work, which is what we do every day, right, in the world of credit and have done thousands and thousands and thousands of times. And then you need the PE capability to drive the final PE decision on the back of all of that work, and we have built a team of world-class PE professionals here to do that. So we got the combination, we have the capital and that product, to answer your last question, has both a drawdown strategy and a continuously offered format. It's not opportunity, yes, but there's a -- it combined 2 vehicles and one vehicle ends up in the place where it becomes to continuously offered version of it.

Okay. So 2 follow-ups on that. One is, is it like a traditional private equity fund where people pay on the committed amount or is it on the deployed? And then secondly, how do you -- can you invest equity in transactions where you're also a lender or do you keep those 2 houses separate?

Yes. Thanks, Chris. So look, these are some of the products. The structure is a GPLP institutional product, and then there's a product that will be a RIC over time that, as Marc mentioned, under a continuously offered phase. These are all products that Marc is pointing out that helped contribute to the long-term goals. These are great adjacent opportunities, organic initiatives that we've been drilling, as Marc pointed out, that will contribute over the long term to the management fee line. So these are some of the reasons why we continue to be really excited and remain on track with our long-term goals that we outlined back in February at Investor Day.

This concludes the question-and-answer session. I'll turn the call to Marc Lipschultz for closing remarks.

Thanks so much. Look, it was a tremendous quarter, and we expected that, which is to say that this is what we talked about at Investor Day. This is the journey we're on. The building blocks are quite clear. And well, the blocks were easily describable, now, you can start to see the benefits of the block, so to speak. We are delivering and have consistently been delivering outsized growth. We are on track toward our long-term goals, as we talked about. Just keep an eye on the North Star, it's the $5 billion roughly of revenue and the $3 billion roughly of FRE. That's our north star, and we're pointed right at it, and this quarter took us another step closer. Look, it seems clear to us the market either hasn't seen it or has whatever remaining questions. I hope some of which got answered today because our performance in the market doesn't reflect these attributes today. But we're going to keep delivering and we're going to try to be as available and communicative as we can. Any questions? We love the questions. We want a chance to explain. Anything people wonder about, we want to explain it. We feel really great, and we see the visible track. The acquisitions are working. The integrations are completed. The synergies are being realized. Over time, we'll continue to add those opportunistically. But it worked like that's been another successful building block in this business. And I guess the last thing I'd close on because it is timely to the moment, is this generational AI -- generational change adoption what's happening, look, on the cutting edge, there's going to be some gigantic winners and some gigantic losers, but it's going to transform the economy. And what's quite clear, the necessary tool to get to the arms race to super intelligence or whatever term of art you want to call it, it does take the picks and shovels. In this case, it takes the modern version, the data centers and we are the best placed firm to help develop and to help fund those data centers and they are with the best companies to have as your partners and we are committed to being their best partner. So we have our way of delivering an exceptional risk-result, risk-return opportunity for investors at massive scale, and it's a bit of a once in a lifetime. And so sitting here today, this quarter, more than any, you can -- it's tangible. Again, we just heard the biggest tech companies announced and the theme couldn't be clearer. And we're in position. I don't know how big this business will be, but we think it has the potential to be a mighty, mighty large one. And certainly, we intend to do a really great job with it. So I think with that, we'll close. Thank you all, again, for the time, the questions, and we look forward to continuing the conversation.