Post-effective Amendment to Registration Statement (pos Am)
21 April 2022 - 03:15PM
Edgar (US Regulatory)
POS AMP3DP3Yfalse0001823945The statutory
rate presented is using the U.S. federal corporate tax rate for the
year ended December 31, 2021, and the UBT rate for the years ended
December 31, 2020 and 2019.Presented net of $8.0 million of tenant
improvement allowance and reflects the impact of a $4.8 million
rent holiday period on certain leases.(1) Represents share
consideration issued to the Dyal Capital selling shareholders based
on the fair value of the acquired business, reflecting a discount
for lack of control.(2) Includes cash consideration paid to
reimburse seller for certain pre-acquisition expenses.(3) The TRA
and Earnout Securities represent contingent consideration. See Note
9 for additional information on the valuation of these instruments.
(4) Goodwill represents the amount of total consideration in excess
of net identifiable assets acquired. None of the goodwill
recognized is expected to be deductible by the Blue Owl Operating
Partnerships for tax purposes.(4) Goodwill represents the amount of
total consideration in excess of net identifiable assets acquired.
None of the goodwill recognized is expected to be deductible by the
Blue Owl Operating Partnerships for tax purposes.(1) Represents
Common Units issued to Oak Street selling shareholders, reflecting
a discount for lack of marketability.(2) Includes cash
consideration paid to reimburse seller for certain pre-acquisition
expenses.(3) Represent the fair value of contingent cash
consideration payable to certain sellers upon the occurrence of
certain Oak Street Triggering Events as defined below. The amount
presented does not include contingent cash and equity payments
subject to the same Oak Street Triggering Events that were deemed
to be compensation, rather than consideration, as further discussed
below. See Note 9 for additional information on the valuation of
this liability.(4) Goodwill represents the amount of total
consideration in excess of net identifiable assets acquired.
Approximately $540.0 million of the goodwill and intangible assets
recognized are expected to be deductible by the Blue Owl Operating
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owl:SEGMENT
As filed with the Securities and Exchange Commission on
April 21, 2022
Registration
No. 333-257190
SECURITIES AND EXCHANGE COMMISSION
POST-EFFECTIVE AMENDMENT NO. 1
THE SECURITIES ACT
OF 1933
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive offices)
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of all
communications, including communications sent to agent for service,
should be sent to:
Approximate date of
commencement of proposed sale to the public
: From time to time after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following
box: ☒
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company”
in Rule
12b-2
of the Exchange Act.
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities
Act of 1933 or until this registration statement shall become
effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
On July 15, 2021, the registrant filed a Registration
Statement on Form
S-1
(Registration
No. 333-257190),
which was subsequently declared effective by the U.S. Securities
and Exchange Commission (the “SEC”) on August 2, 2021 (the
“Registration Statement”). This post-effective amendment is being
filed to update the Registration Statement to include information
contained in the registrant’s Annual Report on Form
10-K
and certain other information in such Registration Statement.
No additional securities are being registered under this
post-effective amendment. All applicable registration fees were
paid at the time of the original filing of the Registration
Statement.
The information in
this prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
SUBJECT TO
COMPLETION, DATED APRIL 21, 2022
1,320,591,340 CLASS A SHARES
This prospectus relates to: (i) 159,964,103 shares of Class A
common stock, par value $0.0001 per share (“Class A Shares”),
that were issued by us under the Business Combination Agreement,
dated as of December 23, 2020 (as the same has been or may be
amended, modified, supplemented or waived from time to time, the
“BCA” or the “Business Combination Agreement”), by and among
Altimar Acquisition Corporation (“Altimar”), Owl Rock Capital Group
LLC (“Owl Rock Group”), Owl Rock Capital Feeder LLC (“Owl Rock
Feeder”), Owl Rock Capital Partners LP (“Owl Rock Capital
Partners”) and Neuberger Berman Group LLC (“Neuberger”) to the
former equityholders of Owl Rock Group (the “Owl Rock
Equityholders”), the former equityholders (the “Dyal
Equityholders”) of the Dyal Capital Partners division of Neuberger
(“Dyal”), Altimar Sponsor LLC (“Altimar Sponsor”) and the former
directors of Altimar, (ii) 617,093,768 Class A Shares issued
upon the exchange of Common Units (as defined below) and the
cancellation of an equal number of shares of Class C common
stock, par value $0.0001 per share (“Class C Shares”), issued
to former Electing Owl Rock Equityholders and Electing Dyal
Equityholders (each as defined below), (iii) 294,656,373
Class A Shares issued upon the sale of shares of Class B
common stock, par value $0.0001 per share (“Class B Shares”),
issuable to the Owl Rock Principals and Dyal Principals (each as
defined herein) upon the exchange of Common Units and the
cancellation of an equal number of shares of Class D common
stock, par value $0.0001 per share (“Class D Shares”), (iv)
14,954,302 Class A Shares issued in respect of the Seller
Earnout Shares (as defined herein) upon the satisfaction of certain
vesting conditions, (v) 59,447,040 Class A Shares issuable to
certain Owl Rock Equityholders and Dyal Equityholders upon the
exchange of Common Units and the cancellation of an equal number of
Class C Shares, which were issued in respect of the Seller
Earnout Units upon the satisfaction of certain vesting conditions,
and (vi) 24,475,754 Class A Shares issuable upon the sale of
Class B Shares issuable to the former Owl Rock Principals and
Dyal Principals upon the exchange of Common Units and the
cancellation of an equal number of Class D Shares which were
issued in respect of the Seller Earnout Units upon the satisfaction
of certain vesting conditions.
This prospectus also relates to the offer and sale from time to
time by the selling stockholders who purchased shares in the
subscription agreements dated as of December 23, 2020
(collectively, the “PIPE Investors” and, together with the Owl Rock
Equityholders, the Dyal Equityholders and Altimar Sponsor, the
“Selling Holders”) of 150,000,000 Class A Shares. We will not
receive any proceeds from the sale of Class A Shares by the
Selling Holders pursuant to this prospectus; however, we will bear
all costs, expenses and fees in connection with the registration of
the securities and will not receive any proceeds from the sale of
the securities. The Selling Holders will bear all commissions and
discounts, if any, attributable to their respective sales of the
securities.
Our registration of the securities covered by this prospectus does
not mean that either we or the Selling Holders will issue, offer or
sell, as applicable, any of the Class A Shares. The Selling
Holders may offer and sell the securities covered by this
prospectus in a number of different ways and at varying prices. We
provide more information about how the Selling Holders may sell the
shares in the section entitled “
.”
You should read this prospectus and any prospectus supplement or
amendment carefully before you invest in our Class A
Shares.
Our Class A Shares are listed on the New York Stock Exchange
(“NYSE”) under the symbols “OWL”. On April 20, 2022, the
closing price of our Class A Shares was $14.33 per
share.
Investing in our securities involves risks that are described in
the “
Risk Factors”
section beginning on page
21
of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the securities
to be issued under this prospectus or determined if this prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus
is ,
2022.
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F-1
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You should rely only on the information contained in this
prospectus. No one has been authorized to provide you with
information that is different from that contained in this
prospectus. This prospectus is dated as of the date set forth on
the cover hereof. You should not assume that the information
contained in this prospectus is accurate as of any date other than
that date.
This prospectus includes market and industry data and forecasts
from independent consultant reports, publicly available
information, various industry publications, other published
industry sources and our internal data, estimates and forecasts.
Independent consultant reports, industry publications and other
published industry sources generally indicate that the information
contained therein was obtained from sources believed to be
reliable.
Our internal data, estimates and forecasts are based upon
information obtained from our investors, partners, trade and
business organizations and other contacts in the markets in which
we operate and our management’s understanding of industry
conditions. While we are not aware of any misstatements regarding
any market, industry or similar data presented herein, such data
involves risks and uncertainties and is subject to change based on
various factors, including those discussed under the heading “Risk
Factors” in this prospectus.
TRADEMARKS AND TRADE NAMES
We own or have rights to trademarks, service marks, copyrights and
trade names that we use in conjunction with the operation of our
business. This prospectus also includes trademarks, service marks
and trade names of other companies. Each trademark, tradename or
service mark of any other company appearing in this prospectus is,
to our knowledge, owned by such other company.
This prospectus has been prepared using a number of stylistic
conventions, which you should consider when reading the information
herein or therein. Unless otherwise expressly stated or, unless the
context otherwise requires, references in this prospectus to:
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“
”, a
non-GAAP
measure, is used to assess the Company’s ability to service its
borrowings. Adjusted EBITDA is derived from and reconciled to, but
not equivalent to, its most directly comparable GAAP measure of net
income (loss) before income taxes. Adjusted EBITDA represents
Distributable Earnings plus (a) interest expense,
(b) income tax expense (benefits), and (c) depreciation
and amortization. |
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“
” a
non-GAAP
measure, is used to assess the net revenue expected to be received
by the Company. Adjusted Revenues are derived from and reconciled
to, but not equivalent to its most directly comparable GAAP measure
of total revenues, net. Adjusted Revenues differ from total
revenues computed in accordance with GAAP as it excludes reimbursed
expenses and dealer manager revenues, if applicable, that have an
offsetting amount included within expenses on the consolidated and
combined statement of operations. |
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“
”, a
non-GAAP
measure, is used to assess the net cash settled compensation to be
paid by the Company. Adjusted Compensation is derived from and
reconciled to, but not equivalent to its most directly comparable
GAAP measure of compensation and benefits. Adjusted Compensation
differs from compensation and benefits computed in accordance with
GAAP as it excludes equity compensation expense and compensation
and benefits reimbursed through the receipt of administrative
revenues. The administrative revenues reflect allocable
compensation and expenses incurred by certain professionals of the
Company and reimbursed by products managed by the Company. |
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” refers to the Investment Advisers Act of 1940, as amended, and
the rules and regulations promulgated thereunder. |
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“
” refers to Altimar Acquisition Corporation, a blank check company
incorporated as a Cayman Islands exempted company. |
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“
” refers to Altimar Sponsor and certain equityholders of
Altimar. |
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” refers to Altimar Sponsor LLC, a Delaware limited liability
company. |
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“
” or “
” refers to the assets that we manage, and are generally equal to
the sum of (i) net asset value (“NAV”); (ii) drawn and undrawn
debt; (iii) uncalled capital commitments; and (iv) total
managed assets for certain Real Estate products. |
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“
” refers to AUM that is not currently paying fees and is eligible
to earn management fees and/or performance income upon
deployment. |
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“
” (also referred to as “dry powder”) is comprised of uncalled
committed capital (including commitments to products that have yet
to commence their investment periods); cash and cash equivalents;
and, for certain funds and accounts permitting leverage, undrawn
debt (at the product-level including certain amounts subject to
restrictions). |
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“
” or “
Business Combination
Agreement
” refers to the Business Combination Agreement, dated as of
December 23, 2020 (as amended by that Amendment to Business
Combination Agreement, dated as of January 4, 2021, Second
Amendment to Business Combination Agreement, dated as of
March 25, 2021, and Third Amendment to Business Combination
Agreement, dated as of April 11, 2021, as the same has been or
may be further amended, modified, supplemented or waived from time
to time in accordance with its terms), by and among Altimar, Owl
Rock Capital Group LLC, Owl Rock Feeder, Owl Rock Capital Partners
and Neuberger. |
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“
” refers to a business development company, as regulated under the
Investment Company Act. |
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“
” “
,” “
,” “
,” “
” or “
” refers to Blue Owl Capital Inc., a Delaware corporation and the
combined company following the consummation of the Business
Combination, and its consolidated subsidiaries. |
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|
“
” refers to Blue Owl Capital Carry LP, a Delaware limited
partnership. |
| |
• |
|
“
” refers to the limited partnership interests in Blue Owl
Carry. |
| |
• |
|
“
” refers collectively to Blue Owl Capital Holdings GP LLC and Blue
Owl Capital GP LLC, each a Delaware limited liability company,
directly or indirectly wholly-owned subsidiary of Blue Owl that
hold Blue Owl’s interests in the Blue Owl Operating
Partnerships. |
| |
• |
|
“
” refers to Blue Owl Capital Holdings LP, a Delaware limited
partnership. |
| |
• |
|
“
” refers to the limited partnership interests in Blue Owl
Holdings. |
| |
• |
|
“
Blue Owl Limited
Partnership Agreements
” refers to the amended and restated limited partnership agreements
of Blue Owl Carry and Blue Owl Holdings, as the same may be
amended, modified, supplemented or waived from time to time in
accordance with their terms. |
| |
• |
|
“
” refers collectively to the Blue Owl Operating Partnerships and
their consolidated subsidiaries. |
| |
• |
|
“
Blue Owl Operating
Group Unit
” refers collectively to a unit in each of the Blue Owl Operating
Partnerships. |
| |
• |
|
“
Blue Owl Operating
Partnerships
” refers to Blue Owl Carry and Blue Owl Holdings,
collectively. |
| |
• |
|
“
” refers to Blue Owl’s board of directors. |
| |
• |
|
“
” refers to the transactions contemplated by the BCA. |
| |
• |
|
“
Business Combination
Date
” refers to May 19, 2021. |
| |
• |
|
“
” refers Blue Owl Securities LLC (formerly, Owl Rock Capital
Securities LLC). |
| |
• |
|
“
Business Services
Platform
” refers to the Dyal Capital team that provides strategic services
to partner managers. |
| |
• |
|
“
” refers to the commitments to our funds, including BDCs, as
applicable, and the commitments of Dyal Capital, Owl Rock and our
respective affiliates. |
| |
• |
|
“
” or “
carried interest
allocations
” refers to, in carry fund structures, the allocation of gain or
profit to the general partner or another affiliated entity or
entities of amounts otherwise allocable to the limited partners,
commonly referred to as carried interest, as defined in the fund’s
investment management or partnership agreements (excluding, for the
sake of clarity, incentive fees). Carried interest is typically
calculated for a given fund based on cumulative fund performance.
Carried interest entitles the general partner (or an affiliate) to
a special allocation of income and gains from a fund, and is
typically structured as a net profits interest in the applicable
fund. Carried interest is generally calculated on a “realized”
basis and the recipient is generally entitled to a carried interest
based upon the net realized income and gains often taking into
account certain unrealized losses generated by such fund. Net
realized income/gains or loss is not netted between or among
funds. |
| |
• |
|
“
” refers to the Class A common stock, par value $0.0001 per
share, of the Company. |
| |
• |
|
“
” refers to the Class B common stock, par value $0.0001 per
share, of the Company. |
| |
• |
|
“
” refers to the Class C common stock, par value $0.0001 per
share, of the Company. |
| |
• |
|
“
” refers to the Class D common stock, par value $0.0001 per
share, of the Company. |
| |
• |
|
“
” refers to the Class E common stock, par value $0.0001 per
share, of the Company. |
| |
• |
|
“
” refers to the
Class E-1
common stock of the Company. The Series
E-1
Class E Shares had a Class E Triggering Event on
July 21, 2021, which occurred when the volume weighted-average
price of a Class A Share exceeded $12.50 for 20 consecutive
trading days, at which time 7,495,432 Class E Shares were
converted into an equal number of Class A Shares. |
| |
• |
|
“
” refers to the
Class E-2
common stock of the Company. The Series
E-2
Class E Shares had a Class E Triggering Event on
November 3, 2021, which occurred when the volume
weighted-average price of a Class A Share exceeded $15.00 for
20 consecutive trading days, at which time 7,495,432 Class E
Shares were converted into an equal number of Class A
Shares. |
| |
• |
|
“
” refers to the closing of the Business Combination. |
| |
• |
|
“
” refers to the Class A Shares, the Class B Shares, the
Class C Shares and the Class D Shares, ,
collectively. |
| |
• |
|
“
” refers to Distributable earnings, a
non-GAAP
measure, which is used to assess performance and amounts available
for dividends to members. DE is derived from and reconciled to, but
not equivalent to its most directly comparable GAAP measure of net
income (loss) before income taxes. Distributable Earnings is FRE
less current income taxes and includes (other than with respect to
Owl Rock) net realized gains, realized performance income and
performance related compensation. DE differs from income before
taxes computed in accordance with GAAP as it adjusts for certain
items that we believe are indicative of our ability to make our
dividend payments. Our presentation of DE represents our operating
performance, as further adjusted for performance income and
performance related compensation, as applicable. Management
believes that these adjustments enable investors to better
understand the Company’s earnings that are available for
distribution. |
| |
• |
|
“
” refers to the Delaware General Corporation Law, as amended. |
| |
• |
|
“
” refers to our Direct Lending products, which offer private credit
solutions to middle-market companies through four investment
strategies: diversified lending, technology lending, first lien
lending and opportunistic lending. Direct Lending products are
managed by the Owl Rock division of Blue Owl. |
| |
• |
|
“
” or “$” refers to U.S. dollars. |
| |
• |
|
“
” refers to the continuation of Altimar by way of domestication of
Altimar into a Delaware corporation, with the ordinary shares of
Altimar becoming shares of common stock of the Delaware corporation
under the applicable provisions of the Cayman Islands Companies Act
(2020 Revision) of the Cayman Islands, as the same may be amended
from time to time, and the DGCL; the term includes all matters and
necessary or ancillary changes in order to effect such
Domestication, including the adoption of our certificate of
incorporation consistent with the DGCL and changing the name and
registered office of Altimar. |
| |
• |
|
“
” refers the Dyal Capital Partners business, which was acquired
from Neuberger Berman Group LLC in connection with the Business
Combination, and is now a division of Blue Owl. |
| |
• |
|
“
” refers to existing funds within the GP Minority Equity
Investments strategy: Dyal Capital Partners (A) LP, Dyal
Capital Partners (B) LP and Dyal Investment Partners LP and
their related feeder, blocker, parallel, alternative investment and
holding entities (“Dyal Fund I”); Dyal Capital Partners II
(A) LP, Dyal Capital Partners II (B) LP and Dyal II
Investment Partners LP and their related feeder, blocker, parallel,
alternative investment and holding entities (“Dyal Fund II”), Dyal
Capital Partners III (A) LP and Dyal Capital Partners III
(B) LP and their related feeder, blocker, parallel,
alternative investment and holding entities (“Dyal Fund III”), Dyal
Capital Partners IV (A) LP, Dyal Capital Partners IV
(B) LP and Dyal Capital Partners IV (C) LP and their
related feeder, blocker, parallel, alternative investment and
holding entities (“Dyal Fund IV”) and Dyal Capital Partners V
(A) LP and Dyal Capital Partners V (B) LP and their
related feeder, blocker, parallel, alternative investment and
holding entities (“Dyal Fund V”), collectively. |
| |
• |
|
“
” refers to Neuberger, the Dyal Principals and any other holders of
Dyal Capital equity interests. |
| |
• |
|
“
” refers to the existing fund and its related feeder, parallel,
alternative investment and holding entities within the GP Debt
Financing Investments strategy. |
| |
• |
|
“
” refers to the existing fund and its related feeder, parallel,
alternative investment and holding entities that seeks to acquire
minority equity investments in NBA Teams that forms part of the
Professional Sports Minority Investments strategy. |
| |
• |
|
“
” refers to Michael Rees, Sean Ward and Andrew Laurino. |
| |
• |
|
“
Electing Owl Rock
Equityholders
” refers to the Owl Rock Equityholders who elect to receive Common
Units in connection with the Business Combination in lieu of common
stock of Blue Owl. |
| |
• |
|
“
” or “
” refers to the AUM on which management fees are earned. For our
BDCs, FPAUM is generally equal to total assets (including assets
acquired with debt but excluding cash). For our other Direct
Lending products, FPAUM is generally equal to NAV or investment
cost. FPAUM also includes uncalled committed capital for products
where we earn management fees on such uncalled committed capital.
For our GP Capital Solutions products, FPAUM for the GP minority
equity investments strategy is generally equal to capital
commitments during the investment period and the cost of unrealized
investments after the investment period. For GP Capital Solutions’
other strategies, FPAUM is generally equal to investment cost. For
Real Estate, FPAUM is generally based on total assets (including
assets acquired with debt). |
| |
• |
|
“
” or “FRE”, a
non-GAAP
measure, is used to assess our operating performance by determining
whether recurring revenue, primarily consisting of management fees,
is sufficient to cover operating expenses and to generate profits.
FRE is derived from and reconciled to, but not equivalent to its
most directly comparable GAAP measure of net income (loss) before
income taxes. FRE differs from income before taxes computed in
accordance with GAAP as it adjusts for transaction-related charges,
equity-based compensation,
non-controlling
interests in subsidiaries of the Company and certain other items
that we believe reflects our operating performance. Other than for
Owl Rock, the calculation of FRE also adjusts for performance
income, performance related compensation and investment net gains
(losses). Management believes that adding these adjustments assist
in clarifying stable and predictable cash flows that cover
operating expenses and lead to the generation of profits. |
| |
• |
|
“
” refers to the funds, investment vehicles, BDCs, managed accounts
and other entities, accounts and investment products that are
managed or
co-managed
by Blue Owl, Owl Rock or Dyal Capital. |
| |
• |
|
“
” refers to the “FIC Assets” described in Note 1 of the Notes to
Consolidated and Combined Financial Statements of Owl Rock Group
and subsidiaries and Owl Rock Securities. |
| |
• |
|
“
” refers to the consolidated and combined financial statements
included in our Annual Report filed on Form
10-K
for the fiscal year ended December 31, 2021. |
| |
• |
|
“
” refers to the Financial Industry Regulatory Authority, Inc. |
| |
• |
|
“
” refers to United States generally accepted accounting principles,
consistently applied. |
| |
• |
|
“
” refers to our GP Capital Solutions products, which primarily
focus on acquiring equity stakes in, or providing debt financing
to, large, multi-product private equity and private credit
platforms through three existing and one emerging investment
strategies: GP minority equity investments, GP debt financing,
professional sports minority investments and
co-investments
and structured equity. GP Capital Solutions products are managed by
the Dyal Capital division of Blue Owl. |
| |
• |
|
“
GP Debt Financing
strategy
” refers to the investment strategy of certain Dyal Capital funds
that primarily relates to originating and making collateralized,
long-term debt investments, preferred equity investments and
structured investments in private capital managers. |
| |
• |
|
“
GP Minority Equity
Investments strategy
” refers to the investment strategy of certain Dyal Capital funds
that primarily relates to acquiring minority equity interests in
investment management businesses or fund sponsors. |
| |
• |
|
“
” refers to contractual fees or other payments based on a
percentage of a fund’s net gains, profits and/or income, which
formulation may take into account a preferred return threshold, in
each case as described in the fund’s constituent documents
(excluding, for the sake of clarity, carried interest allocations).
Incentive fees may be calculated based on a combination of realized
and unrealized amounts and/or current income. |
| |
• |
|
“
” refers to the Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder. |
| |
• |
|
“
Investor Rights
Agreement
” refers to the Investor Rights Agreement between Blue Owl, Altimar
Sponsor, the Altimar Founders and certain of the Owl Rock
Equityholders and Dyal Equityholders. |
| |
• |
|
“
” refers to Altimar’s initial public offering of its Units, Public
Shares and Public Warrants pursuant to the IPO registration
statement and completed on October 27, 2020. |
| |
• |
|
“
” refers to each of Douglas Ostrover, Marc Lipschultz and Michael
Rees. |
| |
• |
|
“
” refers to the contractual life of any finite private fund or
managed account of 5 years or more as of the date hereof. |
| |
• |
|
“
” for Owl Rock refers to fees that it earns for advisory services
provided to its funds, which are generally based on a defined
percentage of average fair value of gross assets (excluding cash),
or average fair value of gross assets (excluding cash) plus undrawn
commitments, in the case of our BDCs, or fair value of gross assets
(excluding cash), fair value of investments plus undrawn
commitments, or invested capital in the case of Owl Rock’s private
debt funds and managed accounts, and also include Part I Fees. For
Dyal Capital, management fees are derived from investment
management services provided to private funds and are payable
quarterly or semi-annually, at the beginning or end of the service
period. For the GP Minority Equity Investments strategy, the fees
are generally determined based upon a percentage of capital
committed during the investment period, and thereafter generally
based on the cost of unrealized investments; or as otherwise
defined in the respective agreements. For the other Dyal Capital
strategies, the fees are generally determined based upon a
percentage of investment cost or as otherwise defined in the
respective agreements. |
| |
• |
|
“
” refers to the National Basketball Association. |
| |
• |
|
“
” refers to Neuberger Berman Group LLC, a Delaware limited
liability company. |
| |
• |
|
“
” refers to the New York Stock Exchange. |
| |
• |
|
“
” refers to the investment advisory business of Oak Street Real
Estate Capital, LLC that was acquired on December 29, 2021,
and is now a division of Blue Owl. |
| |
• |
|
“
” refers to the acquisition of Oak Street completed on
December 29, 2021. |
| |
• |
|
“
” refers to our business development companies, as regulated under
the Investment Company Act of 1940, as amended: Owl Rock Capital
Corporation (NYSE: ORCC) (“ORCC”), Owl Rock Capital Corporation II
(“ORCC II”), Owl Rock Capital Corporation III (“ORCC III”), Owl
Rock Technology Finance Corp. (“ORTF”), Owl Rock Technology Finance
Corp. II (“ORTF II”), Owl Rock Core Income Corp. (“ORCIC”) and Owl
Rock Technology Income Corp. (“ORTIC”). |
| |
• |
|
“
” refers collectively to the combined businesses of Owl Rock
Capital Group LLC (“Owl Rock Capital Group”) and Blue Owl
Securities LLC (formerly, Owl Rock Capital Securities LLC), |
| |
which was the predecessor of Blue Owl for accounting and financial
reporting purposes. References to the Owl Rock division refer to
Owl Rock Capital Group and its subsidiaries that manage our Direct
Lending products.
|
| |
• |
|
“
” refers to a
carve-out
of Owl Rock Group and its consolidated operating subsidiaries
(which
carve-out
excludes such operating subsidiaries constituting FIC assets) after
giving effect to a
pre-Closing
reorganization. |
| |
• |
|
“
Owl Rock Capital
Partners
” refers to Owl Rock Capital Partners LP, a Delaware limited
partnership and indirect equityholder in, and managing member of,
Owl Rock. |
| |
• |
|
“
” refers to the Owl Rock Principals, Owl Rock Feeder and certain
other direct and indirect third party holders of equity interests
in Owl Rock Capital. |
| |
• |
|
“
” refers to Owl Rock Capital Feeder LLC, a Delaware limited
liability company. |
| |
• |
|
“
” refers to Owl Rock Capital Group LLC, a Delaware limited
liability company. |
| |
• |
|
“
” refers to Douglas I. Ostrover, Marc S. Lipschultz, Craig W.
Packer and Alan J. Kirshenbaum. |
| |
• |
|
“
” refers to Owl Rock Capital Securities LLC, a Delaware limited
liability company. Owl Rock Securities is a broker-dealer
registered with the SEC, a member of FINRA and the Securities
Investor Protection Corporation. Owl Rock Securities is owned by
Owl Rock Capital Partners and provides distribution services to Owl
Rock. In May 2021, Owl Rock Capital Securities LLC changed its name
to Blue Owl Securities LLC. |
| |
• |
|
“
” refers to quarterly performance income on the net investment
income of our BDCs and similarly structured products, subject to a
fixed hurdle rate. These fees are classified as management fees
throughout this prospectus, as they are predictable and recurring
in nature, not subject to repayment, and cash-settled each
quarter. |
| |
• |
|
“
” generally refers to fees from our BDCs and similarly structured
products that are paid in arrears as of the end of each measurement
period when the cumulative aggregate realized capital gains exceed
the cumulative aggregate realized capital losses and aggregate
unrealized capital depreciation, less the aggregate amount of Part
II Fees paid in all prior years since inception. Part II Fees are
classified as realized performance income throughout this
prospectus. |
| |
• |
|
“
” refers to an investment management business or fund sponsor in
which the GP Minority Equity Investments strategy funds
invests. |
| |
• |
|
“
” refers to income earned or allocated based on the performance of
a fund as defined in the product’s investment management or
partnership agreements and may be either incentive fees or carried
interest and/or incentive allocations. Notwithstanding the
foregoing, Part I Fees are generally treated as management fees due
to their recurring nature. |
| |
• |
|
“
” refers to capital of our products that do not have ordinary
redemption provisions or a requirement to exit investments after a
prescribed period of time and to return to investors the proceeds
representing the capital invested in such investments, except as
required by applicable law or pursuant to redemption requests that
can only be made after significant
lock-up
periods. Such products may be required, or elect, to return all or
a portion of capital gains and investment income. Permanent capital
may be subject to management fee step downs or roll-offs over
time. |
| |
• |
|
“
” means the private placement pursuant to which PIPE Investors made
a private investment in the aggregate amount of $1,500,000,000 in
public equity in the form of Class A Shares on the terms and
conditions set forth in the Subscription Agreements. |
| |
• |
|
“
” refers to the investors that have signed Subscription
Agreements. |
| |
• |
|
“
” refers to the Class A Shares sold to the PIPE Investors
pursuant to the Subscription Agreements. |
| |
• |
|
“
” and “
” refer to partner managers with which Dyal Capital invests,
borrowers of Owl Rock loans, and investments of both platforms and,
in certain cases, investment thereby, in each case unless the
context indicates otherwise. |
| |
• |
|
“
” refers to our founders and senior members of management who hold,
or in the future may hold, Class B Shares and Class D
Shares. Class B Shares and Class D Shares collectively
represent 80% of the total voting power of all shares. |
| |
• |
|
“
Private Placement
Warrants
” refers to the warrants acquired by Altimar Sponsor for an
aggregate purchase price of $7,000,000 in a private placement
simultaneously with the closing of the IPO, which were subsequently
converted into warrants to purchase shares of Blue Owl Class A
Shares in connection with the Business Combination). |
| |
• |
|
“
” refers to the warrants issued in the IPO, entitling the holder
thereof to purchase one of Altimar’s Class A ordinary shares
at an exercise price of $11.50, subject to adjustment, which were
subsequently converted into warrants to purchase shares of Blue Owl
Class A Shares in connection with the Business
Combination. |
| |
• |
|
“
” refers, unless context indicates otherwise, to our Real Estate
products, which primarily focus on providing investors with
predictable current income, and potential for appreciation, while
focusing on limiting downside risk through a unique net lease
platform. Real Estate products are managed by the Oak Street
division of Blue Owl. |
| |
• |
|
“
” refer to expenses reimbursed by Dyal Capital’s private funds,
such as travel, and also expenses incurred by Dyal Capital’s
Business Services Platform in connection with the provision of
strategic support services to partner managers. |
| |
• |
|
refers to the U.S. Securities and Exchange Commission.
|
| |
• |
|
“
” refers to the Securities Act of 1933, as amended. |
| |
• |
|
“
Seller Earnout
Securities
” refers to the Seller Earnout Shares and the Seller Earnout Units,
collectively and as applicable. For the avoidance of doubt, a
“Seller Earnout Security” shall refer to either (i) one Seller
Earnout Share, in the case of Owl Rock Equityholders who are not
Electing Owl Rock Equityholders, or (ii) one Seller Earnout
Unit, in the case of Dyal Equityholders and Electing Owl Rock
Equityholders, as applicable. |
| |
• |
|
“
” refers to the Series
E-1
common stock and Series
E-2
common stock that were issued to the Owl Rock Equityholders that
are not Electing Owl Rock Equityholders in connection with the
Business Combination. For the avoidance of doubt, a “Seller Earnout
Share” shall refer to either (i) one share of Series
E-1
common stock or (ii) one share of Series
E-2
common stock, as applicable. The Series
E-1
Class E Shares had a Class E Triggering Event on
July 21, 2021, which occurred when the volume weighted-average
price of a Class A Share exceeded $12.50 for 20 consecutive
trading days, at which time 7,495,432 Class E Shares were
converted into an equal number of Class A Shares. The Series
E-2
Class E Shares had a Class E Triggering Event on
November 3, 2021, which occurred when the volume
weighted-average price of a Class A Share exceeded $15.00 for
20 consecutive trading days, at which time 7,495,432 Class E
Shares were converted into an equal number of Class A
Shares. |
| |
• |
|
“
” refers to the Series
E-1
Units and Series
E-2
Units of each of Blue Owl Holdings and Blue Owl Carry that were
issued to the Dyal Equityholders and the Electing Owl Rock
Equityholders in connection with the Business Combination in lieu
of Seller Earnout Shares. The Series
E-1
Class E Shares had a Class E Triggering Event on
July 21, 2021, which occurred when the volume weighted-average
price of a Class A Share exceeded $12.50 for 20 consecutive
trading days, at which time 7,495,432 Class E Shares were
converted into an equal number of Class A Shares. The |
| |
Series
E-2
Class E Shares had a Class E Triggering Event on
November 3, 2021, which occurred when the volume
weighted-average price of a Class A Share exceeded $15.00 for
20 consecutive trading days, at which time 7,495,432 Class E
Shares were converted into an equal number of Class A
Shares. |
| |
• |
|
“
”, with respect to management fees and similar fees, refers to the
rights to share in amounts that were granted (a) as a rebate
or incentive to a third party investor making a capital commitment
in one or more funds, including a seed or foundation investor,
(b) to certain new hires or reassigned employees who are
primarily dedicated to a new business line not previously engaged
in by Blue Owl or its subsidiaries, or (c) to a third party in
connection with a bona fide arms’ length joint venture or bona fide
arms’ length arrangement with a third party service provider. |
| |
• |
|
“
” refers to the subscription agreements, dated as of
December 23, 2020, by and among Altimar, Neuberger, Owl Rock
and the PIPE Investors, pursuant to which Altimar issued an
aggregate of 150,000,000 Class A Shares to the PIPE Investors
immediately before the Closing at a purchase price of $10.00 per
share, as the same may be amended, modified, supplemented or waived
from time to time in accordance with its terms. |
| |
• |
|
“Tax Receivable
Agreement
” or “
” refers to the Amended and Restated Tax Receivable Agreement,
dated as of October 22, 2021, as may be amended from time to
time by and among the Registrant, Blue Owl Capital GP LLC, the Blue
Owl Operating Partnerships and each of the Partners (as defined
therein) party thereto.
|
| |
• |
|
“
” refers to Computershare Trust Company, N.A. and Computershare
Inc. |
| |
• |
|
“
” refers to Unincorporated Business Tax. |
| |
• |
|
“
” refers to Computershare Trust Company, N.A. and Computershare
Inc. |
| |
• |
|
“
” refers to the Public Warrants and the Private Placement
Warrants. |
| |
• |
|
“
” refers to the performing credit business of Wellfleet Credit
Partners, LLC that was acquired on April 1, 2022 and is now a
part of Blue Owl. |
| |
• |
|
“
” refers to the acquisition of Wellfleet completed on April 1,
2022. |
| |
• |
|
“
” of Owl Rock Capital or the Dyal Capital Business refers to the
sum of (a) the cash and current receivables held or accrued as
of the time of determination minus (b) the sum of the
(i) operating expenses reasonably expected to arise
immediately after the time of determination, consistent with past
practice, and (ii) anticipated bonuses and other expenses in
respect of the periods ending on or prior to the Closing,
consistent with past practice. |
Many of the terms used in this prospectus, including Adjusted
Compensation, Adjusted EBITDA, Adjusted Revenues, AUM, DE, FPAUM
and FRE, may not be comparable to similarly titled measures used by
other companies. In addition, our definitions of AUM and FPAUM are
not based on any definition of AUM or FPAUM that is set forth in
the agreements governing the investment products that Owl Rock and
Dyal Capital manage and may differ from definitions of AUM or FPAUM
set forth in other agreements to which Owl Rock or Dyal Capital is
a party or definitions used by the SEC or other regulatory bodies.
Further, Adjusted Compensation, Adjusted EBITDA, Adjusted Revenues,
DE and FRE are not measures of performance calculated in accordance
with GAAP. We use Adjusted Compensation, Adjusted EBITDA, Adjusted
Revenues, DE and FRE as measures of operating performance, not as
measures of liquidity. They should not be considered in isolation
or as substitutes for operating income, net income, operating cash
flows, or other income or cash flow statement data prepared in
accordance with GAAP. The use of these measures without
consideration of related GAAP measures is not adequate due to the
adjustments described above. Our management compensates for these
limitations by using FRE as supplemental measures to our GAAP
results. We present this measure to provide a more complete
understanding of our performance as our management measures it.
Amounts and percentages throughout this prospectus may reflect
rounding adjustments and consequently totals may not appear to sum.
For reconciliations of
non-GAAP
measures used by Blue Owl to Blue Owl’s GAAP results, see “
Management’s
Discussion and Analysis of
Financial Condition
and Results of Operations
—
Reconciliation of
Consolidated GAAP Financial Measures to Certain
Non-GAAP
Measures
” in this prospectus.
We disclose certain financial measures in this prospectus that are
calculated and presented using methodologies other than in
accordance with GAAP. We believe that providing these performance
measures on a supplemental basis to our GAAP results is helpful to
stockholders in assessing the overall performance of Blue Owl’s
businesses. These financial measures should not be considered as a
substitute for similar financial measures calculated in accordance
with GAAP, if available. We caution readers that these
non-GAAP
financial measures may differ from the calculations of other
investment managers, and as a result, may not be comparable to
similar measures presented by other investment managers.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), which reflect our current views with respect
to, among other things, future events, operations and financial
performance. You can identify these forward-looking statements by
the use of forward-looking words such as “outlook,” “believes,”
“expects,” “potential,” “continues,” “may,” “will,” “should,”
“seeks,” “approximately,” “predicts,” “projects,” “intends,”
“plans,” “estimates,” “anticipates” or the negative version of
those words, other comparable words or other statements that do not
relate to historical or factual matters. The forward-looking
statements are based on our beliefs, assumptions and expectations
of our future performance, taking into account all information
currently available to us. Such forward-looking statements are
subject to various risks, uncertainties (some of which are beyond
our control) or other assumptions relating to our operations,
financial results, financial condition, business prospects, growth
strategy and liquidity that may cause actual results or performance
to be materially different from those expressed or implied by these
forward-looking statements. Some of these factors are described
under the sections entitled “
” and “
s Discussion and
Analysis of Financial Condition and Results of Operations
.” These factors should not be construed as exhaustive and should
be read in conjunction with the risk factors and other cautionary
statements that are included in this prospectus and in our other
periodic filings. If one or more of these or other risks or
uncertainties materialize, or if our underlying assumptions prove
to be incorrect, our actual results may vary materially from those
indicated in these forward-looking statements. New risks and
uncertainties arise over time, and it is not possible for us to
predict those events or how they may affect us. Therefore, you
should not place undue reliance on these forward-looking
statements. Any forward-looking statement speaks only as of the
date on which it is made. We do not undertake any obligation to
publicly update or review any forward-looking statement, whether as
a result of new information, future developments or otherwise,
except as required by law.
This summary
highlights selected information contained elsewhere in this
prospectus and does not contain all of the information you should
consider when making your investment decision. We urge you to read
this prospectus in its entirety, including the consolidated
financial statements and accompanying notes, carefully to gain a
fuller understanding of our business and the terms of the notes, as
well as some of the other considerations that may be important to
you, before making your investment decision. You should pay special
attention to the “Risk Factors” sections of this prospectus to
determine whether an investment in the notes is appropriate for
you.
Blue Owl is a global alternative asset manager with
$94.5 billion in AUM as of December 31, 2021. Anchored by
a strong permanent capital base, the firm deploys private capital
across Direct Lending, GP Capital Solutions and Real Estate
strategies on behalf of institutional and private wealth clients.
Blue Owl’s flexible, consultative approach helps position the firm
as a partner of choice for businesses seeking capital solutions to
support their sustained growth. The firm’s management team is
comprised of seasoned investment professionals with more than 25
years of experience building alternative investment businesses.
Blue Owl employs over 350 people across 9 offices globally.
Blue Owl was formed through the combination of Owl Rock and Dyal
Capital in May 2021, at which time these businesses merged with and
into Altimar Acquisition Corporation (“Altimar”), a blank check,
special purpose acquisition company. The combination of Owl Rock
and Dyal Capital creates a platform primed to continue servicing
these markets. In December 2021, we acquired Oak Street, which
expanded our firm’s offerings to include real estate-focused
products.
Our breadth of offerings and permanent capital base enable us to
offer a differentiated, holistic platform of capital solutions to
middle market companies, large alternative asset managers and
corporate real estate owners and tenants. We provide these
solutions through our permanent capital vehicles, as well as
long-dated private funds, that we believe provide our business with
a high degree of earnings stability and predictability. Our
permanent capital vehicles are products that do not have ordinary
redemption provisions or a requirement to exit investments after a
prescribed period of time to return invested capital to investors,
except as required by applicable law or pursuant to redemption
requests that can only be made after significant
lock-up
periods. For the quarter ended December 31, 2021,
approximately 98% of our management fees were earned from permanent
capital vehicles.
Our global, high-caliber, investor base includes a diversified mix
of institutional investors, including prominent public and private
pension funds, endowments, foundations, family offices, private
banks, high net worth individuals, asset managers and insurance
companies, as well as retail clients, accessed through many
well-known wealth management firms. We have continued to grow our
investor base and presence in the growing private markets and
alternative asset management sector by emphasizing our disciplined
investment approach, client service, and portfolio
performance.
While we currently offer Direct Lending, GP Capital Solutions and
Real Estate products across three divisions (Owl Rock, Dyal Capital
and Oak Street), our management takes a
one-firm
approach when making operating decisions and determining how to
allocate resources. As a result, we currently operate as a single
reportable segment. Management regularly reviews our revenues by
product line and our expenses by type at the total firm level
(e.g., compensation and benefits; general, administrative and other
expenses), and therefore we have presented details of our operating
results throughout this prospectus consistent with how management
reviews our results.
Our revenues are generated primarily from the investment advisory
and administrative services agreements we have with our products.
See Note 2 to our Financial Statements for a detailed description
of how we earn our revenues and the significant impact that our
FPAUM has on the amount of revenues we earn each period.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents additional information
on our revenues and operating results, as well as historical AUM
and performance information for certain of our products; such
information should be read in conjunction with this description of
our business.
We have three major product lines: Direct Lending, GP Capital
Solutions and Real Estate. We believe our products, while distinct,
are complementary to each other and together enable us to provide a
differentiated platform of varied capital solutions. All of our
products employ a disciplined investment philosophy with a focus on
long-term investment horizons and are managed by tenured leadership
and investment professionals with significant experience in their
respective strategies.
Our products are generally structured as BDCs, REITs and private
investments funds that aggregate capital from investors. As the
investment manager of our products, we invest that capital with the
goal of generating attractive, risk-based returns for the investors
in our products. In many of our products, we may use leverage to
increase the size of the investments our products are able to make.
As further explained in Note 2 to our Financial Statements, we
generally earn management fees on the amount of FPAUM that we
manage; therefore, the growth and success of our product offerings
is paramount to our success as an alternative asset manager.
Our products create a robust foundation for our holistic platform.
We believe the success and growth in our businesses since inception
has been driven by a singular, dedicated focus on providing capital
solutions and the differentiating competitive features of our
platform.
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GP Capital Solutions Products
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Professional Sports Minority Investments
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Our Direct Lending products offer private credit products to
middle-market companies seeking capital solutions. We believe our
breadth of offerings establishes us as the lending partner of
choice for private-equity sponsored companies, as well as other
predominately
non-cyclical,
recession-resistant businesses. Since the launch of our flagship
institutional product, ORCC, we have continued to prudently expand
our offerings, focusing on adjacent strategies that are both
additive and complementary to our existing product base. Our Direct
Lending products are offered through a mix of BDCs, long-dated
private funds and other vehicles across the following investment
strategies:
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Our Diversified Lending strategy seeks to generate current income
and, to a lesser extent, capital appreciation by targeting
investment opportunities with favorable risk-adjusted returns
across credit cycles with an emphasis on preserving capital
primarily through originating and making loans to, and making debt
and equity investments in, U.S. middle market companies. We provide
a wide range of financing solutions with strong focus on the top of
the capital structure and operate this strategy through
diversification by borrower, sector, sponsor, and position size.
Our Diversified Lending strategy is primarily offered to investors
through our BDCs.
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Our Technology Lending strategy seeks to maximize total return by
generating current income from our debt investments and other
income producing securities, and capital appreciation from our
equity and equity-linked investments primarily through originating
and making loans to, and making debt and equity investments in,
technology related companies based primarily in the United States.
We originate and invest in senior secured or unsecured loans,
subordinated loans or mezzanine loans, and equity and
equity-related securities including common equity, warrants,
preferred stock and similar forms of senior equity, which may be
convertible into a portfolio company’s common equity. Our
Technology Lending strategy invests in a broad range of established
and high growth technology companies that are capitalizing on the
large and growing demand for technology products and services. This
strategy focuses on companies that operate in technology-related
industries or sectors which include, but are not limited to,
information technology, application or infrastructure software,
financial services, data and analytics, security, cloud computing,
communications, life sciences, healthcare, media, consumer
electronics, semi-conductor, internet commerce and advertising,
environmental, aerospace and defense industries and sectors. Our
Technology Lending strategy is primarily offered to investors
through our technology-focused BDCs.
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Our First Lien Lending strategy seeks to realize current income
with an emphasis on preservation of capital primarily through
originating primary transactions in and, to a lesser extent,
secondary transactions of first lien senior secured loans in or
related to private-equity sponsored, middle market businesses based
primarily in the United States. Our First Lien strategy is offered
to investors through our long-dated private funds and managed
accounts.
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Our Opportunistic Lending strategy seeks to generate attractive
risk-adjusted returns by taking advantage of credit opportunities
in U.S. middle market companies with liquidity needs and market
leaders seeking to improve their balance sheets. We focus on
high-quality companies that could be experiencing disruption,
dislocation, distress or transformational change. We aim to be the
partner of choice for companies by being well-equipped to provide a
variety of financing solutions to meet a broad range of situations,
including the following: (i) rescue financing, (ii) new
issuance and recapitalizations, (iii) wedge capital,
(iv) debtor-in-possession
loans, (v) financing for additional liquidity and covenant
relief and (vi) broken syndications. Our Opportunistic Lending
strategy is offered to investors through our long-dated private
funds and managed accounts.
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Our GP Capital Solutions products position us as a leading capital
solutions provider to large private capital managers. We primarily
focus on acquiring equity stakes in, or providing debt financing to
large, multi-product private equity and private credit firms, which
we may refer to as “GPs.” Our GP Capital Solutions division also
houses our Business Services Platform, which provides strategic
support to our Partner Managers. Our GP Capital Solutions products
are offered primarily through permanent capital vehicles across the
following investment strategies:
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GP Minority Equity
Investments:
We build diversified portfolios of minority equity investments in
institutionalized alternative asset management firms across
multiple strategies, geographies, and asset classes. Our investment
objective is to generate compelling cash yield by collecting a set
percentage of contractually fixed management fees, a set percentage
of carried interest and return on balance sheet investments made by
underlying managers. We primarily focus on acquiring minority
positions in large, multi-product alternative asset managers who
continue to gain a disproportionate proportion of the assets
flowing into private investment strategies and exhibit high levels
of stability. Our inaugural funds followed a hedge fund
manager-focused investment program that has since evolved into a
private capital manager-focused investment program in our more
recent funds. Our GP Minority Equity Investments strategy is
offered to investors through our
closed-end,
permanent capital funds. A fundamental component of the fundraising
efforts for our investment programs is the ability to identify and
execute
co-investment
opportunities for our investors. We may offer, from
and in our sole discretion,
co-investment
opportunities in certain fund investments, generally with no
management or incentive-based fee.
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The GP Debt Financing strategy focuses on originating and making
collateralized, long-term debt investments, preferred equity
investments and structured investments in private capital managers.
We originate and invest in secured term loans that are
collateralized by substantially all of the assets of a manager and
subject to repayment on an accelerated basis pursuant to cash flow
sweeps of set percentages of management fees, GP realization,
carried interest and other fee streams of the management company in
the event that certain minimum coverage ratios are not maintained.
Our investment objective is to generate current income by targeting
investment opportunities with attractive risk-adjusted returns. We
expect that the loans will be made to allow borrowers to support
business growth, fund GP commitments, and launch new strategies.
The GP Debt Financing strategy allows us to offer a comprehensive
suite of solutions to private capital managers.
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Professional Sports
Minority Investments:
Our Professional Sports Minority Investments strategy focuses on
building diversified portfolios of minority equity investments in
professional sport teams. Our first fund in this strategy is
NBA-focused.
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Our real estate products primarily focus on structuring
sale-leaseback transactions, which includes triple net
leases.
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Our Net Lease real estate strategy is focused on acquiring
properties
net-leased,
long-term to investment grade and creditworthy tenants. Oak
Street’s Net Lease real estate strategies focus on acquiring single
tenant properties, across industrial, essential retail and mission
critical office sectors. By combining our proprietary origination
platform, enhanced lease structures and a disciplined investment
criteria, we seek to provide investors with predictable current
income, and potential for appreciation, while focusing on limiting
downside risk.
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Blue Owl’s history is predicated on the key milestones of both Owl
Rock and Dyal Capital. Owl Rock was founded in 2016 by Doug
Ostrover, Marc Lipschultz and Craig Packer to address the evolving
need for direct lending solutions by middle-market companies. Dyal
Capital was founded in 2010 by Michael Rees to fill the need for
flexible capital solutions for private capital managers. In
December 2021, we acquired the Oak Street business, which allowed
us to further diversify the products we offer our investors. Since
its founding in 2009 by Marc Zahr, Oak Street has established
itself as a leader in private equity real estate, offering flexible
and unique capital solutions to a variety of corporations and other
organizations.
The combination of these businesses creates a platform primed to
continue servicing these markets. Blue Owl’s robust and diversified
platform offerings will continue to serve as a response to the
following sector dynamics:
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shifting allocations by retail institutional investors.
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rotation onto alternatives given the search for yield and
reliability of returns.
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rising need for private debt driven by sponsor demand.
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evolving landscape of the private debt market.
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de-leveraging
of the global banking system.
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increasing need for flexible capital solutions by private capital
managers.
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Across our businesses, our presence in the market combined with our
constant dialogue with financial sponsors, companies and our
investors, has allowed us to identify attractive opportunities in
adjacent subsectors over time.
Since inception, Owl Rock, Dyal Capital and Oak Street have
launched multiple new strategies and products, exclusively in areas
where we believed we could leverage our competitive advantage and
expertise, and where we believe we had identified critical mass of
lending, capital and real estate solutions opportunities as well as
heightened investor interest. We have focused on executing on key
adjacencies that are natural extensions of existing core strategies
in order to capitalize on the growing dislocations in the market
and rising investor demand.
Our Competitive Strengths
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High proportion of
permanent capital.
We have a high-quality capital base heavily weighted toward
permanent capital. For the quarter ended December 31, 2021,
approximately 98% of our management fees were earned on AUM that we
refer to as permanent capital. Our BDCs, by nature, are
closed-end,
permanent (or potentially permanent) funds with no mandatory
redemption and potentially unlimited duration once listed.
Substantially all of the AUM in our GP Capital Solutions and Real
Estate products are also structured as permanent capital vehicles.
The high proportion of permanent capital in our AUM provides a
stable base and allows for our AUM to grow more predictably without
having reductions in our asset levels due to ordinary redemptions.
Our permanent capital base also lends stability and flexibility to
our portfolio companies and Partner Managers, providing us the
opportunity to grow alongside these companies and positioning us to
be a preferred source of capital and the incumbent lender for
follow-ons
and other capital solutions to high-performing companies. As such,
we are able to be a compelling partner for these firms as they seek
capital to support their long-term vision and business development
goals. The stability of our AUM base enables us to focus on
generating attractive returns by investing in assets with a
long-term focus across different periods in the market cycle.
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Significant embedded
growth in current AUM with
built-in
mechanisms for fee revenue increases.
While we expect to continue our successful fundraising track record
to supplement our existing capital base, our current AUM,
predominately permanent capital in nature, already provides for
significant embedded growth. Of our $94.5 billion AUM base,
$61.4 billion represents our current FPAUM. As of
December 31, 2021, we have approximately $11.0 billion in
AUM not yet paying fees, providing approximately
$140.0 million of annualized management fees once deployed. In
addition, to the extent any of our BDCs become publicly listed,
under the advisory agreements the advisory fees from the applicable
BDC could potentially increase, subject to any fee waivers or
deferral arrangements agreed to by us and the applicable BDC.
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Stable earnings
model with attractive margin profile.
The majority of our revenues is generated from our stable
management fees. Our predictable revenue base translates to a
stable earnings model through a disciplined, efficient cost
structure, producing strong profit margins and mitigating the risk
of volatility in the profit margins. This allows our business model
to maintain a disciplined cost structure and stable operating
margins.
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Extensive, long-term
relationships with a robust and vast network of alternative asset
managers.
We have extensive alternative asset manager relationships, which
allow us to quickly and efficiently source potential investment
opportunities for our products. We believe our deep relationships
position us to receive “early looks” and “last looks” from
alternative asset managers, which in turn, allow us to be highly
selective in deciding which investments to pursue. We believe the
depth and breadth of our relationships are predicated on several,
differentiating features of our platform and that alternative asset
managers value our team’s experience and deep focus both within
products and across a broad spectrum of capital solutions. Our
expansive set of product offerings allows us to provide flexible
and creative solutions, and in tandem with our sizeable permanent
capital base, enables us to provide access to scaled, sizeable
commitments. Partner Managers in our GP Capital Solutions products
also value our Business Services Platform, which provides strategic
value-added services to our Partner Managers in five key areas:
client development and marketing support, business strategy,
product development, talent management, and operational advice. We
expect our differentiated approach and broad spectrum of capital
solution products will continue to strengthen our relationships,
and we intend to further expand our network to fortify our position
as a preferred partner for alternative asset managers and their
portfolio companies.
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Increasing benefits
of scale.
We believe our robust, scaled platform presents us with a
competitive advantage which enables us to provide attractive
solutions as a trusted partner and therefore continue to capture
market share. Many institutional investors are concentrating their
relationships in an effort to partner with dependable, scaled firms
with proven track records that they have a high level of comfort
with. Our scaled platform enables us to remain a partner of choice
not only for borrowers, GPs and tenants, but also for investors. We
believe we will not only maintain, but continue to expand our share
of the market as a result of the high level of confidence investors
have in our scaled capital solutions platform. Our ability to
provide diversification and niche access points will continue to
attract investor interest as they seek diversification and continue
to value lower-correlation portfolio allocations.
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Within Direct Lending, there is significant competition for loans
below $50 million, but there are much fewer lenders capable of
providing solutions over $100 million. Our differentiated
approach and scaled direct lending platform allow us to capitalize
on opportunities across the sizing spectrum—from loans below
$50 million to loans over $1.0 billion. Our platform’s
scale has demonstrated the ability to originate larger deals, while
also providing diversification in our portfolios. We believe our
scale enables us to broaden our deal funnel and provides us access
to more investment opportunities than many other direct lenders. We
have significant available capital that allows us to provide scaled
financing solutions, commit to full capital structures and support
capital needs of borrowers. We believe being a total solutions
provider also grants us a broader view of market opportunities,
which allows us to continue operating as a market leader.
Within GP Capital Solutions, we have also established ourselves as
a market leader, with a long track record, greatest amount of
aggregate capital raised and largest number of publicly-announced
deals. The target size of our current fund being raised, Fund V, is
materially larger than the approximately $5 billion fund sizes
of our main competitors. Our large base of stable capital not only
enables participation in investments across the sizing spectrum,
but also creates a competitive advantage by positioning us as a
highly qualified buyer for minority stakes in large, established
GPs. We believe that we also gain access to proprietary deal flow
as a result of the market’s confidence in our ability to execute on
large investments expeditiously. We believe our strong reputation
in the market combined with our scale will continue to provide us
with unique access to the most attractive sectors of the
alternative asset management universe.
Within Real Estate, we have a targeted origination strategy that
benefits from Oak Street’s strong network and allows us to be
competitive with other net lease peers. Oak Street proactively
builds and maintains strong relationships with large investment
grade-rated and creditworthy companies whose businesses offer
essential goods or services and which we believe are generally
resistant to
e-commerce
and economic downside risks, and structures mutually beneficial
transactions with long lease durations, and in many cases,
favorable pricing. We intend to leverage Oak Street’s corporate
partnerships to both source unique investment opportunities
unavailable to other market participants and negotiate attractive
lease terms. We believe our strong origination capabilities,
conservative underwriting criteria and strong existing tenant
relationships will allow our Real Estate products to purchase
properties in the future at attractive terms and pricing, providing
significant long-term opportunities for growth and scale.
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Diverse, global and
growing high-quality investor base.
Our global investor base is composed of long-standing institutional
relationships, as well as a quickly growing retail investor base.
Our institutional clients include large domestic and international
public and private pension funds, endowments, foundations, family
offices, sovereign wealth funds, asset managers and insurance
companies. Our retail clients include prominent wealth management
firms, private banks, and
high-net
worth investors. As we continue to grow, we expect to retain our
existing clients through our breadth of offerings. As of
December 31, 2021, approximately 36% of our institutional
investors are invested in more than one product, with many
increasing their commitment to their initial strategy and
additionally committing additional capital across our other
strategies. We believe our diligent management of investors’
capital, combined with our strong performance and increasingly
diversified product offerings has helped retain and attract
investors which has furthered our growth in FPAUM and facilitated
further expansion of our strategies. We also believe the global
nature of our investor base enables significant cross-selling
opportunities between our products and strategies. We are committed
to providing our clients with a superior level of service. We
believe our client-focused nature, rooted in our culture of
transparency will help us continue to retain and attract high
quality investors to our platform.
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Industry-leading
management team with proven track record.
We are led by a team of seasoned executives with significant and
diverse experience at the world’s leading financial institutions.
Our
management team has considerable expertise across their respective
product strategies, with a long track record of successful
investing experience across multiple businesses and credit cycles.
Members of our senior management have an average of over 25 years
of experience and a strong track record in building successful
businesses from the ground up and generating superior returns
across market cycles. Additionally, our senior management team has
experienced no turnover since the inception of our predecessor
businesses which we believe has enabled us to build meaningful
long-term relationships and partnerships with alternative asset
managers as well as with our investors.
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Alignment of
interests with stakeholders.
We consider the alignment of interests of our executive management
team and other professionals with those of the investors in our
products to be core to our business. AUM (inclusive of accrued
carried interest) related to our executives and other
employees
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totaled approximately $1.9 billion, which aligns their
interests with our clients’ interests by motivating the continued
high-performance and retention of our dedicated team of
professionals.
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We aim to continue applying our core principles and values that
have guided us since inception in order to expand our business
through the following strategies:
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Organically grow our
core business.
We expect to continue to grow AUM in our existing strategies, and
intend to launch additional, successor permanent capital vehicles
and similar long-dated products in the future. We will benefit from
significant embedded growth in our current AUM that is not yet
paying fees that can be realized as we continue to deploy and lever
our existing capital base and as fee holidays in certain funds
expire. We believe these key attributes, in conjunction with our
ability to raise successor products in existing strategies, will
continue to play a key role in our growth profile. We also expect
to enhance our AUM growth by expanding our current investor
relationships and also continuing to attract new investors.
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Expand our product
offering.
We plan to grow our platform by expanding our product offerings. We
intend to take a diligent and deliberate approach to expansion, by
adding products that are complementary, adjacent or additive to our
current strategies. To date, our measured approach to growth
through the addition of adjacent strategies has allowed us to
continue delivering high performance to our dedicated investor
base. We expect that as we continue to grow our existing
strategies, there will be additional adjacencies that provide
natural expansion opportunities. We believe through the disciplined
expansion of our platform, we can continue to develop our breadth
of offerings and further our position as a leading solutions
provider. As we grow, we expect to attract new investors as well as
leverage our existing investor base, as we have done with previous
product launches.
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Leverage
complementary global distribution networks.
We are well positioned to continue to penetrate the growing global
market. The success of our Direct Lending and Real Estate products
to date has been primarily focused within the United States, while
our GP Capital Solutions products have a more global investor base.
We intend to continue fundraising both domestically and
internationally. The favorable industry tailwinds are global in
nature and we believe that there is additional market opportunity
across the global landscape. As of December 31, 2021, 77% of
capital raised was done so in the United States and Canada. We
believe our strong network and track record of global fundraising
has primed us to further extend our fundraising efforts across
products and into additional international markets, as
institutional investors across the globe are facing the same
pressures and seeking the same positive attributes of the sector
that have attracted domestic investors thus far. We also believe we
have a significant opportunity to leverage Dyal Capital’s global
fundraising capabilities and investor relationships to cross-sell
our Direct Lending and Real Estate products, as well as utilize Owl
Rock’s existing domestic retail channel to cross-sell our GP
Capital Solutions products while increasing our global
capabilities. The global market represents a large, and relatively
untapped opportunity for many of our products that we believe will
facilitate our pursuit of international expansion in the coming
years, and position us to enter into less-developed markets where
we can be a significant first-mover and play a key role in defining
the markets.
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Enhance our
distribution channels.
As investors continue to increase their alternatives allocation in
the search for yield, we believe we have the opportunity to
continue diversifying our client base by attracting new investors
across different channels. We intend to leverage our strong growth
within and across our strategies as a means to add new investors to
our growing family of funds. We have already begun executing on
this strategy, with a notable influx of wealth management platforms
and public and private pension fund investors in recent years.
These additions helped further diversify our investor base which
also includes, but is not limited to, insurance, family offices,
endowments and foundations.
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In addition, we have continued to grow our relationships in the
consultant community. We intend to be the premier direct lending
and GP minority investing platform for investors across the
institutional and retail distribution channels.
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Deepen and expand
strong strategic relationships with key institutional
investors.
We have established invaluable relationships with strategic
partners, consultants and large institutional investors who provide
us with key market insights, operational advice and facilitate
relationship introductions. We pride ourselves on continuing to
foster these relationships as they are fundamental to our business
and reflect the strong alignment of interests that are highly
valued by our partners. As of December 31, 2021, eight
institutional investors have committed at least $1.0 billion
across our strategies, 25 have committed at least
$500 million, and 48 have committed at least
$250 million. Our strategic partnerships allow us to craft
customized solutions tailored to the objectives of our clients,
while reflecting the breadth of our capabilities across our
strategies. We also have important relationships with sponsors,
wealth management firms, banks, corporate advisory firms, industry
consultants and other market participants that we believe are of
significant value. As we continue to grow, both organically and
through product and geographic expansion, we will continue to
pursue the addition of incremental key strategic partners.
|
| |
• |
|
Opportunistically
pursue accretive acquisitions.
In addition to our various avenues of organic growth, we intend to
diligently evaluate acquisition opportunities that we believe would
be value-enhancing to our current platform. These could include
acquisitions that would expand the breadth of our product
offerings, further develop our investor base, or facilitate our
plans for global expansion. We believe that as the market continues
to evolve, there will be numerous opportunities for us to consider,
of which we intend to only pursue the most accretive
acquisitions.
|
The investment management industry is intensely competitive, and we
expect it to remain so. We compete globally and on a regional,
industry and asset basis. We face competition both in the pursuit
of investors for our products and investment opportunities.
Generally, our competition varies across product lines, geographies
and financial markets. We compete for investors based on a variety
of factors, including investment performance, investor perception
of investment managers’ drive, focus and alignment of interest,
quality of service provided to and duration of relationship with
investors, breath of our product offering, business reputation and
the level of fees and expenses charged for services. We compete for
investment opportunities at our funds based on a variety of
factors, including breadth of market coverage and relationships,
access to capital, transaction execution skills, the range of
products and services offered, innovation and price, and we expect
that competition will continue to increase.
Competition is also intense for the attraction and retention of
qualified employees. Our ability to continue to compete effectively
in our businesses will depend upon our ability to attract new
employees and retain and motivate our existing employees. See “
Risk Factors—Risks
Related to Our Business and Operations
—
Our future growth
depends on our ability to attract, retain and develop human capital
in a highly competitive talent market.
”
Our competition as an asset manager and financing source to middle
market companies consists primarily of other asset managers who
focus principally on credit funds, including BDCs, and other credit
products. We also compete with public and private funds, BDCs,
commercial and investment banks, commercial finance companies and,
to the extent they provide an alternative form of financing,
private equity and hedge funds. Many of our competitors are
substantially larger and may have more financial, technical, and
marketing resources than we do.
Many of these competitors have similar investment objectives to us,
which may create additional competition for investment
opportunities. Some of these competitors may also have a lower cost
of capital and access to funding sources that are not available to
us, which may create competitive disadvantages for us with respect
to investment opportunities. In addition, some of our competitors
may have higher risk tolerances or different risk assessments,
which could allow them to consider a wider variety of investments
and establish more relationships than us. Further, many of our
competitors are not subject to the regulatory restrictions that the
Investment Company Act imposes on us as a business development
company, or to the distribution and other requirements we must
satisfy to qualify for RIC tax treatment. Lastly, institutional and
individual investors are allocating increasing amounts of capital
to alternative investment strategies. Several large institutional
investors have announced a desire to consolidate their investments
in a more limited number of managers. We expect that this will
cause competition in our industry to intensify and could lead to a
reduction in the size and duration of pricing inefficiencies that
many of our products seek to exploit. See “
Risk Factors—Risks
Relating to Our Businesses and Operations—The investment management
business is intensely competitive.
”
Our GP Capital Solutions products currently have limited direct
competition from organizations dedicated to acquiring stakes in
large institutionalized private capital managers. More recently, a
limited number of asset managers have begun acquired minority
stakes in certain private capital managers. Such institutions may
compete with us for similar investments in the future. We believe,
however, that this limited number of competitors is likely to
persist, as conflicts of interest and regulatory restrictions make
purchasing minority stakes in private capital managers challenging
for financial institutions and private equity firms.
With respect to our GP Debt Financing strategy, many banks provide
revolving lines of credit to private equity managers, but these
credit lines are typically short duration, amortize and require
blanket personal guarantees. A small number of firms, provide
structured or preferred equity to private capital managers, but
these investments are also structurally very different from our
products’ long-term loans. We believe that this limited amount of
competition is likely to persist, as conflicts of interest,
regulatory restrictions, capital constraints and other
considerations make lending to private capital managers challenging
for financial institutions, insurance companies and other private
market firms.
Our current GP Capital Solutions strategies compete with among
others, a number of private equity funds, specialized funds, hedge
funds, corporate buyers, traditional asset managers, real estate
companies, commercial banks, investment banks, other investment
managers and other financial institutions, including the owners of
certain of our stockholders, as well as domestic and international
pension funds and sovereign wealth funds, and we expect that
competition will continue to increase. See “
Risk Factors—Risks
Related to Our Business and Operations—The investment management
business is intensely competitive.
” We compete globally and on a regional, industry and asset
basis.
Oak Street has remained the only net let lease private equity
manager dedicated exclusively to transacting with investment grade
rated and other creditworthy counterparties. The more stable and
predictable nature of the net lease sector has brought additional
competition into the space in recent years. Historically, such
competition has primarily come from net lease REIT’s (publicly
traded and
non-traded),
other private equity real estate funds, and high net worth
buyers.
Competitors in the publicly traded net lease sector generally
exhibit less stringent criteria than us with respect to pricing and
lease durations, and their portfolios are comprised substantially
with
non-investment
grade credits, shorter average lease terms, and meaningful
near-term lease rollover. Additionally, many net lease peers
focus on acquiring retail properties with an average deal size of
less $10 million, whereas our Real Estate products’
transactions are typically $100 million and greater in
size.
Competition from other private equity funds has grown, as many have
either shifted their current real estate focus to building net
lease teams or acquired existing net lease strategies. Despite this
increased activity, competition with our Real Estate products on
the deal level has remained relatively low, as those strategies
concentrate their efforts in the
non-investment
grade space, prefer to develop properties themselves, and to deploy
capital in sectors that are outside of our traditional focus of:
industrial assets, mission critical office properties and essential
retail. High net worth buyers have been formidable competitors and
active acquirers of retail assets under $8 million; they tend
to be less price sensitive and there are usually wide pools of
potential buyers for these assets. As the monetization of real
estate through sale-leasebacks continues to gain traction as a
capital allocation tool for companies, we expect the net lease
sector to grow even larger, and that will continue to attract more
competition into the space.
As of December 31, 2021, we had approximately 350 full-time
employees, including over 100 investment professionals across nine
offices globally.
As an alternative asset manager, our people are the key to the
success of our business. We rely significantly on our talented
team, leveraging a wide variety of investment, management, business
and other skills and expertise, to create value for stockholders
and investors in our products. We aim to build a team that is
driven and embraces an inclusive culture where our team members are
engaged and work collaboratively across the organization.
Compensation and Benefits
We design our compensation programs to motivate and retain
employees and align their interests with those of our stockholders.
In particular, annual bonuses for our executives and other senior
employees involves a combination of cash and deferred equity awards
in the form of Incentive Units and RSUs (as defined in Note 1 to
the Financial Statements). The proportion of compensation that is
deferred and at risk of forfeiture generally increases as an
employee’s level of compensation rises. Employees at higher total
compensation levels are generally targeted to receive a greater
percentage of their total compensation payable in Incentive Units
and RSUs. To further align their interests with those of investors
in our products, our employees have the opportunity to make
investments in or alongside our products. We also provide our
employees robust health and other wellness offerings, as well as a
variety of quality of life benefits, including
time-off
and family planning resources. We believe our approach to
compensation and benefits are consistent with companies in the
alternative asset management industry and enables us to attract and
retain
talent in our industry. Our senior management periodically reviews
the effectiveness and competitiveness of our compensation
program.
Diversity, Equity and Inclusion
Blue Owl is committed to fostering, cultivating, and preserving a
culture of diversity, equity and inclusion. We prize diversity in
our team and seek to create an inclusive, merit-based environment
that is supportive of people from all backgrounds.
| |
• |
|
Embracing our
differences.
We embrace and encourage our differences that make us unique. We
believe that a team comprised of individuals with diverse
backgrounds, experiences, perspectives and insights is critical to
the long-term success of our firm.
|
| |
• |
|
Continuing to develop as a more diverse, equitable and inclusive
firm is a strategic priority for Blue Owl that we believe will
further enhance our work environment and overall business. Our
commitment to diversity and inclusion is relevant to all areas of
the firm’s business.
|
| |
• |
|
We focus on diversity, equity and inclusion in our corporate
practices and policies, including: recruitment and hiring;
compensation and benefits; professional development and training;
promotions; transfers; and social and recreational programs. We
also believe diversity, equity, and inclusion is an important
component of any environmental, social, and governance program, and
are committed to actively engaging with our investment teams on
integrating our corporate philosophy into our investment
culture.
|
| |
• |
|
While our ongoing efforts are championed at the Blue Owl
founder-level and executed upon by senior leaders across all
business areas of the firm, we strongly believe that these efforts
should be employee led. Our aim is to have diversity, equity and
inclusion be part of the very fiber of our entire employee
population.
|
On February 17, 2022, the Company announced a cash dividend of
$0.10 per Class A Share. The dividend was payable on
March 7, 2022, to holders of record as of the close of
business on February 28, 2022.
On February 15, 2022, the Company, through its indirect
subsidiary, Blue Owl Finance LLC, issued $400.0 million
aggregate principal amount of 4.375% Senior Notes due 2032
(the “2032 Notes”). The 2032 Notes bear interest at a rate
of 4.375% per annum and mature on February 15, 2032.
Interest on the 2032 Notes will be payable semi-annually in arrears
on February 15 and August 15 of each year, commencing
August 15, 2022.
The 2032 Notes are fully and unconditionally guaranteed, jointly
and severally, by the Blue Owl Operating Partnerships and certain
of their subsidiaries. The guarantees are unsecured and
unsubordinated obligations of the guarantors. All or a portion of
the 2032 Notes may be redeemed at the Company’s option in whole, at
any time, or in part, from time to time, prior to their stated
maturity, subject to a make-whole redemption price; provided,
however, that if the Company redeems any amounts on or after
November 15, 2031, the redemption price for the 2032 Notes
will be equal to 100% of the principal amount of the amounts
redeemed, in each case, plus any accrued and unpaid interest. If a
change of control repurchase event occurs, the 2032 Notes are
subject to repurchase by the Company at a repurchase price in cash
equal to 101% of the aggregate principal amount repurchased
plus any accrued and unpaid interest. The 2032 Notes also provide
for customary events of default and acceleration.
On April 1, 2022, the Company closed its acquisition of
Wellfleet Credit Partners LLC (“Wellfleet”) from affiliates of
Littlejohn & Co., LLC. The purchase price consisted of
$108.0 million cash consideration on closing and earnout
payments of up to an additional $15.0 million of cash
and 940,668 Class A Shares payable in equal installments
on each of the first three anniversaries from the closing
date.
On April 6, 2022, the Board adopted resolutions authorizing an
amendment to the Company’s certificate of incorporation (as
amended, the “certificate of incorporation”) to change the
aggregate voting power of the Class B Shares and Class D
Shares, from 90% to 80% as set forth in the First Amendment to the
Certificate of Incorporation (the “Charter Amendment”). The
amendment is designed to position the Corporation for potential
inclusion in the Russell indicies. The Charter Amendment was
approved by the written consent of stockholders of the Company
representing a majority of the voting power of the outstanding
Class A Shares, Class B Shares, Class C Shares, and
Class D Shares of the Company voting together as a single
class, stockholders representing a majority of the Class B
Shares and Class D Shares, voting together as a single class,
and stockholders representing a majority of the Class B Shares
and Class D Shares, voting as separate classes as of
April 6, 2022. No other votes are required or necessary to
adopt the certificate of incorporation. The Charter Amendment will
become effective upon its filing with the Secretary of State of the
State of Delaware on May 3, 2022.
Blue Owl is a publicly traded holding company, and its primary
assets are ownership interests in the Blue Owl Operating
Partnerships, which are held indirectly through Blue Owl GP. We
conduct our business through the Blue Owl Operating Group. See Note
1 to our Financial Statements for a description of the various
share and unit classes outstanding at the Blue Owl and Blue Owl
Operating Partnership levels.
The diagram below depicts a simplified version of our
organizational structure as of December 31, 2021. Ownership
percentages are based on shares and units that are fully
participating in dividends and distributions as of
December 31, 2021.
Economic and voting percentages above do not include the potential
dilutive impact of the exercise of warrants to purchase
Class A Shares, as well as RSUs, unvested Incentive Units and
Oak Street Earnout Units, as these interests do not participate in
dividends and distributions (other than to the extent of certain
tax distributions on unvested Incentive Units). See Note 1 to our
consolidated and combined financial statements for additional
information on these interests.
Blue Owl Capital Inc. is a Delaware corporation. Our principal
executive offices are located at 399 Park Avenue, 38th Floor, New
York, NY 10022 and our telephone number at that address is
(212) 419-3000.
Our website is located at www.blueowl.com. Our website and the
information contained on, or accessed through, our website are not
part of this prospectus, and you should rely only on the
information contained in this prospectus when making a decision as
to whether to invest in our Class A Shares.
The following is a summary of the risks and uncertainties that
could adversely affect our business and financial condition and
should be read in conjunction with the complete discussion of risk
factors set forth in “
” Some of the factors that could materially and adversely affect
our business, financial condition, results of operations and cash
flows include, but are not limited to, the following:
| |
• |
The COVID-19 pandemic has caused severe disruptions in the US and
global economy, has disrupted, and may continue to disrupt,
industries in which we, our products and our products’ portfolio
companies and investments operate and could potentially negatively
impact our business, financial condition and results of
operations.
|
| |
• |
Intense competition among alternative asset managers may make
fundraising and the deployment of capital more difficult, thereby
limiting our ability to grow or maintain our FPAUM. Such
competition may be amplified by changes in fund investor
allocations away from alternative asset managers.
|
| |
• |
We recently ceased to be an emerging growth company, and now are
being required to comply with certain heightened reporting
requirements. Fulfilling our obligations incident to being a public
company, including compliance with the Exchange Act and the
requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, are
expensive and time-consuming, and any delays or difficulties in
satisfying these obligations could have a material adverse effect
on our future results of operations and our stock price.
|
| |
• |
Difficult market and political conditions, including tensions
between Russia and Ukraine, may reduce the value or hamper the
performance of the investments made by our products or impair the
ability of our products to raise or deploy capital, each of which
could materially reduce our revenue, earnings and cash flow and
adversely affect our financial prospects and condition.
|
| |
• |
Management fees comprise the majority of our revenues and a
reduction in fees could have an adverse effect on our results of
operations and the level of cash available for distributions to our
shareholders.
|
| |
• |
Our growth depends in large part on our ability to raise new and
successor funds. If we were unable to raise such funds, the growth
of our FPAUM and management fees, and ability to deploy capital
into investments, earning the potential for performance income,
would slow or decrease, all of which would materially reduce our
revenues and cash flows and adversely affect our financial
condition.
|
| |
• |
Our GP Capital Solutions products may suffer losses if our Partner
Managers are unable to raise new funds or grow their AUM.
|
| |
• |
Conflicts of interest may arise in our allocation of capital and
co-investment opportunities or in circumstances where we hold
investments at different levels of the capital structure.
|
| |
• |
Our business is currently focused on multiple investment
strategies.
|
| |
• |
Our entitlement and that of certain of our shareholders, Principals
and employees to receive realized performance income from certain
of our funds may create an incentive for us to make more
speculative investments and determinations on behalf of our funds
than would be the case in the absence of such performance
income.
|
| |
• |
Our use of leverage to finance our businesses exposes us to
substantial risks. Any security interests or negative covenants
required by a credit facility we enter into may limit our ability
to create liens on assets to secure additional debt.
|
| |
• |
Employee misconduct could harm us by impairing our ability to
attract and retain fund investors and subjecting us to significant
legal liability, regulatory scrutiny and reputational harm.
|
| |
• |
Cybersecurity risks and cyber incidents could adversely affect our
business by causing a disruption to our operations, a compromise or
corruption of our confidential information and confidential
information in our possession and damage to our business
relationships, any of which could negatively impact our business,
financial condition and operating results.
|
| |
• |
The use of leverage by our products may materially increase the
returns of such funds but may also result in significant losses or
a total loss of capital.
|
| |
• |
The multi-class structure of our common stock has the effect of
concentrating voting power with the Principals, which will limit an
investor’s ability to influence the outcome of important
transactions, including a change in control.
|
| |
• |
The Registrant is a holding company and its only material source of
cash is its indirect interest (held through Blue Owl GP) in the
Blue Owl Operating Partnerships, and it is accordingly dependent
upon distributions made by its subsidiaries to pay taxes, cause
Blue Owl GP to make payments under the Tax Receivable Agreement,
and pay dividends.
|
The following information is as of April 20, 2022 and does not
give effect to issuances of our Class A Shares after such
date.
Class A Shares offered by the Selling Holders
|
Up to 1,320,591,340 Class A Shares (including
1,010,627,237 Class A Shares that were issued upon the
conversion or conversion and exchange of Seller Earnout Securities,
as applicable, and the exchange of Common Units and the
cancellation of an equal number of Class C or Class D
Shares, as applicable) |
Class A Shares issued or issuable upon the exchange of all
outstanding Common Units and the conversion or conversion and
exchange of all Seller Earnout Securities
|
1,343,042,262 |
|
|
We will not receive any of the proceeds from the sale of the
Class A Shares by the Selling Holders. |
Market for our shares of common stock
|
Our Class A Shares are currently listed on the NYSE under
the symbol “OWL.” |
|
|
Any investment in the securities offered hereby is speculative
and involves a high degree of risk. You should carefully consider
the information set forth under “
” and elsewhere in this prospectus. |
SELECTED HISTORICAL CONSOLIDATED AND
COMBINED FINANCIAL INFORMATION OF BLUE OWL
The following tables provide our selected historical consolidated
and combined financial and other data for the periods indicated. We
have derived the selected consolidated statement of operations data
for the fiscal years ended December 31, 2021, 2020 and 2019
and the selected consolidated balance sheet data as of
December 31, 2021 and 2020 from our audited consolidated
financial statements included elsewhere in this prospectus. The
following summary historical financial information should be read
together with the consolidated financial statements and
accompanying notes and “
Blue Owl’s
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
” appearing elsewhere in this prospectus. The summary historical
financial information in this section is not intended to replace
our consolidated financial statements and the related notes. Our
historical results are not necessarily indicative of our future
results, and our results as of and for the year ended
December 31, 2021 are not necessarily indicative of our
results in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statements of financial condition data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,266,398 |
|
|
$ |
121,597 |
|
|
$ |
56,718 |
|
|
|
|
|
1,174,167 |
|
|
|
356,386 |
|
|
|
287,104 |
|
|
|
|
|
2,418,828 |
|
|
|
622,758 |
|
|
|
407,215 |
|
Non-controlling
interests
|
|
|
4,184,003 |
|
|
|
6,526 |
|
|
|
2,259 |
|
Total shareholders’ equity attributable to Blue Owl Inc. (After May
19, 2021) / members of Owl Rock Capital and sole member of Owl Rock
Capital Securities LLC (Prior to May 19, 2021)
|
|
|
1,663,567 |
|
|
|
(507,687 |
) |
|
|
(352,756 |
) |
Total shareholders’ equity (deficit)
|
|
|
5,847,570 |
|
|
|
(501,161 |
) |
|
|
(350,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Consolidated statements of operations data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
823,878 |
|
|
$ |
249,815 |
|
|
$ |
190,850 |
|
|
|
|
|
1,751,145 |
|
|
|
308,542 |
|
|
|
163,483 |
|
|
|
|
|
(27,275) |
|
|
|
(23,816) |
|
|
|
(6,662) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
(1,867,477) |
|
|
|
(82,543) |
|
|
|
20,705 |
|
Income tax (benefit) expense
|
|
|
(65,211) |
|
|
|
(102) |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including
non-controlling
interests |
|
|
(1,802,266) |
|
|
|
(82,441) |
|
|
|
20,465 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net (income) loss attributed to
non-controlling
interests |
|
|
1,426,095 |
|
|
|
4,610 |
|
|
|
2,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Blue Owl Capital Inc. (After May
19, 2021) / members of Owl Rock Capital and sole member of Owl Rock
Capital Securities LLC (Prior to May 19, 2021)
|
|
$ |
(376,171) |
|
|
$ |
(77,831) |
|
|
$ |
22,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARKET PRICE, TICKER SYMBOL, AND DIVIDEND INFORMATION
Market Price and Ticker Symbol
Blue Owl’s Class A Shares and public warrants are listed for
trading on NYSE under the symbols “OWL” and “OWL.WS,”
respectively.
The closing price of the Class A Shares on April 20,
2022 was $14.33. Holders of Class A Shares and warrants
should obtain current market quotations for their securities.
We intend to continue to pay to Class A Stockholders (and
Class B Stockholders in the future to the extent any
Class B Shares are outstanding) a quarterly dividend
representing approximately 85% of Distributable Earnings following
the end of each quarter. Blue Owl Capital Inc.’s share of
Distributable Earnings, subject to adjustment as determined by our
Board to be necessary or appropriate to provide for the conduct of
our business, to make appropriate investments in our business and
products, to comply with applicable law, any of our debt
instruments or other agreements, or to provide for future cash
requirements such as
tax-related
payments, operating reserves, clawback obligations and dividends to
stockholders for any ensuing quarter. All of the foregoing is
subject to the qualification that the declaration and payment of
any dividends are at the sole discretion of our Board, and our
Board may change our dividend policy at any time, including,
without limitation, to reduce or eliminate dividends
entirely.
The Blue Owl Operating Partnerships will make cash distributions
(“Tax Distributions”) to the partners of such partnerships,
including to Blue Owl GP, if we determine that the taxable income
of the relevant partnership will give rise to taxable income for
its partners. Generally, Tax Distributions will be computed based
on our estimate of the taxable income of the relevant partnership
allocable to a partner multiplied by an assumed tax rate equal to
the highest effective marginal combined U.S. federal, New York
State and New York City income tax rates prescribed for an
individual or corporate resident in New York City (taking into
account certain assumptions set forth in the relevant partnership
agreements). Tax Distributions will be made only to the extent
distributions from the Blue Owl Operating Partnerships for the
relevant year were otherwise insufficient to cover the estimated
assumed tax liabilities.
Holders of our Class A and B Shares may not always receive
distributions or may receive lower distributions on a per share
basis at a time when we, indirectly through Blue Owl GP, and
holders of our Common Units are receiving distributions on their
interests, as distributions to the Registrant and Blue Owl GP may
be used to settle tax and TRA liabilities, if any, and other
obligations.
Dividends are expected to be treated as qualified dividends under
current law to the extent of the Company’s current and accumulated
earnings and profits, with any excess dividends treated as a return
of capital to the extent of a stockholder’s basis, and any
remaining excess generally treated as gain realized on the sale or
other disposition of stock.
In addition to the
other information contained in this prospectus, the following risks
have the potential to impact the business and operations of Blue
Owl. These risk factors are not exhaustive and all investors are
encouraged to perform their own investigation with respect to the
business, financial condition and prospects of Blue Owl. Unless
otherwise indicated or the context otherwise requires, references
in this “Risk Factors” section to “Blue Owl,” “we,” “our,” “us” and
other similar terms refer to Blue Owl Capital Inc. and its
consolidated subsidiaries.
Risks Related to Our Business and Operations
The
COVID-19
pandemic has caused severe disruptions in the U.S. and global
economy, has disrupted, and may continue to disrupt, industries in
which we, our products and our products’ investments operate and
could potentially negatively impact us, our products or our
products’ investments.
The
COVID-19
pandemic has adversely impacted global commercial and economic
activity and contributed to significant volatility in certain
equity and debt markets. The impact of the outbreak continues to
develop and many countries, including the United States, and states
and municipalities in which we and our products’ investments
operate, have instituted quarantines, prohibitions on travel and
the closure of offices, businesses, schools, retail stores and
other public venues. Individual businesses and industries are also
implementing similar precautionary measures. Those measures, as
well as the general uncertainty surrounding the dangers and effects
of
COVID-19,
have created significant disruption in supply chains and economic
activity and are having a particularly adverse impact on
transportation, hospitality, tourism, commercial real estate,
entertainment and other industries, including industries in which
certain of our products, borrowers, Partner Managers and their
respective investments operate and invest. The effects of
COVID-19
have led to significant volatility and it is uncertain how long
this volatility will continue. As
COVID-19
continues to spread, particularly as new variants, including the
Delta and Omicron variants, continue to emerge, the potential
effects, including a global, regional or other economic recession,
are increasingly uncertain and difficult to assess. This
uncertainty has been exacerbated by issues with the availability
and acceptance of vaccines both in the United States and globally.
The continued spread of the virus globally could lead to a
protracted world-wide economic downturn, the effects of which could
last for some period after the pandemic is controlled and/or
abated.
The extent of the impact of the
COVID-19
pandemic on us and our products’ operational and financial
performance will depend on many factors, including the duration and
scope of the public health emergency, the actions taken by
governmental authorities to contain its financial and economic
impact, the continued or renewed implementation of travel
advisories and restrictions, the widespread availability and
acceptance of vaccines, the impact of the public health emergency
on overall supply and demand, staffing and attrition levels,
consumer confidence and levels of economic activity and the extent
of its disruption to global, regional and local supply chains and
economic markets, all of which are uncertain and difficult to
assess. Significant volatility and declines in valuations in the
global markets as well as liquidity concerns may impair our ability
to raise funds or deter fund investors from investing in new or
successor funds that we are marketing. Actions taken in response to
the
COVID-19
pandemic (whether imposed by governments or adopted by businesses
or individuals) may give rise to difficulty marketing and raising
new or successor funds due to
orders, travel restrictions and social distancing requirements
implemented or undertaken in response to the
COVID-19
pandemic, which may lower or delay anticipated fee revenues. For
existing funds, those actions may slow the pace of investment
activity, by, for example, hindering the diligence process. This,
in turn, could adversely affect the timing of raising capital for
new or successor funds, the terms that might be offered and the
management fees we earn on our products that generate fees based on
invested (and not committed) capital. In addition, cash flows from
management fees may be impacted by, among other things, a failure
of our clients to meet capital calls. Borrowers of loans and other
credit instruments made by our products may be unable to make their
loan payments on a timely basis and meet their loan covenants,
resulting in a decrease in value of our products’ credit
investments and lower than expected returns.
We are continuing to monitor the impact of
COVID-19
and related risks, including risks related to the ongoing spread of
COVID-19
(including the Delta and Omicron variants) and efforts to mitigate
the spread and deployment of vaccines. However, the rapid
development and fluidity of the situation precludes any prediction
as to its ultimate impact on us. If the spread and related
mitigation efforts continue, our business, financial condition,
results of operations and cash flows could be materially adversely
affected. The impact of
COVID-19
could have the effect of heightening many of the other risk factors
described herein.
Difficult market and
political conditions may reduce the value or hamper the performance
of the investments made by our products or impair the ability of
our products to raise or deploy capital, each of which could
materially reduce our revenue, earnings and cash flow and adversely
affect our financial prospects and condition.
Our businesses are affected by conditions and trends in the global
financial markets and the global economic and political climate
relating to, among other things, interest rates, the availability
and cost of credit, inflation rates, economic uncertainty, changes
in laws (including laws relating to our taxation, taxation of our
clients and the possibility of changes to regulations applicable to
alternative asset managers), trade policies, commodity prices,
tariffs, currency exchange rates and controls, political elections
and administration transitions, and national and international
political events (including wars and the most recent and rapidly
evolving tensions between Russia and Ukraine as well as other forms
of conflict, terrorist acts, and security operations) and
catastrophic events such as fires, floods, earthquakes, tornadoes,
hurricanes and pandemics. Those factors are outside of our control
and may affect the level and volatility of credit and securities
prices and the liquidity and value of fund investments, and we and
our products may not be able to or may choose not to manage our
exposure to these conditions. The extent and impact of any
sanctions imposed in connection with the escalation of hostilities
between Russia and Ukraine may cause additional financial market
volatility and impact the global economy as the situation continues
to evolve.
During periods of difficult market conditions or slowdowns, which
may be across one or more industries, sectors or geographies,
companies in which our funds invest may experience decreased
revenues, financial losses, credit rating downgrades, difficulty in
obtaining access to financing and increased funding costs. During
such periods, those companies may also have difficulty in pursuing
growth strategies, expanding their businesses and operations
(including to the extent that they are Partner Managers, raising
additional capital) and be unable to meet their debt service
obligations or other expenses as they become due, including
obligations and expenses payable to our funds. Negative financial
results in our funds’ portfolio companies may reduce the net asset
value of our funds, result in the impairment of assets and reduce
the investment returns for our products, which could have a
material adverse effect on our operating results and cash flow or
ability to raise additional capital through new or successor funds.
In addition, those conditions would increase the risk of default
with respect to credit-oriented or debt investments by our
products.
We recently ceased
to be an emerging growth company, and now are being required to
comply with certain heightened reporting requirements. Fulfilling
our obligations incident to being a public company, including
compliance with the Exchange Act and the requirements of the
Sarbanes-Oxley Act and the Dodd-Frank Act, are expensive and
time-consuming, and any delays or difficulties in satisfying these
obligations could have a material adverse effect on our future
results of operations and our stock price.
As a public company, we are subject to the reporting, accounting
and corporate governance requirements of the NYSE, the Exchange
Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and
Section 619 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) that apply to issuers of
listed equity, which impose certain significant compliance
requirements, costs and obligations upon us. On October 7,
2021, we ceased to be an “emerging growth company” as defined in
the JOBS Act. The changes necessitated by being a publicly listed
company and ongoing compliance with these rules and regulations
require a significant commitment of additional resources and
management oversight, which increases our operating costs and could
divert the attention of our management and personnel from other
business concerns. Further, to
continue to comply with the requirements of being a public company,
we have undertaken various actions, such as implementing new
internal controls and procedures and hiring additional accounting
and internal audit staff.
The Sarbanes-Oxley Act requires us, among other things, to maintain
effective disclosure controls and procedures and internal control
over financial reporting. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and
internal control over financial reporting, we have expended, and
anticipate that we will continue to expend, significant resources,
including accounting-related costs and significant management
oversight.
In addition, our internal resources and personnel may in the future
be insufficient to avoid accounting errors, and our auditors may
identify deficiencies, significant deficiencies or material
weaknesses in our internal control environment in the future. Any
failure to develop or maintain effective controls or any
difficulties encountered implementing required new or improved
controls could harm our operating results or cause us to fail to
meet our reporting obligations and may result in a restatement of
our financial statements for prior periods. Any failure to
implement and maintain effective internal control over financial
reporting also could adversely affect the results of periodic
management evaluations and annual independent registered public
accounting firm attestation reports regarding the effectiveness of
our internal control over financial reporting that we will
eventually be required to include in our periodic reports that will
be filed with the SEC. Ineffective disclosure controls and
procedures and internal control over financial reporting could also
cause investors in our common stock or investors in our products to
lose confidence in our reported financial and other information,
which would likely have a negative effect on the trading price of
our common stock and/or investors’ confidence in our products. In
addition, if we are unable to continue to meet these requirements,
we may not be able to remain listed on the NYSE.
The expenses associated with being a public company include
increases in auditing, accounting and legal fees and expenses,
investor relations expenses, increased directors’ fees and director
and officer liability insurance costs, registrar and transfer agent
fees and listing fees. As a public company, we are required to,
among other things, institute comprehensive compliance and investor
relations functions. These obligations and constituents require
significant attention from our senior management and could divert
their attention away from the
management of our business, which could adversely affect our
business, financial condition, cash flows and results of operation.
Failure to comply with the requirements of being a public company
could potentially subject us to sanctions or investigations by the
SEC or other regulatory authorities.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. We intend to
invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and
administrative expenses. If our efforts to comply with new laws,
regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to their
application and practice, regulatory authorities may initiate legal
proceedings against us, and there could be a material adverse
effect on our business, financial condition, cash flows and results
of operations.
The management fees
of our BDCs and management fees and performance income of our
private funds comprise a substantial majority of our revenues and a
reduction in fees could have an adverse effect on our results of
operations and the level of cash available for distributions to our
stockholders.
The investment advisory agreements we have with each of our BDCs
categorize the fees we receive as: (a) base management fees,
which are paid quarterly and generally increase or decrease based
on the average fair value of our BDC’s gross assets (excluding cash
and cash equivalents) or average fair value of gross assets
(excluding cash) plus undrawn commitments, (b) Part I Fees and
(c) Part II Fees. We classify the Part I Fees as management
fees because they are predictable and recurring in nature, not
subject to contingent repayment and
generally cash-settled each quarter. If any of our BDCs’ gross
assets or net investment income (before Part I Fees and Part II
Fees) were to decline significantly for any reason, including,
without limitation, due to fair value accounting requirements, the
poor performance of its investments or the inability or increased
cost to obtain or maintain borrowings for each of our BDCs, the
amount of the fees we receive from our BDCs, including the base
management fee and the Part I Fees, would also decline
significantly, which could have an adverse effect on our revenues
and results of operations. In addition, because the Part II Fees
are not paid unless each of our BDCs achieves cumulative aggregate
realized capital gains (net of cumulative aggregate realized
capital losses and aggregate unrealized capital depreciation), each
of our BDCs’ Part II Fees payable to us are variable and not
predictable. Our advisory agreements typically provide that the
rates at which we earn advisory fees from our BDCs increase after
our BDCs are publicly listed (where before the listing the advisory
fees typically are a reduced management fee with a reduced or no
Part I or II fees). If our BDCs do not become publicly listed on
anticipated timeframes or at all for any reason, including the poor
share performance of our BDCs, Blue Owl will not benefit from this
increase, and those BDCs may need to return their capital to
investors, further reducing our management fees. We may also, from
time to time, (a) waive or voluntarily defer any fees payable
to us by our BDCs or any BDCs that we may manage after the date
hereof and (b) restructure any existing fee waivers granted by
us to our BDCs so that such of our BDCs will be obligated to pay
fee amounts that are less than the full fee amounts owed to us
pursuant to the terms of the applicable advisory agreement between
us and such BDC, and the duration and extent of such waivers and
deferrals in each of (a) and (b) may need to be significant to
support continued fundraising. In addition to those arrangements,
we have entered into and in the future may enter into expense
supporting arrangements with certain of our BDCs where we pay or
reimburse certain expenses of our BDCs in order to support their
target dividend payments.
Our investment advisory and management agreements with our BDCs
renew for successive annual periods subject to the approval of the
applicable BDC’s board of directors or by the affirmative vote of
the holders of a majority of such BDC’s outstanding voting
securities. In addition, as required by the Investment Company Act,
the investment advisory agreements with our BDCs generally may be
terminated without penalty upon 60 days’ written notice to the
other party. Termination or
non-renewal
of any of these agreements would reduce our revenues significantly
and could have a material adverse effect on our financial
condition.
Private Funds:
Management Fees
For our other
non-BDC
Direct Lending products, as well as GP Capital Solutions and
certain Real Estate products, which we refer to as our private
funds, we enter into investment advisory agreements whereby we
generally receive base management fees from the inception of such
fund through the liquidation of such fund or for most of our GP
Capital Solutions products for a set period.
Non-BDC
Direct Lending products have a base management fee that is
typically based on a percentage of gross asset value (which
includes the portion of such investments purchased with leverage),
whereas our GP Capital Solutions products have a management fee
that is initially a set percentage of capital committed by
investors, and then, following a step down event for a Dyal Capital
fund (generally either the end of the investment period or, for
certain funds, when the fund’s commitments become substantially
invested or drawn), is adjusted to a lower percentage of the fund’s
cost of unrealized investments, subject to impairment losses for
certain funds. Following the management fee step down event, the
management fee we receive will be reduced when a fund realizes
investments or in certain cases when there are permanent changes to
the cost basis of unrealized investments. While those funds are not
required to realize assets as of any date, there is an obligation
to explore liquidity strategies with respect to a fund, and should
a liquidity strategy event occur prior to the management fee end
date, it could cause a reduction in the amount of management fees
we are otherwise entitled to receive. Further, any realization of
assets will be within the control of certain of our employees who
own an interest in a portion of the carried interest that does not
belong to us and who may have an incentive to effect a realization
earlier than one otherwise would expect had carried interest not
been applicable.
As our private funds generally have end dates for paying management
fees, our revenues will decline in respect of such funds if we are
unable to successfully raise successor funds that replace the
management fee
payments that terminate on the older funds or such successor funds
do not generate fees at the same rate. Additionally, given that
such management fees are often based on gross asset value,
acquisition costs or invested capital, either throughout the fund
term or, in some cases following their investment period, the
management fee received in respect of such fund will be reduced
when a fund realizes investments or if the value of an investment
is impaired. During the investment period of many funds, the fund
expects to actively recycle capital into new investments, which
would have the impact of replacing investments that have been
realized during the investment period, but there are many factors
that may limit our ability to effectively recycle capital and
realize the full fee potential of any particular fund. For many
Direct Lending funds, the gross asset value used as the base for
the management fee includes investments purchased with leverage. If
we are unable to obtain leverage at the expected level, or at all,
this will have a negative impact on our ability to realize the full
fee potential of any particular fund.
Further, our right to receive management fees can be impaired by
certain actions of investors in a private fund. Our private funds
generally provide investors with: (1) the right to terminate
such fund on both a cause basis and a no fault basis; (2) the
right to remove us as manager of a fund for cause; and (3) the
right to create an early step down event with respect to a fund on
a cause basis. If the investors exercised their right to vote for
an early termination, we would typically continue to receive
management fee through the liquidation of such fund, but we could
face pressure to liquidate investments earlier than we otherwise
believe is appropriate to maximize the value of such investment.
Certain funds also provide investors with the right to remove the
general partner of such fund on a cause basis. Upon the removal of
the general partner of a fund becoming effective, the investment
advisory contract in respect of such fund will cease to exist and
our rights to payment of management fee will terminate. In some
cases, investors may also have the right to redeem after certain
periods of time or following regulatory or key person concerns,
which would also reduce the base on which fees are charged. In
other cases, after an initial lock up period, investors may issue
redemption notices with respect to their interests; as such
interests are redeemed, the fees will decrease unless we are able
to find new investors to replace those redeeming.
Notwithstanding the formulas for calculating management fees
provided in the governing documents for our products, Blue Owl has
provided (and expects to provide in the future) discounts to
investors on such fees based on the size of their commitments to
the fund (or Blue Owl funds generally), the timing of their
commitments to the fund or other factors that Blue Owl deems
relevant. Certain investors are effectively given management fee
discounts through specified interests and discounts with respect to
carried interest or performance income through the grant of
participation rights, fee rebates or revenue shares. Although such
discounts will typically be awarded in circumstances where Blue Owl
management believes there will ultimately be long-term benefits to
Blue Owl, there can be no assurance that the ultimate benefit
attained will be commensurate with the discount awarded, or as to
how long it may take to recoup such value.
Private Funds:
Carried Interest
The general partner or an affiliate of certain of our private funds
that are not BDCs may be entitled to receive carried interest from
a fund based on cumulative fund performance to date. Carried
interest entitles the general partner (or an affiliate) to a
special allocation of income and gains from a fund, and is
typically structured as a net profits interest in the applicable
fund. Carried interest is generally calculated on a “realized”
basis, and the recipient is generally entitled to a carried
interest based upon the net realized income and gains often taking
into account certain unrealized losses generated by such fund. Net
realized income/gains or loss is not netted between or among
funds.
If the investments we make on behalf of our funds or separate
accounts perform poorly, we may suffer a decline in our realized
performance income, which may limit our ability to pay dividends.
For most funds, the carried interest is subject to a preferred
return of 8%, subject in most cases to a
catch-up
allocation to the general partner. Generally, if at the termination
of fund, the fund has not achieved investment returns that exceed
the preferred return threshold, the general partner may not be
entitled to a share of the carried interest. Additionally, similar
to management fees as described above, if the fund is terminated
early by the investors or the general
partner is removed by the investors of a fund, this may have a
negative impact on the value of investments, which will then reduce
the carried interest allocations to the general partner, and, in
the instance where the general partner is removed for cause, a
penalty reduction may be assessed against any remaining carried
interest. Amounts that could otherwise go to satisfy dividend
payments may be deferred or reserved to satisfy potential repayment
obligations.
Although Blue Owl is only entitled to 15% of this realized
performance income, the remainder of this revenue stream is owned
by entities not controlled by us, including to investors in such
entities that otherwise might serve as professionals of Blue Owl.
Blue Owl may be misaligned from these investors, as a portion of
this income would qualify for long-term capital gains in the hands
of such individuals, whereas Blue Owl, as a U.S. corporation, will
not receive preferential treatment for long-term capital gains and
may be limited in deducting capital losses. Furthermore, to the
extent such investors currently benefit from such long-term capital
gains treatment, they may not be entitled to this treatment in
perpetuity. For example, U.S. federal income tax law now generally
imposes a three-year holding period requirement for carried
interest to be treated as long-term capital gain. The holding
period requirement may result in some of the carried interest
received by such persons being treated as ordinary income, which
would materially increase the amount of taxes paid by such persons.
The tax treatment of carried interest may continue to be area of
attention for the federal and state governments.
We also receive fee income for providing services to certain
portfolio companies of our products. Such services include
arrangement, syndication, origination, structuring analysis,
capital structure and business plan advice and other services.
Certain types of transaction-related fees are required to be
distributed to the Blue Owl funds and other products under the
terms of our
Co-investment
Exemptive Order, as discussed in
“Conflicts of
interest may arise in connection with
co-investments
between our private funds and our BDCs”
below, or are required to be distributed to investors in our
products or offset against management fees that would otherwise be
payable pursuant to the terms of the governing agreements of the
relevant vehicles, while other types of related fees may be
retained by us with no offset against management fees and
contribute to our revenues and, ultimately, to our net income. We
may decide not to seek those fees for any reason, including market
conditions and expectations. Our ability to receive and retain
those fees, and to continue to receive and retain those fees in the
future, is dependent on the terms we negotiate with investors in
our products, our ability to successfully negotiate for those fees
with underlying portfolio companies, the permissibility of
receiving and retaining those fees under the relevant legal and
regulatory frameworks, and our business determination to negotiate
for those fees. As a result, any change to the willingness of
portfolio companies to bear those fees, the terms of our products
that permit us to receive and retain those fees, the legal and
regulatory framework in which we operate or our willingness to
negotiate for those fees with portfolio companies of our products,
could result in a decrease to our revenues and net income, and
ultimately decrease the value of our common stock and our dividends
to our stockholders. In addition, the fees generated are typically
dependent on transaction frequency and volume, and a slowdown in
the pace or size of investments by our products could adversely
affect the amount of fees generated.
Our growth depends
in large part on our ability to raise new and successor funds. If
we were unable to raise such funds, the growth of our FPAUM and
management fees, and ability to deploy capital into investments,
earning the potential for performance income, would slow or
decrease, all of which would materially reduce our revenues and
cash flows and adversely affect our financial condition.
A significant portion of our revenue from our products in any given
period is dependent on the size of our FPAUM in such period and fee
rates charged on the FPAUM. We may not be successful in procuring
investment returns and prioritizing services that will allow us to
maintain our current fee structure, to maintain or grow our FPAUM,
or to generate performance income. A decline in the size or pace of
growth of FPAUM or applicable fee rates will reduce our revenues. A
decline in the size or pace of growth of FPAUM or applicable fee
rates may result from a range of factors, including:
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Volatile economic and market conditions, which could cause fund
investors to delay making new commitments to alternative investment
funds or limit the ability of our existing funds to deploy
capital;
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Intense competition among alternative asset managers may make
fundraising and the deployment of capital more difficult, thereby
limiting our ability to grow or maintain our FPAUM. Competition may
be amplified by changes in fund investors allocating increased
amounts of capital away from alternative asset managers; and
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Continuation or amplification of general trends within the
investment management industry towards lower fees including through
direct reductions, deferrals, rebates or other means, which may
also result in our competitors operating based on fee structures
with which we are unable to successfully compete.
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In response to those trends, we may, in certain cases, lower the
fees we charge or grant fee reductions or specified interests or
periodic holidays in order to remain competitive;
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Poor performance of one or more of our products, either relative to
market benchmarks or in absolute terms (e.g., based on market value
or net asset value of our BDCs’ shares), or compared to our
competitors may cause fund investors to regard our funds less
favorably than those of our competitors, thereby adversely
affecting our ability to raise new or successor funds;
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Our funds may engage in strategic transactions or other
dispositions that reduce the cost basis upon which we charge
management fees with respect to one or more of our funds. For
example, a fund may sell all or a portion of its interests in
portfolio companies that causes such fund’s management fee base to
be reduced; and
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Certain of our funds contain “key person” provisions or other
provisions allowing investors to take actions following certain
specified events. The occurrence of one or more of those events
prior to the end of a fund’s investment period could result in the
termination of a fund’s investment period and a material decrease
in the management fees paid by such fund or, in certain cases,
cessation of the funds.
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Our products may
suffer losses if our Partner Managers are unable to raise new funds
or grow their AUM.
As our GP Capital Solutions products’ investments in Partner
Managers are intended to be held for an indefinite duration, we are
dependent upon the ability of our Partner Managers to execute
successfully their investment program and grow their assets under
management. In the event that a Partner Manager is unable to grow
their assets under management or such Partner Manager’s investment
returns fail to meet expectations, the returns attributable to such
investment may be reduced or our products may suffer a loss on such
investment. A Partner Manager’s failure to grow assets under
management may result from a range of factors common to asset
managers, including factors to which we are subject ourselves, or
specific factors attributable to its business including the
departure of key persons, the inability of such Partner Manager to
diversify into new investment strategies, investment performance
and regulatory enforcement actions.
The investment
management business is intensely competitive.
The investment management business is intensely competitive, with
competition based on a variety of factors, including investment
performance, business relationships, quality of service provided to
clients, fund investor liquidity, fund terms (including fees and
economic sharing arrangements), brand recognition and business
reputation. Maintaining our reputation is critical to attracting
and retaining fund investors and for maintaining our relationships
with our regulators, sponsors, Partner Managers, potential
co-investors
and joint venture partners, as applicable. Negative publicity
regarding our company, our personnel or our Partner Managers could
give rise to reputational risk that could significantly harm our
existing business and business prospects. We are also currently
subject to and may be subject in the future to litigation between
ourselves and our Partner Managers, which may harm our
reputation.
Similarly, events could occur that damage the reputation of our
industry generally, such as the insolvency or bankruptcy of large
funds or a significant number of funds or highly publicized
incidents of fraud or other scandals, any one of which could have a
material adverse effect on our business, regardless of whether any
of those events directly relate to our products or the investments
made by our products.
Our products compete with a number of specialized funds, corporate
buyers, traditional asset managers, real estate companies,
commercial banks, investment banks, other investment managers and
other financial institutions, including certain of our
stockholders, as well as domestic and international pension funds
and sovereign wealth funds, and we expect that competition will
continue to increase. In addition, our BDCs and other Direct
Lending products compete with a number of other BDCs, private
funds, commercial banks, and other financial institutions.
Numerous factors increase our competitive risks, including, but not
limited to:
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A number of our competitors may have or are perceived to have more
expertise or financial, technical, marketing and other resources
and more personnel than we do;
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Some of our products may not perform as well as competitors’ funds
or other available investment products;
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Several of our competitors have raised significant amounts of
capital, and many of them have similar investment objectives to
ours, which may create additional competition for investment
opportunities;
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Some of our competitors may have lower fees or alternative fee
arrangements that potential clients of ours may find more
appealing;
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Some of our competitors may have a lower cost of capital and access
to funding sources that are not available to us, which may create
competitive disadvantages for us with respect to our products,
including our products that directly use leverage or rely on debt
financing of their portfolio investments to generate superior
investment returns;
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Some of our competitors may have higher risk tolerances, different
risk assessments or lower return thresholds than us, which could
allow them to consider a wider variety of investments and to bid
more aggressively than us or to agree to less restrictive legal
terms and protections for investments that we want to make;
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Some of our competitors may be subject to less regulation or
conflicts of interest and, accordingly, may have more flexibility
to undertake and execute certain businesses or investments than we
do, bear less compliance expense than we do or be viewed
differently in the marketplace;
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Some of our competitors may have more flexibility than us in
raising and deploying certain types of funds under the investment
management contracts they have negotiated with their fund
investors; and
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Some of our competitors may offer a broader investment platform and
more partnership opportunities to portfolio companies than we are
able to offer.
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Certain of our
strategic relationship investors (including early-stage investors
in new products) may be granted the right to participate in the net
profits of our advisory business attributable to certain strategies
or products.
Certain investors in our products have been granted, and may in the
future receive various forms of, participation rights. with respect
to certain strategies, product lines or products, including, but
not limited to, the right to: (1) the net profits or gross
revenues of certain businesses; (2) the gross management fee
revenue derived from certain strategies; (3) shares in net
operating income that would otherwise be earned by us with respect
to management fees, and (4) shares in a percentage of
management fees. To the extent gross revenue participations or
similar arrangements are offered, they will reduce the revenue
earned by us, but we will continue to bear all applicable expenses,
even if the product is not generating positive cash flow. We may
also offer our employees the opportunity to participate in certain
types of these arrangements in certain circumstances as a way of
compensating or incentivizing employees. There is generally no
limitation on the size or the duration of future economic sharing
arrangements.
In addition, in the ordinary course we may offer fee discounts to
investors in existing and future funds and we expect to continue to
waive fees for many or all of our
co-investments.
We currently expect, at least in certain
instances, to continue to offer these economic sharing arrangements
to our strategic relationship investors (which may include certain
of our stockholders) in the future, which may reduce the revenues
ultimately earned by us in respect of these products, although it
is hoped in many instances this will be balanced by the broader
strategic benefits.
Conflicts of
interest may arise in our allocation of capital and
co-investment
opportunities.
As an asset manager with multiple clients, including our various
product lines, we confront conflicts of interests relating to our
investment activities and operations. In particular, our allocation
of capital and
co-investment
opportunities across our products are subject to numerous actual or
potential conflicts of interest. Although we have implemented
policies and procedures to address those conflicts, our failure to
effectively identify and address them could cause reputational harm
and a loss of investor confidence in our business. It could also
result in regulatory lapses that could lead to applicable
penalties, as well as increased regulatory oversight of our
business.
Potential conflicts
of interest in allocation among funds
Certain of our products may have overlapping investment objectives,
including funds that have different fee structures, and potential
conflicts may arise with respect to our decisions regarding how to
allocate investment opportunities among those funds. We may
allocate an investment opportunity that is appropriate for two or
more investment funds in a manner that excludes one or more funds
or results in a disproportionate allocation based on factors or
criteria that we determine, including but not limited to
differences with respect to available capital, the current or
anticipated size of a fund, minimum investment amounts, the
remaining life of a fund, differences in investment objectives,
guidelines or strategies, diversification, portfolio construction
considerations and other considerations deemed relevant to us and
in accordance with our policy. Although we have adopted investment
allocation policies and procedures that are designed to ensure fair
and equitable treatment over time, and expect these policies and
procedures to continue to evolve, those policies and procedures
will not eliminate all potential conflicts. Certain investment
opportunities may be allocated to certain funds that have lower
fees or to our
co-investment
funds that pay no fees. To the extent that those investments could
otherwise have been allocated to funds generating FPAUM, our
revenues will be less than what would otherwise have been generated
were those investments made through fee paying structures.
Potential conflicts
of interest in connection with
co-investments
between our private funds and our BDCs
Our BDCs are permitted to
co-invest
in portfolio companies with each other and with affiliated
investment funds in negotiated transactions pursuant to an SEC
order (the
“Co-investment
Exemptive Order”). Pursuant to that exemptive relief, our BDCs and
other affiliated investment funds generally are permitted to make
such
co-investments
if a “required majority” (as defined in Section 57(o) of the
Investment Company Act) of such BDC’s directors (including the
independent directors) makes certain conclusions in connection with
the
co-investment
transaction, including that (1) the terms of the transaction,
including the consideration to be paid, are reasonable and fair to
such BDC and its stockholders and do not involve overreaching in
respect of such BDC or its stockholders on the part of any person
concerned, (2) the transaction is consistent with the
interests of such BDC’s stockholders and with its investment
objective and strategies, and (3) the investment by one of our
BDCs and other affiliated investment funds would not disadvantage
any other of our BDCs, and such BDC’s participation would not be on
a basis different from or less advantageous than that on which the
other BDCs or other affiliated investment funds are investing. The
different investment objectives or terms of the BDCs and affiliated
investment funds may result in a potential conflict of interest,
including in connection with the allocation of investments among
our BDCs and/or our affiliated investment funds pursuant to the
Co-investment
Exemptive Order or otherwise.
As a result of our structure, our GP Capital Solutions products are
affiliated investment funds of our BDCs and are prohibited from
co-investing
with our BDCs, except as permitted by the Investment Company Act
and
the
Co-investment
Exemptive Order. Those restrictions may limit the ability of our GP
Capital Solutions products to make certain investments they
otherwise may have made, and subject our products to additional
compliance and regulatory risk. While it is not currently
anticipated that there will be substantial overlap in the
investment opportunities pursued by our BDCs, on the one hand, and
our GP Capital Solutions products, on the other hand, the
Co-investment
Exemptive Order will require that any opportunities that are
appropriate for both our BDCs and our GP Capital Solutions products
will need to be offered to our BDCs and any such investments, if
made, will need to be conducted in compliance with the conditions
of the
Co-Investment
Exemptive Order and other requirements under the Investment Company
Act. These restrictions also apply to our other Direct Lending and
Real Estate products and may apply to additional product lines in
the future.
Conflicts related to
investments by several of our products at different levels of the
capital structure of a single portfolio company or Partner
Manager.
Different funds that we advise and/or our BDCs may invest in a
single portfolio company, including at different levels of the
capital structure of the portfolio company. For example, in the
normal course of business, one of our products may acquire debt
positions in, or lend to, companies in which another of our
products owns common equity securities or a subordinated debt
position. This could occur at the time of, or subsequent to, the
initial investment in the portfolio company. A direct conflict of
interest could arise among the various debt holders and equity
holders if the company were to experience financial distress. In
addition, if one of our BDCs is an investor in a portfolio company
alongside other of our BDCs or affiliated investment funds we
advise that have invested in a different part of the portfolio
company’s capital structure, the Investment Company Act may
prohibit us from negotiating on behalf of any such fund in
connection with a reorganization or restructuring of the portfolio
company. While we have developed general guidelines regarding when
two or more funds can invest in different parts of the same
company’s capital structure and created a process that we employ to
handle those conflicts when they arise, our decision to permit the
investments to occur in the first instance or our judgment on how
to minimize the conflict could be challenged. If we fail to
appropriately address those conflicts, it could negatively impact
our reputation and ability to raise additional funds and the
willingness of counterparties to do business with us or result in
potential litigation against us.
Conflicts of
interest may arise in our allocation of costs and expenses, and we
are subject to increased regulatory scrutiny and uncertainty with
regard to those allocations.
As an asset manager with multiple funds, we regularly make
determinations to allocate costs and expenses both among our funds
and between our funds and their investment advisors. Certain of
those allocation determinations are inherently subjective and
virtually all of them are subject to regulatory oversight. Any
allocation or allegation of, or investigation into, a potential
violation could cause reputational harm and a loss of investor
confidence in our business. It could also result in regulatory
lapses and any applicable penalties, as well as increased
regulatory oversight of our business. In addition, any
determination to allocate fees to the applicable investment adviser
or Blue Owl could negatively affect our net income, and ultimately
decrease the value of our common stock and our dividends to our
stockholders. Similar considerations arise when allocating expenses
to, or away from vehicles to which specified interests apply.
Allocation of costs
and expenses among our funds and between our funds and applicable
management companies
We have a conflict of interest in determining whether certain costs
and expenses are incurred in the course of operating our funds,
including the extent to which services provided by certain
employees and associated costs are allocable to certain funds. Our
funds generally pay or otherwise bear all legal, accounting,
filing, and other expenses incurred in connection with organizing
and establishing the funds and the offering of interests in the
funds. Such determinations often require subjective judgment and
may result in the management company, rather than our funds, being
allocated certain fees and expenses. In addition, our funds
generally pay all expenses related to the operation of the funds
and their investment activities, in certain cases subject to caps.
We also
determine, in our sole discretion, the appropriate allocation of
investment-related expenses, including broken deal expenses,
incurred in respect of unconsummated investments and expenses more
generally relating to a particular investment strategy, among our
products, vehicles and accounts participating or that would have
participated in such investments or that otherwise participate in
the relevant investment strategy, as applicable. That often
requires judgment and could result in one or more of our funds
bearing more or less of these expenses than other investors or
potential investors in the relevant investments or a fund paying a
disproportionate share, including some or all, of the broken deal
expenses or other expenses incurred by potential investors. Any
dispute regarding such allocations could lead to our funds having
to bear some portion of these costs as well as reputational risk.
In addition, for funds that do not pay or otherwise bear the costs
and expenses described above because of the application of caps or
otherwise, such amounts may be borne by the applicable management
company, which will reduce the amount of net fee income we receive
for providing advisory services to the funds. For example, Dyal
Capital has developed a Business Services Platform that provides
strategic services to Partner Managers. Certain expenses associated
with the Business Services Platform (“BSP Expenses”) are allocated
among, and payable by, each of the GP Minority Equity Investment
funds (“Dyal Equity Funds”). Those Dyal Equity Funds are generally
allocated an amount equal to their pro rata allocation of BSP
Expenses based on the relative number of Partner Managers in which
investments are held from time to time by each of those funds;
provided that the amount of BSP Expenses borne by a particular Dyal
Equity Fund is subject to certain caps specified in its respective
governing documents. In addition, Dyal Fund V provides for a
minimum payment for BSP Expenses, which to the extent such minimum
exceeds Dyal Fund V’s otherwise allocable share of such expenses,
reduces the amounts of BSP Expenses borne by the other Dyal Equity
Funds. It is expected that any successor fund to Dyal Fund V would
similarly share in BSP Expenses.
We are required to bear any BSP Expenses allocated to a Dyal Equity
Fund that exceeds the fund’s cap on those expenses. In addition, in
certain instances, we expect to determine not to allocate or charge
certain BSP Expenses to the Dyal Equity Funds, or to a particular
fund, in response to regulatory, fund investor relations,
governance or other applicable considerations and determine instead
for those BSP Expenses to be borne by us. Any such determination
could have the effect of materially reducing the reimbursement
payments received by us with respect to the Business Services
Platform or result in losses attributable to certain activities
thereof. The allocation methodology for allocating BSP Expenses and
other similar expenses is complex and subject to interpretation.
Accordingly, there can be no assurance that any conflict arising
from these allocations of expenses will be resolved in a manner
responsive to the interests of all of our clients, which could
damage our reputation.
The activities of the Business Services Platform and the allocation
of BSP expenses have in the past been subject to an SEC order.
These and other expense allocation practices could in the future be
subject to regulatory scrutiny.
Existing and future
relationships between or among our Partner Managers, our products
and their limited partners could give rise to actual or perceived
conflicts of interest.
Certain of our GP Capital Solutions products’ Partner Managers
directly or through their investment funds, own securities in Blue
Owl or its subsidiaries. Additionally, Dyal Fund IV has a passive
minority equity interest in Owl Rock Feeder and became an indirect
equityholder in Blue Owl upon consummation of the Business
Combination. As a result, Dyal Fund IV will, to the extent it holds
shares of Blue Owl, be entitled to vote on matters submitted to
stockholders of Blue Owl generally, including with respect to the
election of directors. In addition, a controlled affiliate of Blue
Owl will serve as investment manager to Dyal Fund IV. Dyal Fund IV
may have different interests, including different investment
horizons, than Blue Owl generally or the Dyal Principals
specifically. However, any decision made with respect to holding or
disposing of Dyal Fund IV’s interest in Blue Owl will be determined
by such Blue Owl affiliate, as investment manager to Dyal Fund IV,
in a manner consistent with its statutory and contractual duties to
Dyal Fund IV. Because those decisions will be made independent from
consideration of Blue Owl’s interests, they may, due to a range of
factors, conflict with Blue Owl’s own interests at such time.
GP Capital Solutions products hold minority, noncontrolling
interests in a broad range of Partner Managers. Those Partner
Managers may, from time to time, directly or through their funds,
enter into transactions or other contractual arrangements with us
or our products outside of the GP Minority Equity Investments
strategy, including our private funds, BDCs and Real Estate
products, or between or among one another in the ordinary course of
business, which may result in additional conflicts of interest.
None of those transactions or other contractual arrangements are
believed to be currently material to our operations or performance
but there may be material transactions entered into in the
future.
Even if those relationships do not create actual conflicts, the
perception of conflicts in the press or the financial community
generally could create negative publicity with respect to Blue Owl,
which could adversely affect the relationships of with our product
investors.
Debt investments in
Partner Manager investments by the funds.
Portfolio companies of funds managed by our Partner Managers may
also be borrowers under debt facilities or instruments owned,
arranged or managed by our BDCs or funds. In its capacity as agent
or lender under such facilities or instruments, a BDC or fund is
required to act in the best interests of its stockholders or
investors. In certain circumstances, a BDC or fund may be required
to take actions that may be adverse to the investments owned by
funds managed by Partner Managers, which could adversely affect our
relationships with the Partner Managers, or potentially impact the
value of a GP Capital Solutions product’s investment in such
Partner Manager. As a result, although we believe that the Business
Combination has enhanced our ability to source investment
opportunities for our BDCs and funds through, among other things,
our enhanced relationships with Partner Managers, it also may
result in additional conflicts of interest.
Our Real Estate
products may enter into sale lease-back transactions with portfolio
companies of funds managed by our Partner Managers or borrowers
under debt facilities or instruments owned, arranged or managed by
our BDCs or funds.
From time to time, companies in which our BDCs or funds, or funds
managed by our Partner Managers, have invested or may invest, may
enter into sale-leaseback transactions with our Real Estate
products. These arrangements could result in our BDCs or funds, or
funds managed by our Partner Managers, being creditors to, or
equity owners of, such companies at the same time as those
companies are tenants of our Real Estate products. If such a
company were to encounter financial difficulty or default on its
obligations as a borrower, our BDC or fund, or a fund managed by a
Partner Manager, could be required to take actions that may be
adverse to those of our Real Estate products in enforcing its
rights under the relevant facilities or agreements, or vice
versa.
Additional and
unpredictable conflicts of interests may rise in the future.
In addition to the conflicts outlined above, we may experience
conflicts of interest in connection with the management of our
business affairs relating to and arising from a number of matters,
including the amounts paid to us by our investment funds; services
that may be provided by us and our affiliates to investments in
which our investment funds invest (including the determination of
whether or not to charge fees to our investments for our provision
of such services); investments by our investment funds and our
other clients, subject to the limitations of the Investment Company
Act; our formation of additional investment funds; differing
recommendations given by us to different clients; and our use of
information gained from an investment funds’ investments used to
inform investments by other clients, subject to applicable
law.
Our products hold
and make investments in Partner Managers and there may be
provisions within our arrangements with Partner Managers that could
affect our right to receive or share information or cause us to
sell our interests in the Partner Manager.
The terms of our GP Capital Solutions products’ investments in
Partner Managers generally include provisions relating to
competitors of the Partner Managers, access to information about
the Partner Managers and
their business, and affirmative and negative confidentiality
obligations regarding the Partner Managers. While we have an
information control policy with restrictions regarding the sharing
of a Partner Manager’s confidential information, such policy and
related procedures may not reduce a Partner Manager’s concern over
the sharing of confidential and competitively sensitive
information. Certain Partner Managers that are engaged in managing
funds focused on similar businesses as our other product lines may
consider Blue Owl to be a competitor with respect to their business
and may seek to invoke remedies available to them under the
investment agreements or pursue other remedies. Potential remedies
available to them under the investment agreements, as applicable,
include limiting the rights of our products to receive confidential
information from the Partner Manager regarding its business,
requiring us to sequester confidential information received from
the Partner Manager, or requiring us to sell our interests in the
Partner Manager for fair value as determined under the relevant
investment agreement. A forced sale of a Partner Manager interest
may reduce the amount of fees we receive with respect to the
applicable GP Capital Solutions product, and any reduction in
information may impede our ability to supervise our funds’
investments. Further, the affiliation may hinder our GP Capital
Solutions products’ ability to make future investments in Partner
Managers who are in the same space and who may consider Blue Owl a
competitor, including
follow-on
investments in existing Partner Managers and investments with new
Partner Managers.
The operations of
our business and related transactions may affect our reputation and
relationship with our Partner Managers.
We are reliant upon our strong relationships with our Partner
Managers for the continued growth and development of business. Due
to the number of Partner Managers with which we have relationships,
we may compete with existing or prospective Partner Managers, which
could negatively impact our ability to attract new Partner Managers
to our products who may seek relationships with
non-competitors
over concerns of sharing information with competitors or other
potential conflicts, including the ability to exercise our
fiduciary duties. Additionally, our investments in Partner Managers
may affect our relationships with other sponsors that are key
relationships for our lending businesses, because of similar
concerns around information sharing or other reasons. While we
intend to implement robust procedures to address any such conflict,
such procedures may not reduce the perception that such conflicts
exist and may make us a less attractive partner/investor.
Our entitlement and
that of certain of our stockholders, Principals and employees to
receive performance income from certain of our products may create
an incentive for us to make more speculative investments and
determinations on behalf of our products than would be the case in
the absence of such performance income.
Some of our products receive performance-based fees. With respect
to Dyal Funds I—V and their related
co-investment
vehicles, none of the carried interest will be allocated to us.
Further, we will be allocated a portion of the carried interest
attributable to future GP Capital Solutions and Direct Lending
products as well as 15% of the carried interest in existing Real
Estate products. If a new GP Capital Solutions product is formed to
facilitate a secondary transaction with respect to any of Dyal
Funds I—V (which would include, without limitation, any
continuation fund or other new fund whose primary purpose is to
acquire directly or indirectly all or a portion of the assets of or
interests in the existing Dyal Fund), any carried interest
generated by such fund will not be allocated to us, notwithstanding
that such secondary vehicle is formed in the future. Realized
performance income not allocated to us is allocated to certain of
our stockholders, Principals and employees in vehicles not
controlled by us. Carried interest and performance based fees or
allocations may create an incentive for us or our investment
professionals to make more speculative or riskier investments and
determinations, directly or indirectly on behalf of our products,
or otherwise take or refrain from taking certain actions than it
would otherwise make in the absence of such carried interest or
performance-based fees or allocations. It may also create
incentives to influence how we establish economic terms for future
funds. In addition, we may have an incentive to make exit
determinations based on factors that maximize economics in favor of
certain of our stockholders, Principals and employees relative to
us and our
non-participating
stockholders. Our failure to appropriately address any actual,
potential or perceived conflicts of interest resulting from our
entitlement to receive performance income from many of our products
could have a material adverse effect on our reputation,
which could materially and adversely affect our business in a
number of ways, including limiting our ability to raise additional
funds, attract new clients or retain existing clients.
Our business is
currently focused on multiple investment strategies.
We currently pursue, through our products, multiple investment
strategies. While we believe that there may be certain synergies
amongst the various strategies, there can be no assurance that the
benefits will manifest or that there will not be unanticipated
consequences resulting therefrom. Although we are seeking
additional investment strategies, relative to more diversified
asset managers, our products’ limited and specialized focus also
leaves us more exposed to risks affecting the dual sectors in which
our products invest. As our investment management program is not
broadly diversified, we may be uniquely exposed to market, tax,
regulatory and other risks affecting the sectors in which we
invest. There can be no assurance that we will be able to take
actions necessary to mitigate the effect of such risks or otherwise
diversify our investment program to minimize such exposure.
Rising interest
rates could have a substantial adverse effect on our
business.
Rising interest rates could have a dampening effect on overall
economic activity, the financial condition of our customers and the
financial condition of the end customers who ultimately create
demand for the capital we supply, all of which could negatively
affect demand for our capital. Additionally, an increase in
interest rates could make it difficult for us to obtain financing
at attractive rates, impacting our ability to execute on our growth
strategies or future acquisitions.
The anticipated
benefits of the Oak Street Acquisition and other acquisitions that
we may pursue under our growth strategy, may not be realized or may
take longer than expected to realize.
The optimization of our combined operations following the Oak
Street Acquisition, or any other acquisition that we may pursue
under our growth strategy, will be a complex, costly and
time-consuming process and if we experience difficulties in this
process, the anticipated benefits may not be realized fully or at
all, or may take longer to realize than expected, which could have
an adverse effect on us for an undetermined period. There can be no
assurances that we will realize the potential operating
efficiencies, synergies and other benefits currently anticipated
from any acquisition.
The integration of our business and Oak Street may present material
challenges, including, without limitation:
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combining the leadership teams and corporate cultures of us and Oak
Street;
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the diversion of management’s attention from ongoing business
concerns and performance shortfalls at one or both of the
businesses as a result of the devotion of management’s attention to
the continuing integration of the businesses;
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managing a larger combined business;
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maintaining employee morale and retaining key management and other
employees at the combined company, including by offering
sufficiently attractive terms of employment;
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retaining existing business and operational relationships, and
attracting new business and operational relationships;
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the possibility of faulty assumptions underlying expectations
regarding the integration process;
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consolidating corporate and administrative infrastructures and
eliminating duplicative operations;
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managing expense loads and maintaining currently anticipated
operating margins given that our two businesses are different in
nature and therefore may require additional personnel and
compensation expenses, which expenses may be borne by us, rather
than our products;
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difficulty replicating or replacing functions, systems and
infrastructure provided by Neuberger or certain of its affiliates
or the loss of benefits from Neuberger’s global contracts;
and
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unanticipated issues in integrating information technology,
communications and other systems.
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In addition, our growth strategy contemplates that we will pursue
acquisitions of assets or business that are complementary to our
business, such as the recently completed Wellfleet Acquisition.
Some or all of the foregoing risks may arise in connection with
integrating these acquisitions. Some of those factors are outside
of our control, and any one of them could result in delays,
increased costs, decreases in the amount of potential revenues or
synergies, potential cost savings, and diversion of management’s
time and energy, which could materially affect our financial
position, results of operations, and cash flows.
We may continue to
enter into new lines of business and expand into new investment
strategies, geographic markets and businesses, each of which may
result in upfront costs and additional risks and uncertainties in
our businesses.
We intend, if market conditions warrant, to grow our businesses by
increasing FPAUM in existing businesses and expanding into new
investment strategies, geographic markets (including in both U.S.
and
non-U.S.
markets) and businesses. For example, we recently completed both
the Oak Street Acquisition, which focuses on structuring
sale-leasebacks, including triple net leases, and the acquisition
Wellfleet Credit Partners LLC, the performing credit arm of
Littlejohn & Co., LLC which focuses on the management of
CLO portfolios of broadly syndicated leveraged loans. Subject to
the consent rights of Neuberger as set forth in the Investor Rights
Agreement (as described below), we may pursue growth through
acquisitions of other investment management companies, expansion
into new markets, acquisitions of critical business partners or
other strategic initiatives, in each case, which may include
entering into new lines of business.
Attempts to expand our businesses involve a number of special
risks, including some or all of the following:
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the required investment of capital and other resources;
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the diversion of management’s attention from our core
businesses;
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the assumption of liabilities in any acquired business;
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the disruption of our ongoing businesses;
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entry into markets or lines of business in which we may have
limited or no experience, and which may subject us to new laws and
regulations which we are not familiar or from which we are
currently exempt;
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increasing demands on our operational and management systems and
controls;
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compliance with or applicability to our businesses or our funds’
portfolio companies of regulations and laws, including, in
particular, local regulations and laws (for example, consumer
protection related laws) and the impact that noncompliance or even
perceived noncompliance could have on us and our funds’ portfolio
companies;
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conflicts between business lines in deal flow or objectives;
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we may be dependent upon, and subject to liability, losses or
reputational damage relating to, systems, controls and personnel
that are not under our control;
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potential increase in fund investor concentration; and
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the broadening of our geographic footprint, increasing the risks
associated with conducting operations in foreign jurisdictions
where we currently have little or no presence, such as different
legal, tax and regulatory regimes and currency fluctuations, which
require additional resources to address.
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Because we have not yet identified these potential new investment
strategies, geographic markets or lines of business, we cannot
identify all of the specific risks we may face and the potential
adverse consequences on us and their investment that may result
from any attempted expansion.
Rapid growth of our
businesses may be difficult to sustain and may place significant
demands on our administrative, operational and financial
resources.
Our AUM has grown significantly in the past, and we intend to
pursue further growth in the near future, including through
acquisitions. Our rapid growth has placed, and future growth, if
successful, will continue to place, significant demands on our
legal, compliance, accounting and operational infrastructure and
will result in increased expenses. In addition, we are, and will
continue to be, required to continuously develop our systems and
infrastructure in response to the increasing sophistication of the
investment management market; legal, accounting, regulatory and tax
developments and continually evolving cybersecurity risks.
Our future growth will depend in part on our ability to maintain an
operating platform and management system sufficient to address our
growth and may require us to incur significant additional expenses
and to commit additional senior management and operational
resources. As a result, we may face significant challenges
in:
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maintaining adequate financial, regulatory (legal, tax and
compliance) and business controls;
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providing current and future fund investors and stockholders with
accurate and consistent reporting;
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implementing new or updated information and financial systems and
procedures; and
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training, managing and appropriately sizing our work force and
other components of our businesses on a timely and cost-effective
basis.
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We may not be able to manage our expanding operations effectively
and may not be ready to continue to grow because of operational
needs, and any failure to do so could adversely affect our ability
to generate revenue and control our expenses. In addition, if we
are unable to consummate or successfully integrate development
opportunities, acquisitions or joint ventures, we may not be able
to implement our growth strategy successfully.
Our Professional
Sports Minority Investments strategy is new, subject to significant
risk and uncertainty.
We have established and are continuing to build a new relationship
with the NBA in furtherance of our Professional Sports Minority
Investments strategy. Our Dyal HomeCourt Fund makes minority
investments in NBA franchises. The NBA provides certain services
with respect to the Dyal HomeCourt Fund and receives a share of
management fees and incentive allocations attributable to the fund.
There is no assurance that we will be able to raise sufficient
funds to continue to execute this strategy in the future. As
advisor to the Dyal HomeCourt Fund, we may be exposed to liability
to the NBA in a range of circumstances including as a result of a
violation of rules applicable to NBA franchise owners by us or
investors in our Dyal HomeCourt Fund or, in certain circumstances,
by our
co-owners
of a team (regardless of whether such persons were acting under our
direction or control), the departure of certain Dyal Capital key
persons or the occurrence of certain events constituting cause. Any
failure of the Professional Sports Minority Investments strategy
could result in a decrease in our FPAUM growth potential and have
an adverse effect on our reputation. In addition, we associate from
time to time with different businesses and managers in different
ways. This may include Partner Managers, Dyal Home Court, and our
seeding business through Oak Street. To differing degrees, these
present the potential for a reputational risk that may have
consequences that exceed the current materiality of the revenue
from these businesses.
We depend on our
senior management team, senior investment professionals and other
key personnel, and the loss of their services would have a material
adverse effect on us and our products.
Our success depends on the efforts, judgment and personal
reputations of our senior management team, senior investment
professionals and other key personnel. Their reputations, expertise
in investing, relationships
with fund investors and with other members of the business
communities on whom we and our products depend on for investment
opportunities and financing are each critical elements in operating
and expanding our business. The loss of the services of our senior
management team, senior investment professionals or other key
personnel could have a material adverse effect on us and our
products, and on the performance of our products, including on our
ability to retain and attract fund investors and raise
capital.
The departure of some or all of those individuals could also
trigger certain provisions tied to the departure of, or cessation
of committed time, by those persons (known as “key person”
provisions) in the documentation governing certain of our products,
which could permit the investors in those funds to suspend or
terminate those funds’ investment periods. We do not carry any “key
person” insurance that would provide us with proceeds in the event
of the death or disability of any of our senior professionals, and
we do not have a policy that prohibits our senior professionals
from traveling together.
In addition, each of our Key Individuals is entitled to significant
compensation payments and under certain circumstances (including
the Key Individual’s death or disability), the Key Individual (or
his estate) is entitled to retain those payments for up to five
years following such person’s ceasing to be employed by us. While
we continue to make such payments, we may need to find or promote
new employees to replace the former Key Individual, which may
require additional significant compensation to be paid by us, which
could adversely affect our earnings.
Employee misconduct
could harm us by impairing our ability to attract and retain fund
investors and subjecting us to significant legal liability,
regulatory scrutiny and reputational harm.
Our ability to attract and retain fund investors and to pursue
investment opportunities for our clients depends heavily upon the
reputation of our professionals, especially our senior
professionals as well as third-party service providers. We are
subject to a number of obligations and standards arising from our
investment management business and our authority and statutory
fiduciary status over the assets managed by our investment
management business. Further, our employees are subject to various
internal policies including a Code of Ethics and policies covering
conflicts of interest, information systems, business continuity and
information security. The violation of those obligations, standards
and policies by any of our employees or misconduct by one of our
third-party service providers could adversely affect investors in
our products and us. Our businesses often require that we deal with
confidential matters of great significance to companies in which
our products may invest. If our employees, former employees or
third-party service providers were to use or disclose confidential
information improperly, we could suffer serious harm to our
reputation, financial position and current and future business
relationships. Employee or third-party service provider misconduct
could also include, among other things, binding us to transactions
that exceed authorized limits or present unacceptable risks and
other unauthorized activities or concealing unsuccessful
investments (which, in either case, may result in unknown and
unmanaged risks or losses), or otherwise charging (or seeking to
charge) inappropriate expenses or inappropriate or unlawful
behavior or actions directed towards other employees.
It is not always possible to detect or deter misconduct by
employees or third-party service providers, and the extensive
precautions we take to detect and prevent this activity may not be
effective in all cases. If one or more of our employees, former
employees or third-party service providers were to engage in
misconduct or were to be accused of such misconduct, our businesses
and our reputation could be adversely affected and a loss of fund
investor confidence could result, which would adversely impact our
ability to raise future funds. Our current and former employees and
those of our products’ investments as well as our third-party
service providers may also become subject to allegations of sexual
harassment, racial and gender discrimination or other similar
misconduct, which, regardless of the ultimate outcome, may result
in adverse publicity that could harm our and such portfolio
company’s brand and reputation.
Our future growth
depends on our ability to attract, retain and develop human capital
in a highly competitive talent market.
The success of our business will continue to depend upon us
attracting, developing and retaining human capital. Competition for
qualified, motivated, and highly-skilled executives, professionals
and other key personnel in asset management firms is significant.
Turnover and associated costs of rehiring, the loss of human
capital through attrition, death, or disability and the reduced
ability to attract talent could impair our ability to implement our
growth strategy and maintain our standards of excellence. Our
future success will depend upon our ability to find, attract,
retain and motivate highly-skilled and highly-qualified
individuals. We seek to provide our personnel with competitive
benefits and compensation packages. However, our efforts may not be
sufficient to enable us to attract, retain and motivate qualified
individuals to support our growth. Moreover, if our personnel join
competitors or form businesses that compete with ours, that could
adversely affect our ability to raise new or successor funds.
We are subject to
risks related to corporate social responsibility.
We and our products face increasing public scrutiny related to
environmental, social and governance (“ESG”) activities, including
diversity and inclusion, environmental stewardship, support for
local communities, corporate governance and transparency. Before
making an investment on behalf of our products, we analyze a wide
array of considerations, risks, and potential rewards related to
the prospective investment. Among the pecuniary considerations we
analyze are the present and future material ESG implications of
investments. It is expected that investor demands and the
prevailing legal environment will require us to spend additional
resources and place increasing importance on ESG matters in our
review of prospective investments and management of existing ones.
Devoting additional resources to ESG matters could increase the
amount of expenses we or our investments are required to bear.
Further, emphasis on ESG criteria in evaluating an investment by us
or our products could lead to reduced profits.
ESG matters have been the subject of increased focus by certain
regulators, including in the United States and the European Union.
A lack of harmonization globally in relation to ESG legal and
regulatory reform leads to a risk of fragmentation in group level
priorities as a result of the different pace of sustainability
transition across global jurisdictions. This may create conflicts
across our global business and funds in which we invest which could
risk inhibiting our future implementation of, and compliance with,
rapidly developing ESG standards and requirements.
The European Commission has adopted legislative reforms, which
include, without limitation: (a) Regulation 2019/2088
regarding the introduction of transparency and disclosure
obligations for fund investors, funds and asset managers in
relation to ESG factors, for which most rules took effect beginning
on March 10, 2021; (b) a regulation regarding the introduction
of an
EU-wide
taxonomy of environmentally sustainable activities, which takes
effect in part in January 2022 and in part in January 2023; and
(c) amendments to existing regulations including MiFID II and
the European Union (“EU”) Alternative Investment Fund Managers
Directive (the “AIFMD”) to embed ESG requirements.
As a result of these legislative and regulatory initiatives, we may
be required to provide additional disclosure to investors in our
products with respect to ESG matters. This exposes us to increased
disclosure risks, for example due to a lack of available or
credible data, and the potential for conflicting disclosures may
also expose us to an increased risk of misstatement litigation or
miss-selling allegations. Failure to manage these risks could
result in a material adverse effect on our business in a number of
ways.
The effect of global
climate change may impact the operations of our products’
investments.
There is evidence of global climate change. Climate change creates
physical and financial risk and some of our products and their
investments may be adversely affected by climate change. For
example, the needs of
customers of energy companies vary with weather conditions,
primarily temperature and humidity. To the extent weather
conditions are affected by climate change, energy use could
increase or decrease depending on the duration and magnitude of any
changes. Increases in the cost of energy could adversely affect the
cost of operations of our investments if the use of energy products
or services is material to their business. A decrease in energy use
due to weather changes may affect some of our investments’
financial condition through, for example, decreased revenues.
Extreme weather conditions in general require more system backup,
adding to costs, and can contribute to increased system stresses,
including service interruptions.
We are subject to
risks in using custodians, counterparties, administrators and other
agents.
Many of our products depend on the services of custodians,
counterparties, administrators and other agents to carry out
certain transactions and other administrative services, including
compliance with regulatory requirements in U.S. and
non-U.S.
jurisdictions. We are subject to risks of errors and mistakes made
by these third parties, which may be attributed to us and subject
us or our products’ investors to reputational damage, penalties or
losses. We depend on third parties to provide primary and back up
communications and information systems. Any failure or interruption
of those systems, including as a result of the termination of an
agreement with any third-party service providers, could cause
delays or other problems in our activities. Our financial,
accounting, data processing, portfolio monitoring, backup or other
operating systems and facilities may fail to operate properly or
become disabled or damaged as a result of a number of factors
including events that are wholly or partially beyond our
control.
The terms of the contracts with third-party service providers are
often customized and complex, and many of these arrangements occur
in markets or relate to products that are not subject to regulatory
oversight. Accordingly, we may be unsuccessful in seeking
reimbursement or indemnification from these third-party service
providers. In addition, we rely on a select number of third-party
services providers and replacement of any one of our service
providers could be difficult and result in disruption and
expense.
Cybersecurity risks
and cyber incidents could adversely affect our business by causing
a disruption to our operations, a compromise or corruption of our
confidential information and confidential information in our
possession and damage to our business relationships, any of which
could negatively impact our business, financial condition and
operating results.
There has been an increase in the frequency and sophistication of
the cyber and security threats we face, with attacks ranging from
those common to businesses generally to those that are more
advanced and persistent, which may target us because, as an
alternative asset management firm, we hold confidential and other
price sensitive information about existing and potential
investments. Cyber-attacks and other security threats could
originate from a wide variety of sources, including cyber
criminals, nation state hackers, hacktivists and other outside
parties. As a result, we may face a heightened risk of a security
breach or disruption with respect to sensitive information
resulting from an attack by computer hackers, foreign governments
or cyber terrorists.
The efficient operation of our business is dependent on computer
hardware and software systems, as well as data processing systems
and the secure processing, storage and transmission of information,
which are vulnerable to security breaches and cyber incidents. A
cyber incident is considered to be any adverse event that threatens
the confidentiality, integrity or availability of our information
resources. These incidents may be an intentional attack or an
unintentional event and could involve gaining unauthorized access
to our information systems for purposes of misappropriating assets,
stealing confidential information, corrupting data or causing
operational disruption. In addition, we and our employees may be
the target of fraudulent emails or other targeted attempts to gain
unauthorized access to proprietary or sensitive information. The
result of these incidents may include disrupted operations,
misstated or unreliable financial data, fraudulent transfers or
requests for transfers of money, liability for stolen assets or
information, increased cybersecurity protection and insurance
costs, litigation and damage to our business relationships, causing
our business and results of operations to suffer. As our reliance
on technology has increased, so have the risks posed to our
information systems, both internal and those provided by
third-party
service providers. We have implemented processes, procedures and
internal controls designed to mitigate cybersecurity risks and
cyber intrusions and rely on industry accepted securities measures
and technology to securely maintain confidential and proprietary
information maintained on our information systems; however, these
measures, as well as our increased awareness of the nature and
extent of a risk of a cyber-incident, do not guarantee that a
cyber-incident will not occur and/or that our financial results,
operations or confidential information will not be negatively
impacted by such an incident, especially because the cyber-incident
techniques change frequently or are not recognized until launched
and because cyber-incidents can originate from a wide variety of
sources.
Those risks are exacerbated by the rapidly increasing volume of
highly sensitive data, including our proprietary business
information and intellectual property, and personally identifiable
information of our employees, our clients and others, that we
collect and store in our data centers and on our networks. Our
products may also invest in strategic assets having a national or
regional profile or in infrastructure assets, the nature of which
could expose them to a greater risk of being subject to a terrorist
attack or security breach than other assets or businesses. The
secure processing, maintenance and transmission of this information
are critical to our operations. A significant actual or potential
theft, loss, corruption, exposure, fraudulent use or misuse of fund
investor, employee or other personally identifiable or proprietary
business data, whether by third parties or as a result of employee
malfeasance (or the negligence or malfeasance of third party
service providers that have access to such confidential
information) or otherwise,
non-compliance
with our contractual or other legal obligations regarding such data
or intellectual property or a violation of our privacy and security
policies with respect to such data could result in significant
remediation and other costs, fines, litigation or regulatory
actions against us and significant reputational harm.
Increased data
protection regulation may result in increased complexities and risk
in connection with the operation of our business and our
products.
We operate in businesses that are highly dependent on information
systems and technology. The costs related to cyber or other
security threats or disruptions may not be fully insured or
indemnified by other means. Cybersecurity has become a priority for
regulators in the U.S. and around the world. Many jurisdictions in
which we operate have laws and regulations relating to data
privacy, cybersecurity and protection of personal information,
including the California Consumer Privacy Act that went into effect
on January 1, 2020, and the New York SHIELD Act, which went
into effect on March 1, 2020. In addition, one of the 2019
examination priorities for the SEC’s Office of Compliance
Inspections and Examinations was to continue to examine
cybersecurity procedures and controls, including testing the
implementation of these procedures and controls. Further, the
European General Data Protection Regulation (the “GDPR”) came into
effect in May 2018. Data protection requirements under the GDPR are
more stringent than those imposed under prior European legislation.
There are substantial financial penalties for breach of the GDPR,
including up to the higher of 20 million Euros or 4% of group
annual worldwide turnover.
Non-compliance
with any of the aforementioned laws or other similar laws,
therefore, represents a serious risk to our business. Some
jurisdictions have also enacted laws requiring companies to notify
individuals of data security breaches involving certain types of
personal data. Breaches in security could potentially jeopardize
our, our employees’ or our product investors’ or counterparties’
confidential and other information processed and stored in, and
transmitted through, our computer systems and networks, or
otherwise cause interruptions or malfunctions in our, our
employees’, our product investors’, our counterparties’ or third
parties’ operations, which could result in significant losses,
increased costs, disruption of our business, liability to our
product investors and other counterparties, regulatory intervention
or reputational damage. Furthermore, if we fail to comply with the
relevant laws and regulations, it could result in regulatory
investigations and penalties, which could lead to negative
publicity and may cause our product investors and clients to lose
confidence in the effectiveness of our security measures.
We are subject to
litigation risks, and consequently, we may face liabilities and
damage to our professional reputation as a result.
Legal liability could have a material adverse effect on our
businesses, financial condition or results of operations or cause
reputational harm to us, which could harm our businesses. We depend
to a large extent on our business relationships and our reputation
for integrity and high-caliber professional services to attract and
retain fund investors and to pursue investment opportunities for
our products. As a result, allegations of improper conduct asserted
by private litigants or regulators, regardless of whether the
ultimate outcome is favorable or unfavorable to us, as well as
negative publicity and press speculation about us, our investment
activities or the investment industry in general, whether or not
valid, may harm our reputation, which may be damaging to our
businesses.
In addition, the laws and regulations governing the limited
liability of such issuers and investments vary from jurisdiction to
jurisdiction, and in certain contexts the laws of certain
jurisdictions may provide not only for carve-outs from limited
liability protection for the issuer or portfolio company that has
incurred the liabilities, but also for recourse to assets of other
entities under common control with, or that are part of the same
economic group as, such issuer. For example, if any of our
products’ investments is subject to bankruptcy or insolvency
proceedings in a jurisdiction and is found to have liabilities
under the local consumer protection, labor, tax or bankruptcy laws,
the laws of that jurisdiction may permit authorities or creditors
to file a lien on, or to otherwise have recourse to, assets held by
other investments (including assets held by our products) in that
jurisdiction. There can be no assurance that we will not be
adversely affected as a result of the foregoing risks.
We may not be able
to maintain sufficient insurance to cover us for potential
litigation or other risks.
We may not be able to maintain sufficient insurance on commercially
reasonable terms or with adequate coverage levels against potential
liabilities we may face in connection with potential claims, which
could have a material adverse effect on our business. We may face a
risk of loss from a variety of claims, including related to
securities, antitrust, contracts, cybersecurity, fraud and various
other potential claims, whether or not such claims are valid.
Insurance and other safeguards might only partially reimburse us
for our losses, if at all, and if a claim is successful and exceeds
or is not covered by our insurance policies, we may be required to
pay a substantial amount in respect of such successful claim.
Certain losses of a catastrophic nature, such as losses arising as
a result of wars, earthquakes, typhoons, terrorist attacks or other
similar events, may be uninsurable or may only be insurable at
rates that are so high that maintaining coverage would cause an
adverse impact on our business, our investment funds and their
investments. In general, losses related to terrorism are becoming
harder and more expensive to insure against. Some insurers are
excluding terrorism coverage from their
all-risk
policies. In some cases, insurers are offering significantly
limited coverage against terrorist acts for additional premiums,
which can greatly increase the total cost of casualty insurance for
a property. As a result, we, our products and their investments may
not be insured against terrorism or certain other catastrophic
losses.
Our use of leverage
to finance our businesses exposes us to substantial risks. Any
security interests or negative covenants required by a credit
facility we enter into may limit our ability to create liens on
assets to secure additional debt.
We may choose to finance our businesses operations through the
issuance of senior notes, borrowings under our Revolving Credit
Facility or by issuing additional debt in the future. Our existing
and future indebtedness exposes us to the typical risks associated
with the use of leverage. The occurrence or continuation of any of
these events or trends could cause us to suffer a decline in the
credit ratings assigned to our debt by rating agencies, which could
cause the interest rate applicable to borrowings under the
Revolving Credit Facility to increase and could result in other
material adverse effects on our businesses. We depend on financial
institutions extending credit to us on terms that are reasonable to
us. There is no guarantee that such institutions will continue to
extend credit to us or renew any existing credit agreements we may
have with them, or that we will be able to refinance outstanding
facilities when they mature. In addition, the incurrence of
additional debt in the future could result in
potential downgrades of our existing corporate credit ratings,
which could limit the availability of future financing and increase
our cost of borrowing. Furthermore, our Revolving Credit Facility
contains certain covenants with which we need to comply.
Non-compliance
with any of the covenants without cure or waiver would constitute
an event of default, and an event of default resulting from a
breach of certain covenants could result, at the option of the
lenders, in an acceleration of the principal and interest
outstanding. In addition, if we incur additional debt, our credit
rating could be adversely impacted.
Blue Owl may provide financial guarantees of performance in
connection with certain investments, particularly in the Real
Estate product-line, to certain lenders to its products and
investments. Lenders in commercial real estate financing
customarily will require such guarantees, which typically provides
that the lender can recover losses from the guarantors for certain
bad acts, such as fraud or intentional misrepresentation,
intentional waste, willful misconduct, criminal acts,
misappropriation of funds, voluntary incurrence of prohibited debt
and environmental losses sustained by lender. It is expected that
commercial real estate financing arrangements will generally
require such guarantees and in the event that such a guarantee is
called, Blue Owl’s assets could be materially and adversely
affected.
As borrowings under our senior notes, Revolving Credit Facility and
any future indebtedness mature, we may be required to either
refinance them by entering into new facilities or issuing
additional debt, which could result in higher borrowing costs, or
issuing equity, which would dilute existing stockholders. We could
also repay these borrowings by using cash on hand, cash provided by
our continuing operations or cash from the sale of our assets. We
may be unable to enter into new facilities or issue debt or equity
in the future on attractive terms, or at all. Borrowings under the
Revolving Credit Facility are SOFR-based obligations. As a result,
an increase in short-term interest rates will increase our interest
costs if such borrowings are not been hedged into fixed rates in
the future.
Risks Related to Legal and Regulatory Environment
Our businesses are
subject to extensive domestic and foreign regulations that may
subject us to significant costs and compliance requirements, and
our failure to comply with such regulations could have a material
adverse effect on our business.
Our businesses, as well as the financial services industry,
generally are subject to extensive regulation, including periodic
examinations, by governmental agencies and self-regulatory
organizations or exchanges in the U.S. and foreign jurisdictions in
which we operate relating to, among other things, securities,
antitrust, anti-money laundering, anti-bribery, tax and privacy.
Each of the regulatory bodies with jurisdiction over us has
regulatory powers dealing with many aspects of financial services,
including the authority to grant, and in specific circumstances to
cancel, permissions to carry on particular activities. The
financial services industry may face an increasingly difficult
political and regulatory environment, especially as a result of the
recent change in presidential administration. The current
administration has expressed support for proposals that call for
greater regulatory oversight of the financial services industry. If
these proposals were to become policy, such developments, including
investors’ perceptions of and responses to such proposals, could
potentially have a material adverse effect on our business, our
products and the businesses of the companies in which our products
invest.
We recently expanded our business to Canada, the U.K., Hong Kong
and Singapore. Differences between the laws and rules governing our
businesses in these jurisdictions compared to the United States
result in inconsistent regulatory requirements that it may not be
possible to fully reconcile in a cost-efficient manner across our
businesses.
The SEC oversees the activities of certain of our subsidiaries that
are registered investment advisers under the Investment Advisers
Act of 1940 (the “Advisers Act”) and the activities of our BDCs
that are regulated under the Investment Company Act.
Investment Advisers
Act of 1940:
The Advisers Act imposes specific restrictions on an investment
adviser’s ability to engage in principal and agency cross
transactions. Our registered investment advisers are subject to
additional requirements that cover, among other things, disclosure
of information about our business to clients; maintenance of
written policies and procedures; maintenance of extensive books and
records; restrictions on the types of fees we may charge, including
performance fees and carried interest; solicitation arrangements;
maintaining effective compliance programs; custody of client
assets; client privacy; advertising; and proxy voting. Failure to
comply with the obligations imposed by the Advisers Act could
result in investigations, sanctions, fines, restrictions on the
activities of us or our personnel and reputational damage.
Under the Advisers Act, an investment adviser (whether or not
registered under the Advisers Act) has fiduciary duties to its
clients. The SEC has interpreted those duties to impose standards,
requirements and limitations on, among other things, trading for
proprietary, personal and client accounts; allocations of
investment opportunities among clients; execution of transactions;
and recommendations to clients.
Our subsidiaries are the advisers to our BDCs, which are subject to
the rules and regulations under the Investment Company Act. Our
BDCs are required to file periodic and annual reports with the SEC
and may also be required to comply with the applicable provisions
of the Sarbanes-Oxley Act. Furthermore, advisers to our BDCs have a
fiduciary duty under the Investment Company Act not to charge
excessive compensation, and the Investment Company Act grants
stockholders of mutual funds and BDCs a direct private right of
action against investment advisers to seek redress for alleged
violations of this fiduciary duty.
While we exercise broad discretion over the
management of our BDCs, each of our BDCs is also subject to
oversight and management by a board of directors, a majority of
whom are not “interested persons” as defined under the Investment
Company Act. The responsibilities of each of our BDC’s boards
include, among other things, approving our advisory contract with
the applicable BDC that we manage; approving certain service
providers; determining the valuation and the method for valuing
assets; and monitoring transactions involving affiliates; and
approving certain
co-investment
transactions. The advisory contracts with each of our BDCs may be
terminated by the stockholders or directors of such BDC on not more
than 60 days’ notice, and are subject to annual renewal by each
respective BDC’s board of directors after an initial
two-year
term.
Our BDCs are also prohibited from knowingly participating in
certain transactions with their affiliates, except as permitted by
the Investment Company Act and the
Co-investment
Exemptive Order. For additional details, see
“Conflicts of
interest may arise in connection with
co-investments
between our private funds and our BDCs”
.
In addition, the Dodd-Frank Act authorizes federal regulatory
agencies to review and, in certain cases, prohibit compensation
arrangements at financial institutions that give employees
incentives to engage in conduct deemed to encourage inappropriate
risk-taking by covered financial institutions. In 2016, federal
bank regulatory authorities and the SEC revised and
re-proposed
a rule that generally (1) prohibits incentive-based payment
arrangements that are determined to encourage inappropriate risks
by certain financial institutions by providing excessive
compensation or that could lead to material financial loss and
(2) requires those financial institutions to disclose
information concerning incentive-based compensation arrangements to
the appropriate federal regulator. The Dodd-Frank Act also directs
the SEC to adopt a rule that requires public companies to adopt and
disclose policies requiring, in the event the company is required
to issue an accounting restatement, the contingent repayment of
obligations of related incentive compensation from current and
former executive officers. The SEC has proposed but not yet adopted
such rule. To the extent the aforementioned rules are adopted, our
ability to recruit and retain investment professionals and senior
management executives could be limited.
In addition, we regularly rely on exemptions from various
requirements of the Securities Act, the Exchange Act, and the
Commodity Exchange Act. Those exemptions are sometimes highly
complex and may in certain circumstances depend on compliance by
third parties whom we do not control. The revocation, challenge or
unavailability of these exemptions could increase our cost of doing
business or subject
us to regulatory action or third-party claims, which could have a
material adverse effect on our businesses. For example, Rule 506 of
Regulation D under the Securities Act includes “bad actor”
disqualification provisions that ban an issuer from offering or
selling securities pursuant to the safe harbor in Rule 506 if the
issuer, or any other “covered person,” is the subject of a
criminal, regulatory or court order or other “disqualifying event”
under the rule which has not been waived by the SEC. The definition
of a “covered person” under the rule includes an issuer’s
directors, general partners, managing members and executive
officers and promoters and persons compensated for soliciting
investors in the offering. Accordingly, our ability to rely on Rule
506 to offer or sell our products and therefore a significant
portion of our business would be impaired if we or any “covered
person” is the subject of a disqualifying event under the rule and
we are unable to obtain a waiver or, in certain circumstances,
terminate our involvement with such “covered person”.
Compliance with existing and new regulations subjects us to
significant costs. Any changes or other developments in the
regulatory framework applicable to our businesses and changes to
formerly accepted industry practices, may impose additional costs
on us, require the attention of our senior management or limit the
manner in which we conduct our businesses. We may be adversely
affected by changes in the interpretation or enforcement of
existing laws and rules by these governmental authorities and
self-regulatory organizations. Additional legislation, increasing
global regulatory oversight of fundraising activities, changes in
rules promulgated by self-regulatory organizations or exchanges or
changes in the interpretation or enforcement of existing laws and
rules, either in the United States or elsewhere, may directly
affect our mode of operation and profitability. Moreover, our
failure to comply with applicable laws or regulations, including
labor and employment laws, could result in fines, censure,
suspensions of personnel or other sanctions, including revocation
of the registration of our relevant subsidiaries as investment
advisers or our broker-dealer affiliate as a registered
broker-dealer.
Even if a sanction is imposed against us, one of our subsidiaries
or our affiliates or our personnel by a regulator for a small
monetary amount, the costs incurred in responding to such matters
could be material. The adverse publicity related to the sanction
could harm our reputation, which in turn could have a material
adverse effect on our businesses, making it harder for us to raise
new and successor funds and discouraging others from doing business
with us or accepting investments from our products.
Heightened scrutiny
of the financial services industry by regulators may materially and
adversely affect our business.
The financial services industry has been the subject of heightened
scrutiny by regulators around the globe. In particular, the SEC and
its staff have focused more narrowly on issues relevant to
alternative asset management firms, including by forming
specialized units devoted to examining such firms and, in certain
cases, bringing enforcement actions against the firms, their
Principals and employees. In recent periods there have been a
number of enforcement actions within the industry, and it is
expected that the SEC will continue to pursue enforcement actions
against asset managers. This increased enforcement activity has
caused, and could further cause us to reevaluate certain practices
and adjust our compliance control function as necessary and
appropriate.
While the SEC’s recent lists of examination priorities include such
items as cybersecurity compliance and controls and conducting
risk-based examinations of investment advisory firms, it is
generally expected that the SEC’s oversight of alternative asset
managers will continue to focus substantially on concerns related
to fiduciary duty transparency and investor disclosure practices
(See “—
Conflicts of
interest may arise in our allocation of capital and
co-investment
opportunities
”). Although the SEC has cited improvements in disclosures and
industry practices in this area, it has also indicated that there
is room for improvement in particular areas, including fees and
expenses (and the allocation of such fees and expenses) and
co-investment
practices. To this end, many firms have received inquiries during
examinations or directly from the SEC’s Division of Enforcement
regarding various transparency-related topics, including the
acceleration of monitoring fees, the allocation of broken-deal
expenses, outside business activities of firm Principals and
employees, group purchasing arrangements and general conflicts of
interest disclosures. While we believe we have made appropriate and
timely disclosures regarding the foregoing, the SEC staff may
disagree.
Further, the SEC has highlighted BDC board oversight and valuation
practices as one of its areas of focus in investment adviser
examinations and has instituted enforcement actions against
advisers for misleading investors about valuation. If the SEC were
to investigate and find errors in our methodologies or procedures,
we and/or members of our board and management could be subject to
penalties and fines, which could harm our reputation and our
business, financial condition and results of operations could be
materially and adversely affected.
Regulations
governing the operations of our BDCs as business development
companies affect their ability to raise, and the way in which they
raise, additional capital.
Our BDCs have elected to be regulated as business development
companies under the Investment Company Act. Many of the regulations
governing business development companies restrict, among other
things, leverage incurrence,
co-investments
and other transactions with other entities within Blue Owl. Certain
of our products may be restricted from engaging in transactions
with our BDCs and their subsidiaries. As business development
companies regulated under the Investment Company Act, our BDCs may
issue debt securities or preferred stock and borrow money from
banks or other financial institutions, which we refer to
collectively as “senior securities,” up to the maximum amount
permitted by the Investment Company Act.
BDCs are not generally able to issue and sell their common stock at
a price below net asset value per share. BDCs may, however, issue
and sell their common stock, or warrants, options or rights to
acquire such common stock, at a price below the then-current net
asset value of such common stock if (1) the applicable BDC’s
board of directors determines that such sale is in the BDC’s best
interests and the best interests of the BDC’s stockholders, and
(2) the applicable BDC’s stockholders have approved a policy
and practice of making such sales within the preceding
12-months.
In any such case, the price at which the securities of BDCs are to
be issued and sold may not be less than a price which, in the
determination of the applicable board of directors, closely
approximates the market value of such securities.
In addition, as business development companies that are subject to
regulations under the Investment Company Act, our BDCs are
currently permitted to incur indebtedness or issue senior
securities only in amounts such that their asset coverage ratio
equals at least 150% after each such issuance, except in the
instance of ORCC II, which is required to maintain an asset
coverage ratio of at least 200%. Our BDCs’ ability to pay dividends
will be restricted if such BDC’s asset coverage ratio falls below
the required asset coverage ratio and any amounts that it uses to
service its indebtedness are not available for dividends to its
common stockholders. Any of the foregoing circumstances could have
a material adverse effect on our BDCs, and as a result, on our
financial condition, results of operations and cash flow.
For U.S. federal income tax purposes, our BDCs have elected to be
treated as regulated investment companies (“RICs”) under Subchapter
M of the Code. To maintain their status as RICs, our BDCs must
meet, among other things, certain source of income, asset
diversification and annual distribution requirements. Each of our
BDCs is required to generally distribute to its stockholders at
least 90% of such BDC’s investment company taxable income to
maintain its RIC status.
Changes to the
method of determining the London Interbank Offered Rate (“LIBOR”)
or the selection of a replacement for LIBOR may affect the value of
investments held by our products and could affect our results of
operations and financial results.
LIBOR, the London Interbank Offered Rate, is the basic rate of
interest used in lending transactions between banks on the London
interbank market and is widely used as a reference for setting the
interest rate on loans globally. Our products, and in particular
our BDCs, typically use LIBOR as a reference rate in term loans
they extend to investments such that the interest due to us
pursuant to a term loan extended to a portfolio company is
calculated using LIBOR. The terms of our debt investments generally
include minimum interest rate floors which are calculated based on
LIBOR.
The United Kingdom’s Financial Conduct Authority (the “FCA”), which
regulates LIBOR, announced that it will not compel panel banks to
contribute to LIBOR after 2021. In addition, in March 2021, the FCA
announced that LIBOR will no longer be provided for the
one-week
and
two-month
U.S. dollar settings after December 21, 2021 and that
publication of the U.S. dollar settings for the overnight,
one-month,
three-month,
six-month
and
12-month
LIBOR rates will cease after June 30, 2023. It is unclear if
at that time LIBOR will cease to exist or if new methods of
calculating LIBOR will be established such that it continues to
exist after 2023. The discontinuance of LIBOR, as well as
uncertainty related to the establishment of any alternative
reference rate, may adversely affect our cost of capital and the
market for LIBOR-based securities, which could have an adverse
impact on the earnings from or value of our investment
portfolio.
Central banks and regulators in a number of major jurisdictions
(for example, United States, United Kingdom, European Union,
Switzerland and Japan) have convened working groups to find, and
implement the transition to, suitable replacements for interbank
offered rates (“IBORs”). To identify a successor rate for U.S.
dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a
U.S.-based group convened by the Federal Reserve Board and the
Federal Reserve Bank of New York, was formed. The ARRC has
recommended the Secured Overnight Financing Rate (“SOFR”) plus a
recommended spread adjustment as its preferred alternative rate for
LIBOR. SOFR is a measure of the cost of borrowing cash overnight,
collateralized by U.S. Treasury securities, and is based on
directly observable U.S. Treasury-backed repurchase transactions.
However, given that SOFR is a secured rate backed by government
securities, it will be a rate that does not take into account bank
credit risk (as is the case with LIBOR). SOFR is therefore likely
to be lower than LIBOR and is less likely to correlate with the
funding costs of financial institutions. Although SOFR plus the
recommended spread adjustment appears to be the preferred
replacement rate for U.S. dollar LIBOR, and its use continues to
steadily grow, at this time it is not possible to predict the
effect of any such changes, any establishment of alternative
reference rates or other reforms to LIBOR that may be enacted in
the United States, United Kingdom or elsewhere.
As such, if LIBOR in its current form does not survive and a
replacement rate is not widely agreed upon or if a replacement rate
is significantly different from LIBOR, it could cause a disruption
in the credit markets generally. The elimination of LIBOR or any
other changes or reforms to the determination or supervision of
LIBOR could have an adverse impact on the market for or value of
any LIBOR-linked securities, loans, and other financial obligations
or extensions of credit held by or due to our investments or on our
overall financial condition or results of operations. In addition,
if LIBOR ceases to exist, our products, borrowers of our products
and our Partner Managers and their respective portfolio companies
may need to renegotiate the credit agreements extending beyond 2023
that utilize LIBOR as a factor in determining the interest rate, in
order to replace LIBOR with the new standard that is established,
which may have an adverse effect on our overall financial condition
or results of operations. Following the replacement of LIBOR, some
or all of these credit agreements may bear interest at a lower
interest rate, which, to the extent our products are lenders, could
have an adverse impact on their performance, could have an adverse
impact on our products’ and their portfolio companies’ results of
operations. Moreover, if LIBOR ceases to exist, our products and
their portfolio companies may need to renegotiate certain terms of
their credit facilities. If our products and their portfolio
companies are unable to do so, amounts drawn under their credit
facilities may bear interest at a higher rate, which would increase
the cost of their borrowings and, in turn, affect their results of
operations.
Failure to comply
with “pay to play” regulations implemented by the SEC and certain
states, and changes to the “pay to play” regulatory regimes, could
adversely affect our businesses.
Since 2010, states and other regulatory authorities have begun to
require investment managers to register as lobbyists. We are
registered as a lobbyist in California. These registration
requirements impose significant compliance obligations on
registered lobbyists and their employers, which may include annual
registration fees, periodic disclosure reports and internal record
keeping, and may also prohibit the payment of contingent
fees.
Under applicable SEC rules, investment advisers are required to
implement compliance policies designed, among other matters, to
track contributions by certain of the adviser’s employees and
engagements of third
parties that solicit government entities and to keep certain
records to enable the SEC to determine compliance with the rule. In
addition, there have been similar rules on a state level regarding
“pay to play” practices by investment advisers. FINRA has its own
set of “pay to play” regulations that are similar to the SEC’s
regulations.
As we have public pension plans that are investors in our products,
these rules could impose significant economic sanctions on our
businesses if we or one of the other persons covered by the rules
make any prohibited contribution or payment, whether or not
material or with an intent to secure an investment from a public
pension plan. We may also acquire other investment managers or hire
additional personnel who are not subject to the same restrictions
as us, but whose activity, and the activity of their Principals,
prior to our ownership or employment of such person, could affect
our product raising. Any failure on our part to comply with these
rules could cause us to lose compensation for our advisory services
or expose us to significant penalties and reputational
damage.
Failure to comply
with regulations regarding the prevention of money laundering or
terrorism or national security could adversely affect our
business.
As part of our responsibility for the prevention of money
laundering under applicable laws, we may require detailed
verification of a prospective investor’s identity and the source of
such prospective investor’s funds. In the event of delay or failure
by a prospective investor to produce any such information required
for verification purposes, we may refuse to admit the investor to
our products. We may from
request (outside of the subscription process), and our products’
limited partners will be obligated to provide to us as appropriate
upon such request, additional information as from time to time may
be required for us to satisfy our obligations under these and other
laws that may be adopted in the future. Additionally, we may from
time to time be obligated to file reports with regulatory
authorities in various jurisdictions with regard to, among other
things, the identity of our products’ limited partners and
suspicious activities involving the interests of our products. In
the event it is determined that any investor, or any direct or
indirect owner of any investor, is a person identified in any of
these laws as a prohibited person, or is otherwise engaged in
activities of the type prohibited under these laws, we may be
obligated, among other actions to be taken, to withhold
distributions of any funds otherwise owing to such investor or to
cause such investor’s interests to be cancelled or otherwise
redeemed (without the payment of any consideration in respect of
those interests).
The Bank Secrecy Act of 1970 and the USA PATRIOT Act require that
financial institutions (a term that includes banks, broker-dealers
and investment companies) establish and maintain compliance
programs to guard against money laundering activities. Laws or
regulations may presently or in the future require us, our products
or any of our affiliates or other service providers to establish
additional anti-money laundering procedures, to collect information
with respect to our products’ limited partners, to share
information with governmental authorities with respect to our
products’ limited partners or to implement additional restrictions
on the transfer of the interests. These requirements can lead to
increased expenses and exposure to enforcement actions
Economic sanction
laws in the U.S. and other jurisdictions may prohibit us and our
affiliates from transacting with certain countries, individuals and
companies, which could negatively impact our business, financial
condition and operating results.
Economic sanction laws in the U.S. and other jurisdictions may
restrict or prohibit us or our affiliates from transacting with
certain countries, territories, individuals and entities. In the
U.S., the U.S. Department of the Treasury’s Office of Foreign
Assets Control (“OFAC”) administers and enforces laws, executive
orders and regulations establishing U.S. economic and trade
sanctions, which restrict or prohibit, among other things, direct
and indirect transactions with, and the provision of services to,
certain
non-U.S.
countries, territories, individuals and entities. These types of
sanctions may significantly restrict or completely prohibit lending
activities in certain jurisdictions, and violation of any such laws
or regulations, may result in significant legal and monetary
penalties, as well as reputational damage. OFAC sanctions programs
change frequently, which may make it more difficult for us or our
affiliates to ensure compliance. Moreover, OFAC enforcement is
increasing, which may
increase the risk that we become subject of such actual or
threatened enforcement. In addition, any sanctions imposed in
connection with the escalation of hostilities between Russia and
Ukraine may impact portfolio companies of our funds, which may in
turn impact us.
Additionally, Section 2019 of the Iran Threat Reduction and
Syria Human Rights Act of 2012 (the “ITRA”) amended the Exchange
Act to require companies subject to SEC reporting obligations under
Section 13 of the Exchange Act to disclose in their periodic
reports specified dealings or transactions involving Iran or other
individuals and entities targeted by OFAC during the period covered
by the relevant periodic report. In some cases, the ITRA requires
companies to disclose these types of transactions even if they were
permissible under U.S. law. Companies that currently may be or may
have been at the time considered our affiliates, may have from time
to time publicly filed and/or provided to us such disclosures. We
do not independently verify or participate in the preparation of
these disclosures. We and our publicly traded funds are required,
either periodically or annually to separately file with the SEC a
notice when such activities have been disclosed, and the SEC is
required to post such notice of disclosure on its website and send
the report to the President and certain U.S. Congressional
committees. Disclosure of such activity, even if such activity is
not subject to sanctions under applicable law, and any sanctions
actually imposed on us or our affiliates as a result of these
activities, could harm our reputation and have a negative impact on
our business, financial condition and results of operations, and
any failure to disclose any such activities as required could
additionally result in fines or penalties.
We are subject to
laws and regulations in the EEA, including the Alternative
Investment Fund Managers Directive, which may increase our
regulatory costs and burdens.
The AIFMD regulates the activities of certain private fund managers
undertaking fund management activities or marketing fund interests
to investors within the EEA.
To the extent any one of our products is actively marketed to
investors domiciled or having their registered office in the EEA:
(i) we and such fund will be subject to certain reporting,
disclosure and other compliance obligations under the AIFMD, which
will result in such funds incurring additional costs and expenses;
(ii) we and such fund may become subject to additional
regulatory or compliance obligations arising under national law in
certain EEA jurisdictions, which would result in such fund
incurring additional costs and expenses or may otherwise affect the
management and operation of such fund; (iii) we will be
required to make detailed information relating to such fund and its
investments available to regulators and third parties; and
(iv) the AIFMD will also restrict certain activities of such
fund in relation to EEA investments, including, in some
circumstances, such fund’s ability to recapitalize, refinance or
potentially restructure an EEA portfolio company within the first
two years of ownership, which may in turn affect operations of such
fund generally. In addition, it is possible that some EEA
jurisdictions will elect to restrict or prohibit the marketing of
non-EEA
funds to investors based in those jurisdictions, which may make it
more difficult for our products to raise their targeted amount of
commitments. We rely on a third party provider to ensure our
compliance with these regulations, including required
registrations, which may increase our compliance costs and risk of
non-compliance.
In the future, it may be possible for
non-EEA
alternative investment fund managers (“AIFMs”) to market an
alternative investment fund (“AIF”) within the EEA pursuant to a
pan-European
marketing “passport”, instead of under national private placement
regimes. Access to this passport may be subject to the
non-EEA
AIFM complying with various additional requirements under the
AIFMD, which may include one or more of the following: additional
conduct of business and organizational requirements; rules relating
to the remuneration of certain personnel; minimum regulatory
capital requirements; restrictions on the use of leverage;
additional disclosure and reporting requirements to both investors
and EEA home state regulators; independent valuation of an AIF’s
assets; and the appointment of an independent depositary. Certain
EEA Member States have indicated that they will cease to operate
national private placement regimes when, or shortly after, the
passport becomes available, which would mean that
non-EEA
AIFMs to whom the passport is available would be required to comply
with all relevant provisions of the AIFMD in order to market to
professional investors in those jurisdictions. As a result, if in
the future
non-EEA
AIFMs may only market in certain EEA jurisdictions pursuant
to a passport, we may not seek to market interests in our products
in those jurisdictions, which may lead to a reduction in the
overall amount of capital invested in our products. Alternatively,
if we sought to comply with the requirements to use the passport,
this could have adverse effects including, amongst other things,
increasing the regulatory burden and costs of operating and
managing certain of our products and their investments, and
potentially requiring changes to compensation structures for key
personnel, thereby affecting our ability to recruit and retain
these personnel.
Certain of the funds or accounts we advise or manage are subject to
the fiduciary responsibility and prohibited transaction provisions
of ERISA and Section 4975 of the Code, and our businesses
could be adversely affected if certain of our other funds or
accounts fail to satisfy an exception under the “plan assets”
regulation under ERISA.
A number of investors in our products are subject to the fiduciary
and prohibited transaction provisions of Title I of ERISA and the
parallel provisions of the Internal Revenue Code; however, the
substantial majority of our products rely on the “insignificant
participation” exception under the “plan assets” regulation under
ERISA. We are not, therefore subject to the requirements of ERISA
(or the parallel provision of the Internal Revenue Code) with
respect to the management of those funds. However, if those funds
fail to satisfy that exception for any reason and if no other
exception is available, that failure could materially interfere
with our activities in relation to those funds or expose us to
risks related to our failure to comply with the applicable
requirements. For example, the governing documents of a fund
generally impose certain obligations on the general partner or
manager of the fund to cause the assets of the fund to not be
treated as “plan assets” and a breach of that obligation could
create liability for us. Further, if the assets of a fund become
plan assets (whether because of our breach, a change in law or
otherwise), the application of ERISA-related requirements on our
product may prevent us from operating the fund as intended and may
cause the fund to breach its obligations with Partner Managers or
other investments, which would create significant liabilities for
our products and could significantly impact the fund’s ability to
make any further investments. Further, we have formed a small
number of holding vehicles to facilitate
co-investments
alongside our products by ERISA investors, the assets of which
holding vehicles constitute “plan assets” and with respect to which
we serve as a fiduciary. While we may be required to satisfy
applicable fiduciary standards and avoid the prohibited transaction
provisions of ERISA with respect to such holding vehicles and their
assets, in each case, our authority with respect to the management
and control of those vehicles is limited by contract with the
relevant fund investor. Accordingly, we do not anticipate any
liabilities with respect to our serving as a fiduciary with respect
to such vehicles.
Risks Related to Our Products
The historical
returns attributable to our products should not be considered as
indicative of the future results of our products or of our future
results or of any returns expected on an investment in our
Class A Shares.
The historical performance of our products is relevant to us
primarily insofar as it is indicative of performance income we have
earned in the past and may earn in the future and our reputation
and ability to raise new funds. The historical and potential
returns of the funds we advise are not, however, directly linked to
returns on shares of our Class A Shares. Therefore, holders of
our Class A Shares should not conclude that positive
performance of the funds we advise will necessarily result in
positive returns on a return on investment in our Class A
Shares. However, poor performance of our products we advise would
likely cause a decline in our revenues and would therefore likely
have a negative effect on our operating results, returns on our
Class A Shares and a negative impact on our ability to raise
new funds. Also, there is no assurance that projections in respect
of our products or unrealized valuations will be realized.
Moreover, the historical returns of our products should not be
considered indicative of the future returns of these or from any
future funds we may raise, in part because:
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market conditions during previous periods may have been
significantly more favorable for generating positive performance
than the market conditions we may experience in the future;
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our products’ rates of returns, which are calculated on the basis
of net asset value of the funds’ investments, reflect unrealized
gains, which may never be realized;
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our products’ returns have previously benefited from investment
opportunities and general market conditions that may not recur,
including the availability of debt capital on attractive terms and
the availability of distressed debt opportunities, and we may not
be able to achieve the same returns or profitable investment
opportunities or deploy capital as quickly;
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the historical returns that we present in this prospectus derive
largely from the performance of our earlier funds, whereas future
fund returns will depend increasingly on the performance of our
newer funds or funds not yet formed, which may have little or no
realized investment track record;
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our products’ historical investments were made over a long period
of time and over the course of various market and macroeconomic
cycles, and the circumstances under which our current or future
funds may make future investments may differ significantly from
those conditions prevailing in the past;
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the attractive returns of certain of our products have been driven
by the rapid return on invested capital, which has not occurred
with respect to all of our products and we believe is less likely
to occur in the future;
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in recent years, there has been increased competition for
investment opportunities resulting from the increased amount of
capital invested in alternative funds and high liquidity in debt
markets, and the increased competition for investments may reduce
our returns in the future; and
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our newly established funds may generate lower returns during the
period that they take to deploy their capital.
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The future internal rate of return for any current or future fund
may vary considerably from the historical internal rate of return
generated by any particular fund, or for our products as a whole.
Future returns will also be affected by the risks described
elsewhere in this proxy statement, including risks of the
industries and businesses in which a particular fund invests.
Valuation
methodologies for certain assets of our products can be subject to
significant subjectivity.
Many of the investments in our products are illiquid and thus have
no readily ascertainable market prices. We value these investments
based on our estimate, or an independent third party’s estimate, of
their value as of the date of determination. The determination of
fair value, and thus the amount of unrealized appreciation or
depreciation our products may recognize in any reporting period, is
to a degree subjective. Our products generally value their
investments quarterly at fair value, as determined in good faith by
our products’ respective boards or a valuation committee, as
applicable, based on, among other things, the input of third party
valuation firms and taking into account the nature and realizable
value of any collateral, the portfolio company’s ability to make
payments and its earnings, the markets in which the portfolio
company operates, comparison to publicly traded companies,
discounted cash flow, current market interest rates and other
relevant factors. Because such valuations, and particularly
valuations of private securities, private companies and privately
owned real estate, are inherently uncertain, the valuations may
fluctuate significantly over short periods of time due to changes
in current market conditions. A fund’s net asset value could be
adversely affected if the determinations regarding the fair value
of the investments were materially higher than the values that are
ultimately realized upon the disposal of such investments. These
valuations could, in turn, affect the management fees or
performance income that our business receives.
The use of leverage
by our products may materially increase the returns of such funds
but may also result in significant losses or a total loss of
capital.
Our products, particularly our Direct Lending and Real Estate
products, use leverage as part of their respective investment
programs and in certain products regularly borrow a substantial
amount of their capital.
The use of leverage poses a significant degree of risk and enhances
the possibility of a significant loss in the value of the
investment portfolio. A fund may borrow money from time to time to
purchase or carry securities or may enter into derivative
transactions with counterparties that have embedded leverage. The
use of leverage by our products increases the volatility of
investments by magnifying the potential for gain or loss on
invested equity capital. If the value of a fund’s assets were to
decrease, leverage would cause net asset value to decline more
sharply than it otherwise would if the fund had not employed
leverage. Similarly, any decrease in the fund’s income would cause
net income to decline more sharply than it would have if it had not
borrowed and employed leverage. Such a decline could negatively
affect the fund’s ability to service its debt, which could have a
material adverse effect on our products, and as a result, on our
financial condition, results of operations and cash flow.
Our private funds often rely on obtaining credit facilities secured
principally by the undrawn capital commitments of their investors.
These credit lines are an important part of managing the cash flow
of the funds, including facilitating a fund’s acquisition or
funding of investments, enhancing the regularity of cash
distributions to investors and facilitating the payment of
management fees to us. The inability to secure or maintain these
lines of credit would have an adverse impact on our products and
their returns and on us, including increasing administrative costs
associated with managing a fund.
Our real estate
funds are subject to the risks inherent in the ownership and
operation of real estate and the construction and development of
real estate.
Investments in our real estate funds will be subject to the risks
inherent in the ownership and operation of real estate and real
estate-related businesses and assets. These risks include the
following:
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general and local economic conditions;
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changes in supply of and demand for competing properties in an area
(as a result, for example, of overbuilding);
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the financial resources of tenants;
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changes in building, environmental and other laws;
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energy and supply shortages;
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various uninsured or uninsurable risks;
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changes in government regulations (such as rent control and tax
laws);
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changes in interest rates;
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the reduced availability of mortgage funds which may render the
sale or refinancing of properties difficult or impracticable;
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negative developments in the economy that depress travel
activity;
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environmental liabilities;
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contingent liabilities on disposition of assets;
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unexpected cost overruns in connection with development projects;
and
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terrorist attacks, war (including tensions between Russia and
Ukraine) and other factors that are beyond our control.
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Additionally, our funds’ properties are generally self-managed by
the tenant or managed by a third party, which makes us dependent
upon such third parties and subjects us to risks associated with
the actions of such third parties. Any of these factors may cause
the value of the investments in our real estate funds to decline,
which may have a material impact on our results of
operations.
Risks Related to our Structure and Governance
Blue Owl has elected
to be treated as, a “controlled company” within the meaning of the
NYSE listing standards and, as a result, our stockholders may not
have certain corporate governance protections that are available to
stockholders of companies that are not controlled companies.
So long as more than 50% of the voting power for the election of
directors of Blue Owl is held by an individual, a group or another
company, Blue Owl will qualify as a “controlled company” under the
NYSE listing requirements. The Principals control a majority of the
voting power of our outstanding capital stock. As a result, Blue
Owl qualifies as, and has elected to be treated as, a “controlled
company” under the NYSE listing standards and will not be subject
to the requirements that would otherwise require us to have:
(i) a majority of “independent directors,” as defined under
the listing standards of the NYSE; (ii) a nominating committee
comprised solely of independent directors; (iii) compensation
of our executive officers determined by a majority of the
independent directors or a compensation committee comprised solely
of independent directors; and (iv) director nominees selected,
or recommended for the Board’s selection, either by a majority of
the independent directors or a nominating committee comprised
solely of independent directors.
The Principals may have their interest in Blue Owl diluted due to
future equity issuances or their own actions in selling
Class A Shares, in each case, which could result in a loss of
the “controlled company” exemption under the NYSE listing rules.
Blue Owl would then be required to comply with those provisions of
the NYSE listing requirements.
The multi-class
structure of Blue Owl common stock has the effect of concentrating
voting power with the Principals, which limits an investor’s
ability to influence the outcome of important transactions,
including a change in control.
Entities controlled by the Principals hold all of the issued and
outstanding Class B and Class D Shares. Accordingly,
until such time as the Principals own less than 25% of their
aggregate ownership as of immediately after the Closing, the
Principals will hold 80% of the voting power of Blue Owl’s capital
stock on a fully-diluted basis and will be able to control matters
submitted to our stockholders for approval, including the election
of directors, amendments of our organizational documents and any
merger, consolidation, sale of all or substantially all of our
assets or other major corporate transactions. The Principals may
have interests that differ from our stockholders and may vote in a
way with which you disagree and which may be adverse to your
interests. This concentrated control may have the effect of
delaying, preventing or deterring a change in control of Blue Owl,
could deprive our stockholders of an opportunity to receive a
premium for their capital stock as part of a sale of Blue Owl, and
might ultimately affect the market price of Class A
Shares.
Potential conflicts
of interest may arise among the holders of Class B and
Class D Shares and the holders of our Class A and
Class C Shares.
The Principals (and certain former employees of Dyal Capital) hold
all of the Class B and Class D Shares. As a result,
conflicts of interest may arise among the Principals, on the one
hand, and us and our holders of our Class A and Class C
Shares, on the other hand. The Principals have the ability to
influence our business and affairs through their ownership of the
high vote shares of our common stock, their general ability to
appoint our board of directors, and provisions under the Investor
Rights Agreement and our certificate of incorporation requiring
their approval for certain corporate actions (in addition to
approval by our board of directors). If the holders of our
Class A and Class C Shares are dissatisfied with the
performance of our board of directors, they have no ability to
remove any of our directors, with or without cause.
Further, through their ability to elect our board of directors, the
Principals have the ability to indirectly influence the
determination of the amount and timing of our investments and
dispositions, cash expenditures, allocation of expenses,
indebtedness, issuances of additional partnership interests, tax
liabilities and amounts of reserves, each of which can affect the
amount of cash that is available for distribution to holders of
Common Units and our Class A Shares.
In addition, conflicts may arise relating to the selection,
structuring and disposition of investments and other transactions,
declaring dividends and other distributions and other matters due
to the fact that the Principals hold their Common Units directly or
through pass-through entities that are not subject to corporate
income taxation.
Delaware law, our
certificate of incorporation and our bylaws contain certain
provisions, including anti-takeover provisions, that limit the
ability of stockholders to take certain actions and could delay or
discourage takeover attempts that stockholders may consider
favorable.
Our certificate of incorporation and the DGCL contain provisions
that could have the effect of rendering more difficult, delaying,
or preventing an acquisition deemed undesirable by the Board and
therefore depress the trading price of Blue Owl’s Class A
Shares. These provisions could also make it difficult for
stockholders to take certain actions, including electing directors
who are not nominated by the current members of the Board or taking
other corporate actions, including effecting changes in management.
Among other things, our certificate of incorporation and bylaws
include provisions regarding:
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a classified board of directors with three-year staggered terms,
which could delay the ability of stockholders to change the
membership of a majority of the Board;
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the ability of the Board to issue preferred stock, including “blank
check” preferred stock and to determine the price and other terms
of those shares, including preferences and voting rights, without
stockholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer;
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the limitation of the liability of, and the indemnification of, our
directors and officers;
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the right of the Board to elect a director to fill a vacancy
created by the expansion of the Board or the resignation, death or
removal of a director, which prevents stockholders from being able
to fill vacancies on the Board;
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the requirement that directors may only be removed from the Board
for cause;
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the inability of stockholders to act by written consent following
the Sunset Date;
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the requirement that a special meeting of stockholders may be
called only by the Board, the chairman of the Board of directors or
Blue Owl’s chief executive officer, which could delay the ability
of stockholders to force consideration of a proposal or to take
action, including the removal of directors;
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controlling the procedures for the conduct and scheduling of the
Board and stockholder meetings;
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the ability of the Board of directors to amend the bylaws, which
may allow the Board to take additional actions to prevent an
unsolicited takeover and inhibit the ability of an acquirer to
amend the bylaws to facilitate an unsolicited takeover attempt;
and
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advance notice procedures with which stockholders must comply to
nominate candidates to the Board or to propose matters to be acted
upon at a stockholders’ meeting, which could preclude stockholders
from bringing matters before annual or special meetings of
stockholders and delay changes in the composition of the Board and
also may discourage or deter a potential acquirer from conducting a
solicitation of proxies to elect the acquirer’s own slate of
directors or otherwise attempting to obtain control of the
Company.
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These provisions, alone or together, could delay or prevent hostile
takeovers and changes in control or changes in the Board or
management.
In addition, as a Delaware corporation, the Registrant is generally
subject to provisions of Delaware law, including the DGCL, although
we have elected not to be governed by Section 203 of the
DGCL.
Any provision of our certificate of incorporation, our bylaws or
Delaware law that has the effect of delaying or preventing a change
in control could limit the opportunity for stockholders to receive
a premium for their shares of our capital stock and could also
affect the price that some investors are willing to pay for our
common stock.
In addition, the provisions of the Investor Rights Agreement, as
described below, provide the stockholders party thereto with
certain board representation and other consent rights that could
also have the effect of delaying or preventing a change in
control.
Our certificate of
incorporation designates the Court of Chancery of the State of
Delaware as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by our stockholders,
which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or
other employees.
Our certificate of incorporation provides that, unless we consent
in writing to the selection of an alternative forum, (a) any
derivative action or proceeding brought on behalf of us,
(b) any action asserting a claim of breach of a fiduciary duty
owed by any current or former director, officer, other employee,
agent or stockholder of Blue Owl to Blue Owl or our stockholders,
or any claim for aiding and abetting such alleged breach,
(c) any action asserting a claim against us or any of our
current or former directors, officers, other employees, agents or
stockholders (i) arising pursuant to any provision of the
DGCL, our certificate of incorporation (as it may be amended or
restated) or our bylaws or (ii) as to which the DGCL confers
jurisdiction on the Delaware Court of Chancery or (d) any
action asserting a claim against us or any of our current or former
directors, officers, other employees, agents or stockholders
governed by the internal affairs doctrine of the law of the State
of Delaware shall, as to any action in the foregoing clauses
(a) through (b), to the fullest extent permitted by law, be
solely and exclusively brought in the Delaware Court of Chancery;
provided, however, that the foregoing shall not apply to any claim
(1) as to which the Delaware Court of Chancery determines that
there is an indispensable party not subject to the jurisdiction of
the Delaware Court of Chancery (and the indispensable party does
not consent to the personal jurisdiction of the Court of Chancery
within ten days following such determination), (2) which is vested
in the exclusive jurisdiction of a court or forum other than the
Delaware Court of Chancery, or (3) arising under federal
securities laws, including the Securities Act as to which the
federal district courts of the United States of America shall, to
the fullest extent permitted by law, be the sole and exclusive
forum. Notwithstanding the foregoing, the provisions of Article
XIII of our certificate of incorporation does not apply to suits
brought to enforce any liability or duty created by the Exchange
Act, or any other claim for which the federal district courts of
the United States of America shall be the sole and exclusive
forum.
This
provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our
or its directors, officers, stockholders, agents or other
employees, which may discourage such lawsuits. Alternatively, if a
court were to find this provision of our certificate of
incorporation inapplicable or unenforceable with respect to one or
more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other
jurisdictions, which could materially and adversely affect our
business, financial condition and results of operations and result
in a diversion of the time and resources of management and our
board of directors.
The Registrant is a
holding company and its only material source of cash is its
indirect interest (held through Blue Owl GP) in the Blue Owl
Operating Partnerships, and it is accordingly dependent upon
distributions made by its subsidiaries to pay taxes, cause Blue Owl
GP to make payments under the Tax Receivable Agreement, and pay
dividends.
The Registrant is a holding company with no material assets other
than its indirect ownership of the GP Units through Blue Owl GP and
certain deferred tax assets that arose in connection with the
purchase of Common Units with proceeds from the Business
Combination. As a result, the Registrant has no independent means
of generating revenue or cash flow. The Registrant’s ability to pay
taxes, cause Blue Owl GP to make payments under the Tax Receivable
Agreement, and pay dividends will depend on the financial results
and cash flows of the Blue Owl Operating Partnerships and the
distributions it receives (directly or indirectly) from the Blue
Owl Operating Partnerships. Deterioration in the financial
condition, earnings or cash flow of the Blue Owl Operating
Partnerships for any reason could limit or impair the Blue Owl
Operating Partnerships’ ability to pay such distributions.
Additionally, to the extent that the Registrant or Blue Owl GP
needs funds and the Blue Owl
Operating Partnerships are restricted from making such
distributions under applicable law or regulation or under the terms
of any financing arrangements, or the Blue Owl Operating
Partnerships are otherwise unable to provide such funds, it could
materially adversely affect Blue Owl’s liquidity and financial
condition.
Subject to the discussion herein, the Blue Owl Operating
Partnerships will continue to be treated as partnerships for U.S.
federal income tax purposes and, as such, generally will not be
subject to any entity-level U.S. federal income tax. Instead,
taxable income will be allocated to holders of Common Units and GP
Units. Accordingly, Blue Owl GP will be required to pay income
taxes on its allocable share of any net taxable income of the Blue
Owl Operating Partnerships. Under the terms of the Blue Owl Limited
Partnership Agreements, the Blue Owl Operating Partnerships are
obligated to make tax distributions to holders of the Common Units
and GP Units calculated at certain assumed tax rates. In addition
to tax expenses, Blue Owl will also incur expenses related to its
operations, including Blue Owl GP’s payment obligations under the
Tax Receivable Agreement, which could be significant, and some of
which will be reimbursed by the Blue Owl Operating Partnerships
(excluding payment obligations under the Tax Receivable Agreement).
Blue Owl intends to cause Blue Owl GP to cause the Blue Owl
Operating Partnerships to make ordinary distributions and tax
distributions to holders of the Common Units and GP units on a pro
rata basis in amounts sufficient to cover all applicable taxes,
relevant operating expenses, payments by Blue Owl GP under the Tax
Receivable Agreement and dividends, if any, declared by Blue Owl.
However, as discussed above, the Blue Owl Operating Partnerships’
ability to make such distributions may be subject to various
limitations and restrictions including, but not limited to,
retention of amounts necessary to satisfy the obligations of the
Blue Owl Operating Partnerships and restrictions on distributions
that would violate any applicable restrictions contained in the
Blue Owl Operating Partnerships’ debt agreements, or any applicable
law, or that would have the effect of rendering the Blue Owl
Operating Partnerships insolvent. To the extent that Blue Owl GP is
unable to make payments under the Tax Receivable Agreement for any
reason, such payments will be deferred and will accrue interest
until paid; provided, however, that nonpayment for a specified
period may constitute a breach of a material obligation under the
Tax Receivable Agreement and therefore accelerate payments under
the Tax Receivable Agreement, which could be substantial.
Additionally, although the Blue Owl Operating Partnerships
generally will not be subject to any entity-level U.S. federal
income tax, they may be liable under recent U.S. federal tax
legislation for adjustments to prior year tax returns, absent an
election to the contrary. In the event the Blue Owl Operating
Partnerships’ calculations of taxable income are incorrect, the
Blue Owl Operating Partnerships and/or their partners, including
the Registrant or Blue Owl GP, in later years may be subject to
material liabilities pursuant to this legislation and its related
guidance.
If either of the
Blue Owl Operating Partnerships were treated as a corporation for
U.S. federal income tax or state tax purposes, then the amount
available for distribution by such Blue Owl Operating Partnerships
could be substantially reduced and the value of the Registrant’s
shares could be adversely affected.
An entity that would otherwise be classified as a partnership for
U.S. federal income tax purposes (such as either of the Blue Owl
Operating Partnerships) may nonetheless be treated as, and taxable
as, a corporation if it is a “publicly traded partnership” unless
an exception to such treatment applies. An entity that would
otherwise be classified as a partnership for U.S. federal income
tax purposes will be treated as a “publicly traded partnership” if
interests in such entity are traded on an established securities
market or interests in such entity are readily tradable on a
secondary market or the substantial equivalent thereof. If either
of the Blue Owl Operating Partnerships were determined to be
treated as a “publicly traded partnership” (and taxable as a
corporation) for U.S. federal income tax purposes, such Blue Owl
Operating Partnership would be taxable on its income at the U.S.
federal income tax rates applicable to corporations and
distributions by such Blue Owl Operating Partnership to its
partners (including Blue Owl GP) could be taxable as dividends to
such partners to the extent of the earnings and profits of such
Blue Owl Operating Partnership. In addition, we would no longer
have the benefit of increases in the tax basis of the Blue Owl
Operating Partnership’s assets as a result of exchanges of Common
Units. Pursuant to the Exchange Agreement, certain Blue Owl equity
holders may, from time to time, subject to the terms of the
Exchange Agreement, exchange their interests in the Blue Owl
Operating Partnerships
and have such interests redeemed by Blue Owl Operating Partnerships
for cash or the Registrant’s stock. While such exchanges could be
treated as trading in the interests of the Blue Owl Operating
Partnerships for purposes of testing “publicly traded partnership”
status, the Exchange Agreement contains restrictions on redemptions
and exchanges of interests in the Blue Owl Operating Partnerships
that are intended to prevent either of the Blue Owl Operating
Partnerships from being treated as a “publicly traded partnership”
for U.S. federal income tax purposes. Such restrictions are
designed to comply with certain safe harbors provided for under
applicable U.S. federal income tax law. Blue Owl GP may also impose
additional restrictions on exchanges that the Registrant or Blue
Owl GP determines to be necessary or advisable so that neither of
the Blue Owl Operating Partnerships is treated as a “publicly
traded partnership” for U.S. federal income tax purposes.
Accordingly, while such position is not free from doubt, each of
the Blue Owl Operating Partnerships is expected to be operated such
that it is not treated as a “publicly traded partnership” taxable
as a corporation for U.S. federal income tax purposes and we intend
to take the position that neither of the Blue Owl Operating
Partnerships is so treated as a result of exchanges of its
interests pursuant to the Exchange Agreement.
Pursuant to the Tax
Receivable Agreement, Blue Owl GP will be required to make payments
to certain equity holders for certain tax benefits the Registrant
and Blue Owl GP may claim and those payments may be
substantial.
Certain equity holders may in the future exchange their Common
Units, together with the cancellation of an equal number of
Class C Shares or Class D Shares, for Class A Shares
or Class B Shares, respectively, or cash pursuant to the Blue
Owl Operating Partnership Agreements and the Exchange Agreement,
subject to certain conditions and transfer restrictions as set
forth therein and in the Investor Rights Agreement. Additionally,
Blue Owl GP may acquire from certain former Owl Rock equity holders
corporations formed by such former Owl Rock equity holders to hold
partnership interests in Owl Rock. Such transactions are expected
to result in increases in the Registrant’s (and Blue Owl GP’s)
allocable share of the tax basis of the tangible and intangible
assets of the Blue Owl Operating Partnerships. These increases in
tax basis may increase (for income tax purposes) depreciation and
amortization deductions and therefore reduce the amount of income
or franchise tax that the Registrant or Blue Owl GP would otherwise
be required to pay in the future had such sales and exchanges never
occurred.
In connection with the Business Combination, Blue Owl GP entered
into the Tax Receivable Agreement, which generally provides for the
payment by it of 85% of certain tax benefits, if any, that Blue Owl
GP realizes (or in certain cases is deemed to realize) as a result
of these increases in tax basis and certain other tax attributes of
Blue Owl GP, the corporations acquired from certain former Owl Rock
equity holders in the transaction, and tax benefits related to
entering into the Tax Receivable Agreement. Those payments are the
obligation of Blue Owl (including Blue Owl GP) and not of Blue Owl
Operating Partnerships. The actual increase in Blue Owl GP’s
allocable share of the Blue Owl Operating Partnerships’ tax basis
in their assets, as well as the amount and timing of any payments
under the Tax Receivable Agreement, will vary depending upon a
number of factors, including the timing of exchanges, the market
price of the Class A Shares at the time of the exchange, the
extent to which such exchanges are taxable and the amount and
timing of the recognition of the Registrant’s (and Blue Owl GP’s)
income. While many of the factors that will determine the amount of
payments that Blue Owl GP will make under the Tax Receivable
Agreement are outside of its control, Blue Owl GP expects that the
payments it will make under the Tax Receivable Agreement will be
substantial and could have a material adverse effect on Blue Owl’s
financial condition. Any payments made by Blue Owl GP under the Tax
Receivable Agreement will generally reduce the amount of overall
cash flow that might have otherwise been available to the
Registrant and Blue Owl GP. To the extent that Blue Owl GP is
unable to make timely payments under the Tax Receivable Agreement
for any reason, the unpaid amounts will be deferred and will accrue
interest until paid; however, nonpayment for a specified period may
constitute a breach of a material obligation under the Tax
Receivable Agreement and therefore accelerate payments due under
the Tax Receivable Agreement, as further described below.
Furthermore, Blue Owl GP’s future obligation to make payments under
the Tax Receivable Agreement could make Blue Owl a less attractive
target for an acquisition, particularly in the case of an acquirer
that cannot
use some or all of the tax benefits that may be realized or deemed
realized under the Tax Receivable Agreement. See the section
entitled “Certain Relationships and Related Party Transactions—Tax
Receivable Agreement.”
In certain cases,
payments under the Tax Receivable Agreement may exceed the actual
tax benefits
t
he Registrant or
Blue Owl GP realizes or be accelerated.
Payments under the Tax Receivable Agreement will be based on the
tax reporting positions that the Registrant or Blue Owl GP
determines, and the IRS or another taxing authority may challenge
all or any part of the tax basis increases, as well as other tax
positions that the Registrant or Blue Owl GP takes, and a court may
sustain such a challenge. In the event that any tax benefits
initially claimed by the Registrant or Blue Owl GP are disallowed,
the former Owl Rock and Dyal Capital equityholders will not be
required to reimburse the Registrant or Blue Owl GP for any excess
payments that may previously have been made under the Tax
Receivable Agreement, for example, due to adjustments resulting
from examinations by taxing authorities. Rather, excess payments
made to such holders will be netted against any future cash
payments otherwise required to be made by Blue Owl GP under the Tax
Receivable Agreement, if any, after the determination of such
excess. However, a challenge to any tax benefits initially claimed
by the Registrant or Blue Owl GP may not arise for a number of
years following the initial time of such payment or, even if
challenged early, such excess cash payment may be greater than the
amount of future cash payments that Blue Owl GP might otherwise be
required to make under the terms of the Tax Receivable Agreement
and, as a result, there might not be future cash payments against
which to net. As a result, in certain circumstances Blue Owl GP
could make payments under the Tax Receivable Agreement in excess of
Blue Owl’s or Blue Owl GP’s actual income or franchise tax savings,
which could materially impair Blue Owl’s financial condition.
Moreover, the Tax Receivable Agreement provides that, in certain
events, including a change of control, breach of a material
obligation under the Tax Receivable Agreement, or Blue Owl GP’s
exercise of early termination rights, Blue Owl GP’s obligations
under the Tax Receivable Agreement will accelerate and Blue Owl GP
will be required to make a
lump-sum
cash payment to the former Owl Rock and Dyal Capital equityholders
and other applicable parties to the Tax Receivable Agreement equal
to the present value of all forecasted future payments that would
have otherwise been made under the Tax Receivable Agreement, which
lump-sum
payment would be based on certain assumptions, including those
relating to Blue Owl GP’s future taxable income. The
lump-sum
payment could be substantial and could exceed the actual tax
benefits that the Registrant or Blue Owl GP realizes subsequent to
such payment because such payment would be calculated assuming,
among other things, that the Registrant and Blue Owl GP would have
certain tax benefits available to it and that the Registrant and
Blue Owl GP would be able to use the potential tax benefits in
future years.
There may be a material negative effect on the Registrant’s
liquidity if the payments required to be made by Blue Owl GP under
the Tax Receivable Agreement exceed the actual income or franchise
tax savings that the Registrant (or Blue Owl GP) realizes.
Furthermore, Blue Owl GP’s obligations to make payments under the
Tax Receivable Agreement could also have the effect of delaying,
deferring or preventing certain mergers, asset sales, other forms
of business combinations or other changes of control.
Adverse developments
in U.S. and
non-U.S.
tax laws could have a material and adverse effect on our business,
financial condition and results of operations. Our effective tax
rate and the amount of “tax distributions” that the Blue Owl
Operating Partnerships are required to make to equity holders could
also change materially as a result of various evolving factors,
including changes in income tax law resulting from the most recent
U.S. presidential and congressional elections or changes in the
scope of our operations.
The Registrant is subject to U.S. federal income taxation, and the
Registrant and the Blue Owl Operating Partnerships and their
subsidiaries are subject to income taxation by certain states and
municipalities and certain foreign jurisdictions in which they
operate. In addition, the Blue Owl Operating Partnerships are
required to make tax distributions to their partners pursuant to
the Blue Owl Limited Partnership Agreements. In determining our tax
liability and obligation to make tax distributions, we must monitor
changes to the applicable tax laws and
related regulations. While our existing operations have been
implemented in a manner we believe is in compliance with current
prevailing laws, one or more taxing U.S. or
non-U.S.
jurisdictions could seek to impose incremental, retroactive, or new
taxes on us. In addition, the current U.S. presidential
administration has called for changes to fiscal and tax policies,
which may include comprehensive tax reform. These and other tax
laws and related regulation changes, to the extent adopted, may
increase tax uncertainty and/or our effective tax rate, result in
higher compliance cost and result in a corresponding increase in
the amount of payments under the Tax Receivable Agreement and/or a
corresponding increase in the tax distributions that the Blue Owl
Operating Partnerships will be required to make. In addition, there
may be changes in law related to the Base Erosion and Profit
Shifting Project of the Organization for Economic
Co-Operation
and Development (“OECD”), the European Commission’s state aid
investigations and other initiatives. Such changes may include (but
are not limited to) the taxation of operating income, investment
income, dividends received or (in the specific context of
withholding tax) dividends paid, or the taxation of partnerships
and other pass-through entities. Any adverse developments in these
and other U.S. or foreign laws or regulations, including
legislative changes, judicial holdings or administrative
interpretations, could have a material and adverse effect on our
business, financial condition and results of operations. Finally,
changes in the scope of our operations, including expansion to new
geographies, could increase the amount of taxes to which we are
subject, and could increase our effective tax rate, which could
similarly adversely affect our financial condition and results of
operations.
Reports published by
analysts, including projections in those reports that differ from
our actual results, could adversely affect the price and trading
volume of our Class A Shares.
Securities research analysts may establish and publish their own
periodic projections for Blue Owl from time to time. Those
projections may vary widely and may not accurately predict the
results we actually achieve. Our share price may decline if our
actual results do not match the projections of these securities
research analysts. Similarly, if one or more of the analysts who
write reports on us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our share price could
decline. In addition, securities research analysts may compare Blue
Owl to companies that are not appropriately comparable, which could
lead to lower than expected valuations. If one or more analysts
cease coverage of us or fail to publish reports on us regularly,
our share price or trading volume could decline.
The Blue Owl
Operating Partnerships may directly or indirectly make
distributions of cash to us substantially in excess of the amounts
we use to make distributions to our stockholders and pay our
expenses (including our taxes and payments by Blue Owl GP under the
Tax Receivable Agreement). To the extent we do not distribute such
excess cash as dividends to our stockholders, the direct or
indirect holders of Common Units would benefit from any value
attributable to such cash as a result of their ownership of our
stock upon an exchange of their Common Units.
Blue Owl GP receives a pro rata portion of any distributions made
by the Blue Owl Operating Partnerships. Any cash received from such
distributions is first be used to satisfy any tax liability and
then used to make any payments required to be made by Blue Owl GP
under the Tax Receivable Agreement. Subject to having available
cash and subject to limitations imposed by applicable law and
contractual restrictions, the Blue Owl Operating Group Agreements
require the Blue Owl Operating Partnerships to make certain
distributions to holders of Common Units and to Blue Owl GP pro
rata to facilitate the payment of taxes with respect to the income
of the Blue Owl Operating Partnerships that is allocated to them.
To the extent that the tax distributions we directly or indirectly
receive exceed the amounts we actually require to pay taxes, Tax
Receivable Agreement payments and other expenses (which is likely
to be the case given that the assumed tax rate for such
distributions will generally exceed our effective tax rate), we
will not be required to distribute such excess cash. Our board of
directors may, in its sole discretion, choose to use such excess
cash for certain purposes, including to make distributions to the
holders of our stock. Unless and until our board of directors
chooses, in its sole discretion, to declare a distribution, we will
have no obligation to distribute such cash (or other available cash
other than any declared dividend) to our stockholders.
No adjustments to the exchange ratio of Common Units for shares of
our common stock will be made as a result of either (i) any
cash distribution by us or (ii) any cash that we retain and do
not distribute to our stockholders. To the extent we do not
distribute such cash as dividends and instead, for example, hold
such cash balances or use such cash for certain other purposes,
this may result in shares of our stock increasing in value relative
to the Common Units. The holders of Common Units may benefit from
any value attributable to such cash balances if they acquire shares
of our stock in an exchange of Common Units.
Risks Related to Our Class A Shares
An active trading
market for our Class A Shares may not be sustained, which may
make it difficult to sell the Class A Shares you
purchase.
Our Class A Shares are currently listed on the NYSE under the
symbol “OWL.” However, we cannot assure you that an active trading
market for our Class A Shares will be sustained. Accordingly,
we cannot assure you of the likelihood that an active trading
market for our Class A Shares will be maintained, the
liquidity of any trading market, your ability to sell your
Class A Shares when desired or the prices that you may obtain
for your shares.
The market price and
trading volume of our Class A Shares may be volatile, which
could result in rapid and substantial losses for holders of our
Class A Shares.
The market price of our Class A Shares is likely to be highly
volatile and may be subject to wide fluctuations in response to a
variety of factors. In addition, the volume of trading in our
Class A Shares may fluctuate and cause significant price
variations to occur. If the market price of our Class A Shares
declines significantly, holders of our Class A Shares may be
unable to resell their shares at or above their purchase price, if
at all. Some of the factors that could negatively affect the price
of our Class A Shares or result in fluctuations in the price
or trading volume of shares of our Class A Shares
include:
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the impact of
COVID-19
pandemic on Blue Owl’s business; |
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the inability to recognize the anticipated benefits of the Business
Combination, which may be affected by, among other things,
competition, Blue Owl’s inability to grow and manage growth
profitably, and retain its key employees;
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adverse market reaction to any indebtedness we may incur or
securities we may issue in the future;
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changes in market valuations of similar companies;
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speculation in the press or investment community;
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a lack of liquidity in the trading of our Class A
Shares;
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changes in applicable laws or regulations;
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risks relating to the uncertainty of Blue Owl’s projected financial
information; and
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risks related to the organic and inorganic growth of Blue Owl’s
business and the timing of expected business milestones.
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In addition, the stock markets have experienced extreme price and
volume fluctuations that have affected and continue to affect the
market prices of equity securities of many companies. These
fluctuations have often been unrelated or disproportionate to the
operating performance of those companies. Broad market and industry
factors, as well as general economic, political, regulatory and
market conditions, may negatively affect the market price of our
Class A Shares, regardless of Blue Owl’s actual operating
performance.
Volatility in our
share price could subject us to securities class action
litigation.
In the past, securities class action litigation has often been
brought against a company following a decline in the market price
of its securities. If we face such litigation, it could result in
substantial costs and a diversion of management’s attention and
resources, which could harm its business.
If securities or
industry analysts do not publish research or reports about us, or
publish negative reports, our stock price and trading volume could
decline.
The trading market for our Class A Shares will depend, in
part, on the research and reports that securities or industry
analysts publish about us. We do not have any control over these
analysts. If our financial performance fails to meet analyst
estimates or one or more of the analysts who cover our performance
downgrade our common stock or change their opinion, our stock price
would likely decline. If one or more of these analysts cease
coverage of us or fail to regularly publish reports on our
performance, it could lose visibility in the financial markets,
which could cause our stock price or trading volume to
decline.
Future offerings of
debt or offerings or issuances of equity securities by us may
adversely affect the market price of our Class A Shares or
otherwise dilute all other stockholders.
In the future, we may attempt to obtain financing or to further
increase our capital resources by issuing additional Class A
Shares or offering debt or other equity securities, including
commercial paper, medium-term notes, senior or subordinated notes,
debt securities convertible into equity or preferred stock. We also
expect to grant equity awards to employees, directors, and
consultants under stock incentive plans. Future acquisitions could
require substantial additional capital in excess of cash from
operations. We would expect to obtain the capital required for
acquisitions through a combination of additional issuances of
equity, corporate indebtedness and/or cash from operations.
Issuing additional Class A Shares or other equity securities
or securities convertible into equity may dilute the economic and
voting rights of our existing stockholders or reduce the market
price of our Class A Shares or both. Upon liquidation, holders
of such debt securities and preferred stock, if issued, and lenders
with respect to other borrowings would receive a distribution of
our available assets prior to the holders of our Class A
Shares. Debt securities convertible into equity could be subject to
adjustments in the conversion ratio pursuant to which certain
events may increase the number of equity securities issuable upon
conversion. Preferred stock, if issued, could have a preference
with respect to liquidating distributions or a preference with
respect to dividend payments that could limit our ability to pay
dividends to the holders of our Class A Shares. Our decision
to issue securities in any future offering will depend on market
conditions and other factors beyond our control, which may
adversely affect the amount, timing and nature of our future
offerings.
All of the Class A Shares offered by the Selling Holders
pursuant to this prospectus will be sold by Selling Holders for
their respective accounts. We will not receive any of the proceeds
from these sales.
The Selling Holders will pay any underwriting discounts and
commissions and expenses incurred by the Selling Holders for
brokerage, accounting, tax or legal services or any other expenses
incurred by the Selling Holders in disposing of the securities. We
will bear the costs, fees and expenses incurred in effecting the
registration of the securities covered by this prospectus,
including all registration and filing fees, NYSE listing fees and
fees and expenses of our counsel and our independent registered
public accounting firm.
It shall be the policy of the Company to pay to holders of classes
of outstanding Class A and Class B Shares a quarterly
dividend representing approximately 85% of the Company’s share of
Distributable Earnings for the most recently completed fiscal
quarter, subject to approval of the board of directors and
adjustment by amounts determined by the board of directors to be
necessary or appropriate to provide for the conduct of the
Company’s business, to make appropriate investments in the
Company’s business and funds, to comply with applicable law, any of
the Company’s debt instruments or other agreements, or to provide
for future cash requirements such
as tax-related payments,
operating reserves, clawback obligations and dividends to
stockholders for any ensuing quarter.
We intend to continue to pay to Class A Stockholders (and
Class B Stockholders in the future to the extent any
Class B Shares are outstanding) a quarterly dividend
representing approximately 85% of Distributable Earnings following
the end of each quarter. Blue Owl Capital Inc.’s share of
Distributable Earnings, subject to adjustment as determined by our
Board to be necessary or appropriate to provide for the conduct of
our business, to make appropriate investments in our business and
products, to comply with applicable law, any of our debt
instruments or other agreements, or to provide for future cash
requirements such as
tax-related
payments, operating reserves, clawback obligations and dividends to
stockholders for any ensuing quarter. All of the foregoing is
subject to the qualification that the declaration and payment of
any dividends are at the sole discretion of our Board, and our
Board may change our dividend policy at any time, including,
without limitation, to reduce or eliminate dividends
entirely.
The Blue Owl Operating Partnerships Tax Distributions to the
partners of such partnerships, including to Blue Owl GP, if we
determine that the taxable income of the relevant partnership will
give rise to taxable income for its partners. Generally, Tax
Distributions will be computed based on our estimate of the taxable
income of the relevant partnership allocable to a partner
multiplied by an assumed tax rate equal to the highest effective
marginal combined U.S. federal, New York State and New York City
income tax rates prescribed for an individual or corporate resident
in New York City (taking into account certain assumptions set forth
in the relevant partnership agreements). Tax Distributions will be
made only to the extent distributions from the Blue Owl Operating
Partnerships for the relevant year were otherwise insufficient to
cover the estimated assumed tax liabilities.
Holders of our Class A and B Shares may not always receive
distributions or may receive lower distributions on a per share
basis at a time when we, indirectly through Blue Owl GP, and
holders of our Common Units are receiving distributions on their
interests, as distributions to the Registrant and Blue Owl GP may
be used to settle tax and TRA liabilities, if any, and other
obligations.
Dividends are expected to be treated as qualified dividends under
current law to the extent of the Company’s current and accumulated
earnings and profits, with any excess dividends treated as a return
of capital to the extent of a stockholder’s basis, and any
remaining excess generally treated as gain realized on the sale or
other disposition of stock.
“We”, “us” and “our”
generally refer to Blue Owl Capital Inc., a Delaware corporation
(together with its subsidiaries, “Blue Owl”) unless the context
otherwise requires.
Blue Owl is a global alternative asset manager with
$94.5 billion in AUM as of December 31, 2021. Anchored by
a strong permanent capital base, the firm deploys private capital
across Direct Lending, GP Capital Solutions and Real Estate
strategies on behalf of institutional and private wealth clients.
Blue Owl’s flexible, consultative approach helps position the firm
as a partner of choice for businesses seeking capital solutions to
support their sustained growth. The firm’s management team is
comprised of seasoned investment professionals with more than 25
years of experience building alternative investment businesses.
Blue Owl employs over 350 people across 9 offices globally.
Blue Owl was formed through the combination of Owl Rock and Dyal
Capital in May 2021, at which time these businesses merged with and
into Altimar Acquisition Corporation (“Altimar”), a blank check,
special purpose acquisition company.
The combination of Owl Rock and Dyal Capital creates a platform
primed to continue servicing these markets. In December 2021, we
acquired Oak Street, which expanded our firm’s offerings to include
real estate-focused products.
Our breadth of offerings and permanent capital base enable us to
offer a differentiated, holistic platform of capital solutions to
middle market companies, large alternative asset managers and
corporate real estate owners and tenants. We provide these
solutions through our permanent capital vehicles, as well as
long-dated private funds, that we believe provide our business with
a high degree of earnings stability and predictability. Our
permanent capital vehicles are products that do not have ordinary
redemption provisions or a requirement to exit investments after a
prescribed period of time to return invested capital to investors,
except as required by applicable law or pursuant to redemption
requests that can only be made after significant
lock-up
periods. For the quarter ended December 31, 2021,
approximately 98% of our management fees were earned from permanent
capital vehicles.
Our global, high-caliber, investor base includes a diversified mix
of institutional investors, including prominent public and private
pension funds, endowments, foundations, family offices, private
banks, high net worth individuals, asset managers and insurance
companies, as well as retail clients, accessed through many
well-known wealth management firms. We have continued to grow our
investor base and presence in the growing private markets and
alternative asset management sector by emphasizing our disciplined
investment approach, client service, and portfolio
performance.
While we currently offer Direct Lending, GP Capital Solutions and
Real Estate products across three divisions (Owl Rock, Dyal Capital
and Oak Street), our management takes a
one-firm
approach when making operating decisions and determining how to
allocate resources. As a result, we currently operate as a single
reportable segment. Management regularly reviews our revenues by
product line and our expenses by type at the total firm level
(e.g., compensation and benefits; general, administrative and other
expenses), and therefore we have presented details of our operating
results throughout this prospectus consistent with how management
reviews our results.
Our revenues are generated primarily from the investment advisory
and administrative services agreements we have with our products.
See Note 2 to our Financial Statements for a detailed description
of how we earn our revenues and the significant impact that our
FPAUM has on the amount of revenues we earn each period.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) presents
additional information on our revenues and operating results, as
well as historical AUM and performance information for certain of
our products; such information should be read in conjunction with
this description of our business.
We have three major product lines: Direct Lending, GP Capital
Solutions and Real Estate. We believe our products, while distinct,
are complementary to each other and together enable us to provide a
differentiated platform of varied capital solutions. All of our
products employ a disciplined investment philosophy with a focus on
long-term investment horizons and are managed by tenured leadership
and investment professionals with significant experience in their
respective strategies.
Our products are generally structured as BDCs, REITs and private
investments funds that aggregate capital from investors. As the
investment manager of our products, we invest that capital with the
goal of generating attractive, risk-based returns for the investors
in our products. In many of our products, we may use leverage to
increase the size of the investments our products are able to make.
As further explained in Note 2 to our Financial Statements, we
generally earn management fees on the amount of FPAUM that we
manage; therefore, the growth and success of our product offerings
is paramount to our success as an alternative asset manager.
Our products create a robust foundation for our holistic platform.
We believe the success and growth in our businesses since inception
has been driven by a singular, dedicated focus on providing capital
solutions and the differentiating competitive features of our
platform.
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GP Capital Solutions Products
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Professional Sports Minority Investments
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Our Direct Lending products offer private credit products to
middle-market companies seeking capital solutions. We believe our
breadth of offerings establishes us as the lending partner of
choice for private-equity sponsored companies, as well as other
predominately
non-cyclical,
recession-resistant businesses. Since the launch of our flagship
institutional product, ORCC, we have continued to prudently expand
our offerings, focusing on adjacent strategies that are both
additive and complementary to our existing product base. Our Direct
Lending products are offered through a mix of BDCs, long-dated
private funds and other vehicles across the following investment
strategies:
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Our Diversified Lending strategy seeks to generate current income
and, to a lesser extent, capital appreciation by targeting
investment opportunities with favorable risk-adjusted returns
across credit cycles with an emphasis on preserving capital
primarily through originating and making loans to, and making debt
and equity investments in, U.S. middle market companies. We provide
a wide range of financing solutions with strong focus on the top of
the capital structure and operate this strategy through
diversification by borrower, sector, sponsor, and position size.
Our Diversified Lending strategy is primarily offered to investors
through our BDCs.
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Our Technology Lending strategy seeks to maximize total return by
generating current income from our debt investments and other
income producing securities, and capital appreciation from our
equity and equity-linked investments primarily through originating
and making loans to, and making debt and equity investments in,
technology related companies based primarily in the United States.
We originate and invest in senior secured or unsecured loans,
subordinated loans or mezzanine loans, and equity and
equity-related securities including common equity, warrants,
preferred stock and similar forms of senior equity, which may be
convertible into a portfolio company’s common equity. Our
Technology Lending strategy invests in a broad range of established
and high growth technology companies that are capitalizing on the
large and growing demand for technology products and services. This
strategy focuses on companies that operate in technology-related
industries or sectors which include, but are not limited to,
information technology, application or infrastructure software,
financial services, data and analytics, security, cloud computing,
communications, life sciences, healthcare, media, consumer
electronics, semi-conductor, internet commerce and advertising,
environmental, aerospace and defense industries and sectors. Our
Technology Lending strategy is primarily offered to investors
through our technology-focused BDCs.
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Our First Lien Lending strategy seeks to realize current income
with an emphasis on preservation of capital primarily through
originating primary transactions in and, to a lesser extent,
secondary transactions of first lien senior secured loans in or
related to private-equity sponsored, middle market businesses based
primarily in the United States. Our First Lien strategy is offered
to investors through our long-dated private funds and managed
accounts.
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Our Opportunistic Lending strategy seeks to generate attractive
risk-adjusted returns by taking advantage of credit opportunities
in U.S. middle market companies with liquidity needs and market
leaders seeking to improve their balance sheets. We focus on
high-quality companies that could be experiencing disruption,
dislocation, distress or transformational change. We aim to be the
partner of choice for companies by being well-equipped to provide a
variety of financing solutions to meet a broad range of situations,
including the following: (i) rescue financing, (ii) new
issuance and recapitalizations, (iii) wedge capital,
(iv) debtor-in-possession
loans, (v) financing for additional liquidity and covenant
relief and (vi) broken syndications. Our Opportunistic Lending
strategy is offered to investors through our long-dated private
funds and managed accounts.
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Our GP Capital Solutions products position us as a leading capital
solutions provider to large private capital managers. We primarily
focus on acquiring equity stakes in, or providing debt financing to
large, multi-product
private equity and private credit firms, which we may refer to as
“GPs.” Our GP Capital Solutions division also houses our Business
Services Platform, which provides strategic support to our Partner
Managers. Our GP Capital Solutions products are offered primarily
through permanent capital vehicles across the following investment
strategies:
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GP Minority Equity
Investments:
We build diversified portfolios of minority equity investments in
institutionalized alternative asset management firms across
multiple strategies, geographies, and asset classes. Our investment
objective is to generate compelling cash yield by collecting a set
percentage of contractually fixed management fees, a set percentage
of carried interest and return on balance sheet investments made by
underlying managers. We primarily focus on acquiring minority
positions in large, multi-product alternative asset managers who
continue to gain a disproportionate proportion of the assets
flowing into private investment strategies and exhibit high levels
of stability. Our inaugural funds followed a hedge fund
manager-focused investment program that has since evolved into a
private capital manager-focused investment program in our more
recent funds. Our GP Minority Equity Investments strategy is
offered to investors through our
closed-end,
permanent capital funds. A fundamental component of the fundraising
efforts for our investment programs is the ability to identify and
execute
co-investment
opportunities for our investors. We may offer, from
and in our sole discretion,
co-investment
opportunities in certain fund investments, generally with no
management or incentive-based fee.
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The GP Debt Financing strategy focuses on originating and making
collateralized, long-term debt investments, preferred equity
investments and structured investments in private capital managers.
We originate and invest in secured term loans that are
collateralized by substantially all of the assets of a manager and
subject to repayment on an accelerated basis pursuant to cash flow
sweeps of set percentages of management fees, GP realization,
carried interest and other fee streams of the management company in
the event that certain minimum coverage ratios are not maintained.
Our investment objective is to generate current income by targeting
investment opportunities with attractive risk-adjusted returns. We
expect that the loans will be made to allow borrowers to support
business growth, fund GP commitments, and launch new strategies.
The GP Debt Financing strategy allows us to offer a comprehensive
suite of solutions to private capital managers.
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Professional Sports
Minority Investments:
Our Professional Sports Minority Investments strategy focuses on
building diversified portfolios of minority equity investments in
professional sport teams. Our first fund in this strategy is
NBA-focused.
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Our real estate products primarily focus on structuring
sale-leaseback transactions, which includes triple net
leases.
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Our Net Lease real estate strategy is focused on acquiring
properties
net-leased,
long-term to investment grade and creditworthy tenants. Oak
Street’s Net Lease real estate strategies focus on acquiring single
tenant properties, across industrial, essential retail and mission
critical office sectors. By combining our proprietary origination
platform, enhanced lease structures and a disciplined investment
criteria, we seek to provide investors with predictable current
income, and potential for appreciation, while focusing on limiting
downside risk.
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Blue Owl’s history is predicated on the key milestones of both Owl
Rock and Dyal Capital. Owl Rock was founded in 2016 by Doug
Ostrover, Marc Lipschultz and Craig Packer to address the evolving
need for direct lending solutions by middle-market companies. Dyal
Capital was founded in 2010 by Michael Rees to fill the need for
flexible capital solutions for private capital managers. In
December 2021, we acquired the Oak Street business, which allowed
us to further diversify the products we offer our investors. Since
its founding in 2009 by
Marc Zahr, Oak Street has established itself as a leader in private
equity real estate, offering flexible and unique capital solutions
to a variety of corporations and other organizations.
The combination of these businesses creates a platform primed to
continue servicing these markets. Blue Owl’s robust and diversified
platform offerings will continue to serve as a response to the
following sector dynamics:
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shifting allocations by retail institutional investors.
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rotation onto alternatives given the search for yield and
reliability of returns.
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rising need for private debt driven by sponsor demand.
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evolving landscape of the private debt market.
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de-leveraging
of the global banking system.
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increasing need for flexible capital solutions by private capital
managers.
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Across our businesses, our presence in the market combined with our
constant dialogue with financial sponsors, companies and our
investors, has allowed us to identify attractive opportunities in
adjacent subsectors over time.
Since inception, Owl Rock, Dyal Capital and Oak Street have
launched multiple new strategies and products, exclusively in areas
where we believed we could leverage our competitive advantage and
expertise, and where we believe we had identified critical mass of
lending, capital and real estate solutions opportunities as well as
heightened investor interest. We have focused on executing on key
adjacencies that are natural extensions of existing core strategies
in order to capitalize on the growing dislocations in the market
and rising investor demand.
Our Competitive Strengths
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High proportion of
permanent capital.
We have a high-quality capital base heavily weighted toward
permanent capital. For the quarter ended December 31, 2021,
approximately 98% of our management fees were earned on AUM that we
refer to as permanent capital. Our BDCs, by nature, are
closed-end,
permanent (or potentially permanent) funds with no mandatory
redemption and potentially unlimited duration once listed.
Substantially all of the AUM in our GP Capital Solutions and Real
Estate products are also structured as permanent capital vehicles.
The high proportion of permanent capital in our AUM provides a
stable base and allows for our AUM to grow more predictably without
having reductions in our asset levels due to ordinary redemptions.
Our permanent capital base also lends stability and flexibility to
our portfolio companies and Partner Managers, providing us the
opportunity to grow alongside these companies and positioning us to
be a preferred source of capital and the incumbent lender for
follow-ons
and other capital solutions to high-performing companies. As such,
we are able to be a compelling partner for these firms as they seek
capital to support their long-term vision and business development
goals. The stability of our AUM base enables us to focus on
generating attractive returns by investing in assets with a
long-term focus across different periods in the market cycle.
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Significant embedded
growth in current AUM with
built-in
mechanisms for fee revenue increases.
While we expect to continue our successful fundraising track record
to supplement our existing capital base, our current AUM,
predominately permanent capital in nature, already provides for
significant embedded growth. Of our $94.5 billion AUM base,
$61.4 billion represents our current FPAUM. As of
December 31, 2021, we have approximately $11.0 billion in
AUM not yet paying fees, providing approximately
$140.0 million of annualized management fees once deployed. In
addition, to the extent any of our BDCs become publicly listed,
under the advisory agreements the advisory fees from the applicable
BDC could potentially increase, subject to any fee waivers or
deferral arrangements agreed to by us and the applicable BDC.
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Stable earnings
model with attractive margin profile.
The majority of our revenues is generated from our stable
management fees. Our predictable revenue base translates to a
stable earnings model through a disciplined, efficient cost
structure, producing strong profit margins and mitigating the risk
of volatility in the profit margins. This allows our business model
to maintain a disciplined cost structure and stable operating
margins.
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Extensive, long-term
relationships with a robust and vast network of alternative asset
managers.
We have extensive alternative asset manager relationships, which
allow us to quickly and efficiently source potential investment
opportunities for our products. We believe our deep relationships
position us to receive “early looks” and “last looks” from
alternative asset managers, which in turn, allow us to be highly
selective in deciding which investments to pursue. We believe the
depth and breadth of our relationships are predicated on several,
differentiating features of our platform and that alternative asset
managers value our team’s experience and deep focus both within
products and across a broad spectrum of capital solutions. Our
expansive set of product offerings allows us to provide flexible
and creative solutions, and in tandem with our sizeable permanent
capital base, enables us to provide access to scaled, sizeable
commitments. Partner Managers in our GP Capital Solutions products
also value our Business Services Platform, which provides strategic
value-added services to our Partner Managers in five key areas:
client development and marketing support, business strategy,
product development, talent management, and operational advice. We
expect our differentiated approach and broad spectrum of capital
solution products will continue to strengthen our relationships,
and we intend to further expand our network to fortify our position
as a preferred partner for alternative asset managers and their
portfolio companies.
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Increasing benefits
of scale.
We believe our robust, scaled platform presents us with a
competitive advantage which enables us to provide attractive
solutions as a trusted partner and therefore continue to capture
market share. Many institutional investors are concentrating their
relationships in an effort to partner with dependable, scaled firms
with proven track records that they have a high level of comfort
with. Our scaled platform enables us to remain a partner of choice
not only for borrowers, GPs and tenants, but also for investors. We
believe we will not only maintain, but continue to expand our share
of the market as a result of the high level of confidence investors
have in our scaled capital solutions platform. Our ability to
provide diversification and niche access points will continue to
attract investor interest as they seek diversification and continue
to value lower-correlation portfolio allocations.
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Within Direct Lending, there is significant competition for loans
below $50 million, but there are much fewer lenders capable of
providing solutions over $100 million. Our differentiated
approach and scaled direct lending platform allow us to capitalize
on opportunities across the sizing spectrum—from loans below
$50 million to loans over $1.0 billion. Our platform’s
scale has demonstrated the ability to originate larger deals, while
also providing diversification in our portfolios. We believe our
scale enables us to broaden our deal funnel and provides us access
to more investment opportunities than many other direct lenders. We
have significant available capital that allows us to provide scaled
financing solutions, commit to full capital structures and support
capital needs of borrowers. We believe being a total solutions
provider also grants us a broader view of market opportunities,
which allows us to continue operating as a market leader.
Within GP Capital Solutions, we have also established ourselves as
a market leader, with a long track record, greatest amount of
aggregate capital raised and largest number of publicly-announced
deals. The target size of our current fund being raised, Fund V, is
materially larger than the approximately $5 billion fund sizes
of our main competitors. Our large base of stable capital not only
enables participation in investments across the sizing spectrum,
but also creates a competitive advantage by positioning us as a
highly qualified buyer for minority stakes in large, established
GPs. We believe that we also gain access to proprietary deal flow
as a result of the market’s confidence in our ability to execute on
large investments expeditiously. We believe our strong reputation
in the market combined with our scale will continue to provide us
with unique access to the most attractive sectors of the
alternative asset management universe.
Within Real Estate, we have a targeted origination strategy that
benefits from Oak Street’s strong network and allows us to be
competitive with other net lease peers. Oak Street proactively
builds and maintains strong relationships with large investment
grade-rated and creditworthy companies whose businesses offer
essential goods or services and which we believe are generally
resistant to
e-commerce
and economic downside risks, and structures mutually beneficial
transactions with long lease durations, and in many cases,
favorable pricing. We intend to leverage Oak Street’s corporate
partnerships to both source unique investment opportunities
unavailable to other market participants and negotiate attractive
lease terms. We believe our strong origination capabilities,
conservative underwriting criteria and strong existing tenant
relationships will allow our Real Estate products to purchase
properties in the future at attractive terms and pricing, providing
significant long-term opportunities for growth and scale.
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Diverse, global and
growing high-quality investor base.
Our global investor base is composed of long-standing institutional
relationships, as well as a quickly growing retail investor base.
Our institutional clients include large domestic and international
public and private pension funds, endowments, foundations, family
offices, sovereign wealth funds, asset managers and insurance
companies. Our retail clients include prominent wealth management
firms, private banks, and
high-net
worth investors. As we continue to grow, we expect to retain our
existing clients through our breadth of offerings. As of
December 31, 2021, approximately 36% of our institutional
investors are invested in more than one product, with many
increasing their commitment to their initial strategy and
additionally committing additional capital across our other
strategies. We believe our diligent management of investors’
capital, combined with our strong performance and increasingly
diversified product offerings has helped retain and attract
investors which has furthered our growth in FPAUM and facilitated
further expansion of our strategies. We also believe the global
nature of our investor base enables significant cross-selling
opportunities between our products and strategies. We are committed
to providing our clients with a superior level of service. We
believe our client-focused nature, rooted in our culture of
transparency will help us continue to retain and attract high
quality investors to our platform.
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Industry-leading
management team with proven track record.
We are led by a team of seasoned executives with significant and
diverse experience at the world’s leading financial institutions.
Our
management team has considerable expertise across their respective
product strategies, with a long track record of successful
investing experience across multiple businesses and credit cycles.
Members of our senior management have an average of over 25 years
of experience and a strong track record in building successful
businesses from the ground up and generating superior returns
across market cycles. Additionally, our senior management team has
experienced no turnover since the inception of our predecessor
businesses which we believe has enabled us to build meaningful
long-term relationships and partnerships with alternative asset
managers as well as with our investors.
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Alignment of
interests with stakeholders.
We consider the alignment of interests of our executive management
team and other professionals with those of the investors in our
products to be core to our business. AUM (inclusive of accrued
carried interest) related to our executives and other employees
totaled approximately $1.9 billion, which aligns their
interests with our clients’ interests by motivating the continued
high-performance and retention of our dedicated team of
professionals.
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We aim to continue applying our core principles and values that
have guided us since inception in order to expand our business
through the following strategies:
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Organically grow our
core business.
We expect to continue to grow AUM in our existing strategies, and
intend to launch additional, successor permanent capital vehicles
and similar long-dated products in the future. We will benefit from
significant embedded growth in our current AUM that is not yet
paying fees that can be realized as we continue to deploy and lever
our existing capital base and as fee holidays in certain funds
expire. We believe these key attributes, in conjunction with our
ability to raise
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successor products in existing strategies, will continue to play a
key role in our growth profile. We also expect to enhance our AUM
growth by expanding our current investor relationships and also
continuing to attract new investors.
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Expand our product
offering.
We plan to grow our platform by expanding our product offerings. We
intend to take a diligent and deliberate approach to expansion, by
adding products that are complementary, adjacent or additive to our
current strategies. To date, our measured approach to growth
through the addition of adjacent strategies has allowed us to
continue delivering high performance to our dedicated investor
base. We expect that as we continue to grow our existing
strategies, there will be additional adjacencies that provide
natural expansion opportunities. We believe through the disciplined
expansion of our platform, we can continue to develop our breadth
of offerings and further our position as a leading solutions
provider. As we grow, we expect to attract new investors as well as
leverage our existing investor base, as we have done with previous
product launches.
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Leverage
complementary global distribution networks.
We are well positioned to continue to penetrate the growing global
market. The success of our Direct Lending and Real Estate products
to date has been primarily focused within the United States, while
our GP Capital Solutions products have a more global investor base.
We intend to continue fundraising both domestically and
internationally. The favorable industry tailwinds are global in
nature and we believe that there is additional market opportunity
across the global landscape. As of December 31, 2021, 77% of
capital raised was done so in the United States and Canada. We
believe our strong network and track record of global fundraising
has primed us to further extend our fundraising efforts across
products and into additional international markets, as
institutional investors across the globe are facing the same
pressures and seeking the same positive attributes of the sector
that have attracted domestic investors thus far. We also believe we
have a significant opportunity to leverage Dyal Capital’s global
fundraising capabilities and investor relationships to cross-sell
our Direct Lending and Real Estate products, as well as utilize Owl
Rock’s existing domestic retail channel to cross-sell our GP
Capital Solutions products while increasing our global
capabilities. The global market represents a large, and relatively
untapped opportunity for many of our products that we believe will
facilitate our pursuit of international expansion in the coming
years, and position us to enter into less-developed markets where
we can be a significant first-mover and play a key role in defining
the markets.
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Enhance our
distribution channels.
As investors continue to increase their alternatives allocation in
the search for yield, we believe we have the opportunity to
continue diversifying our client base by attracting new investors
across different channels. We intend to leverage our strong growth
within and across our strategies as a means to add new investors to
our growing family of funds. We have already begun executing on
this strategy, with a notable influx of wealth management platforms
and public and private pension fund investors in recent years.
These additions helped further diversify our investor base which
also includes, but is not limited to, insurance, family offices,
endowments and foundations. In addition, we have continued to grow
our relationships in the consultant community. We intend to be the
premier direct lending and GP minority investing platform for
investors across the institutional and retail distribution
channels.
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Deepen and expand
strong strategic relationships with key institutional
investors.
We have established invaluable relationships with strategic
partners, consultants and large institutional investors who provide
us with key market insights, operational advice and facilitate
relationship introductions. We pride ourselves on continuing to
foster these relationships as they are fundamental to our business
and reflect the strong alignment of interests that are highly
valued by our partners. As of December 31, 2021, eight
institutional investors have committed at least $1.0 billion
across our strategies, 25 have committed at least
$500 million, and 48 have committed at least
$250 million. Our strategic partnerships allow us to craft
customized solutions tailored to the objectives of our clients,
while reflecting the breadth of our capabilities across our
strategies. We also have important relationships with sponsors,
wealth management firms, banks, corporate advisory firms, industry
consultants and other market participants that we believe are of
significant value. As we continue to grow, both
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organically and through product and geographic expansion, we will
continue to pursue the addition of incremental key strategic
partners.
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Opportunistically
pursue accretive acquisitions.
In addition to our various avenues of organic growth, we intend to
diligently evaluate acquisition opportunities that we believe would
be value-enhancing to our current platform. These could include
acquisitions that would expand the breadth of our product
offerings, further develop our investor base, or facilitate our
plans for global expansion. We believe that as the market continues
to evolve, there will be numerous opportunities for us to consider,
of which we intend to only pursue the most accretive
acquisitions.
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The investment management industry is intensely competitive, and we
expect it to remain so. We compete globally and on a regional,
industry and asset basis. We face competition both in the pursuit
of investors for our products and investment opportunities.
Generally, our competition varies across product lines, geographies
and financial markets. We compete for investors based on a variety
of factors, including investment performance, investor perception
of investment managers’ drive, focus and alignment of interest,
quality of service provided to and duration of relationship with
investors, breath of our product offering, business reputation and
the level of fees and expenses charged for services. We compete for
investment opportunities at our funds based on a variety of
factors, including breadth of market coverage and relationships,
access to capital, transaction execution skills, the range of
products and services offered, innovation and price, and we expect
that competition will continue to increase.
Competition is also intense for the attraction and retention of
qualified employees. Our ability to continue to compete effectively
in our businesses will depend upon our ability to attract new
employees and retain and motivate our existing employees. See “
Risk Factors—Risks
Related to Our Business and Operations
—
Our future growth
depends on our ability to attract, retain and develop human capital
in a highly competitive talent market.
”
Our competition as an asset manager and financing source to middle
market companies consists primarily of other asset managers who
focus principally on credit funds, including BDCs, and other credit
products. We also compete with public and private funds, BDCs,
commercial and investment banks, commercial finance companies and,
to the extent they provide an alternative form of financing,
private equity and hedge funds. Many of our competitors are
substantially larger and may have more financial, technical, and
marketing resources than we do. Many of these competitors have
similar investment objectives to us, which may create additional
competition for investment opportunities. Some of these competitors
may also have a lower cost of capital and access to funding sources
that are not available to us, which may create competitive
disadvantages for us with respect to investment opportunities. In
addition, some of our competitors may have higher risk tolerances
or different risk assessments, which could allow them to consider a
wider variety of investments and establish more relationships than
us. Further, many of our competitors are not subject to the
regulatory restrictions that the Investment Company Act imposes on
us as a business development company, or to the distribution and
other requirements we must satisfy to qualify for RIC tax
treatment. Lastly, institutional and individual investors are
allocating increasing amounts of capital to alternative investment
strategies. Several large institutional investors have announced a
desire to consolidate their investments in a more limited number of
managers. We expect that this will cause competition in our
industry to intensify and could lead to a reduction in the size and
duration of pricing inefficiencies that many of our products seek
to exploit. See “
Risk Factors—Risks
Relating to Our Businesses and Operations—The investment management
business is intensely competitive.
”
Our GP Capital Solutions products currently have limited direct
competition from organizations dedicated to acquiring stakes in
large institutionalized private capital managers. More recently, a
limited number of asset
managers have begun acquired minority stakes in certain private
capital managers. Such institutions may compete with us for similar
investments in the future. We believe, however, that this limited
number of competitors is likely to persist, as conflicts of
interest and regulatory restrictions make purchasing minority
stakes in private capital managers challenging for financial
institutions and private equity firms.
With respect to our GP Debt Financing strategy, many banks provide
revolving lines of credit to private equity managers, but these
credit lines are typically short duration, amortize and require
blanket personal guarantees. A small number of firms, provide
structured or preferred equity to private capital managers, but
these investments are also structurally very different from our
products’ long-term loans. We believe that this limited amount of
competition is likely to persist, as conflicts of interest,
regulatory restrictions, capital constraints and other
considerations make lending to private capital managers challenging
for financial institutions, insurance companies and other private
market firms.
Our current GP Capital Solutions strategies compete with among
others, a number of private equity funds, specialized funds, hedge
funds, corporate buyers, traditional asset managers, real estate
companies, commercial banks, investment banks, other investment
managers and other financial institutions, including the owners of
certain of our stockholders, as well as domestic and international
pension funds and sovereign wealth funds, and we expect that
competition will continue to increase. See “
Risk Factors—Risks
Related to Our Business and Operations—The investment management
business is intensely competitive.
” We compete globally and on a regional, industry and asset
basis.
Oak Street has remained the only net let lease private equity
manager dedicated exclusively to transacting with investment grade
rated and other creditworthy counterparties. The more stable and
predictable nature of the net lease sector has brought additional
competition into the space in recent years. Historically, such
competition has primarily come from net lease REIT’s (publicly
traded and
non-traded),
other private equity real estate funds, and high net worth
buyers.
Competitors in the publicly traded net lease sector generally
exhibit less stringent criteria than us with respect to pricing and
lease durations, and their portfolios are comprised substantially
with
non-investment
grade credits, shorter average lease terms, and meaningful
near-term lease rollover. Additionally, many net lease peers focus
on acquiring retail properties with an average deal size of less
$10 million, whereas our Real Estate products’ transactions
are typically $100 million and greater in size.
Competition from other private equity funds has grown, as many have
either shifted their current real estate focus to building net
lease teams or acquired existing net lease strategies. Despite this
increased activity, competition with our Real Estate products on
the deal level has remained relatively low, as those strategies
concentrate their efforts in the
non-investment
grade space, prefer to develop properties themselves, and to deploy
capital in sectors that are outside of our traditional focus of:
industrial assets, mission critical office properties and essential
retail. High net worth buyers have been formidable competitors and
active acquirers of retail assets under $8 million; they tend
to be less price sensitive and there are usually wide pools of
potential buyers for these assets. As the monetization of real
estate through sale-leasebacks continues to gain traction as a
capital allocation tool for companies, we expect the net lease
sector to grow even larger, and that will continue to attract more
competition into the space.
As of December 31, 2021, we had approximately 350 full-time
employees, including over 100 investment professionals across nine
offices globally.
As an alternative asset manager, our people are the key to the
success of our business. We rely significantly on our talented
team, leveraging a wide variety of investment, management, business
and other skills and
expertise, to create value for stockholders and investors in our
products. We aim to build a team that is driven and embraces an
inclusive culture where our team members are engaged and work
collaboratively across the organization.
Compensation and Benefits
We design our compensation programs to motivate and retain
employees and align their interests with those of our stockholders.
In particular, annual bonuses for our executives and other senior
employees involves a combination of cash and deferred equity awards
in the form of Incentive Units and RSUs (as defined in Note 1 to
the Financial Statements). The proportion of compensation that is
deferred and at risk of forfeiture generally increases as an
employee’s level of compensation rises. Employees at higher total
compensation levels are generally targeted to receive a greater
percentage of their total compensation payable in Incentive Units
and RSUs. To further align their interests with those of investors
in our products, our employees have the opportunity to make
investments in or alongside our products. We also provide our
employees robust health and other wellness offerings, as well as a
variety of quality of life benefits, including
time-off
and family planning resources. We believe our approach to
compensation and benefits are consistent with companies in the
alternative asset management industry and enables us to attract and
retain
talent in our industry. Our senior management periodically reviews
the effectiveness and competitiveness of our compensation
program.
Diversity, Equity and Inclusion
Blue Owl is committed to fostering, cultivating, and preserving a
culture of diversity, equity and inclusion. We prize diversity in
our team and seek to create an inclusive, merit-based environment
that is supportive of people from all backgrounds.
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Embracing our
differences.
We embrace and encourage our differences that make us unique. We
believe that a team comprised of individuals with diverse
backgrounds, experiences, perspectives and insights is critical to
the long-term success of our firm.
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Continuing to develop as a more diverse, equitable and inclusive
firm is a strategic priority for Blue Owl that we believe will
further enhance our work environment and overall business. Our
commitment to diversity and inclusion is relevant to all areas of
the firm’s business.
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We focus on diversity, equity and inclusion in our corporate
practices and policies, including: recruitment and hiring;
compensation and benefits; professional development and training;
promotions; transfers; and social and recreational programs. We
also believe diversity, equity, and inclusion is an important
component of any environmental, social, and governance program, and
are committed to actively engaging with our investment teams on
integrating our corporate philosophy into our investment
culture.
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While our ongoing efforts are championed at the Blue Owl
founder-level and executed upon by senior leaders across all
business areas of the firm, we strongly believe that these efforts
should be employee led. Our aim is to have diversity, equity and
inclusion be part of the very fiber of our entire employee
population.
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Regulatory and Compliance Matters
Our business, as well as the financial services industry, generally
are subject to extensive regulation, including periodic
examinations, by governmental agencies and self-regulatory
organizations or exchanges in the U.S. and foreign jurisdictions in
which we operate relating to, among other things, antitrust laws,
anti-money laundering laws, anti-bribery laws relating to foreign
officials, tax laws and privacy laws with respect to client and
other information, and some of our funds invest in businesses that
operate in highly regulated industries.
Each of the regulatory bodies with jurisdiction over us has
regulatory powers dealing with many aspects of financial services,
including the authority to grant, and in specific circumstances to
cancel, permissions to carry on particular activities. Any failure
to comply with these rules and regulations could limit our ability
to carry on particular activities or expose us to liability and/or
reputational damage. Additional legislation, increasing global
regulatory oversight of fundraising activities, changes in rules
promulgated by self-regulatory organizations or exchanges or
changes in the interpretation or enforcement of existing laws and
rules, either in the United States or elsewhere, may directly
affect our mode of operation and profitability. See “
Risk Factors—Risks
Related to Our Business and Operations—Difficult market and
political conditions may reduce the value or hamper the performance
of the investments made by our products or impair the ability of
our products to raise or deploy capital, each of which could
materially reduce our revenue, earnings and cash flow and adversely
affect our financial prospects and condition.
”
Rigorous legal and compliance analysis of our businesses and
investments made by our products is important to our culture. We
strive to maintain a culture of compliance through the use of
policies and procedures such as oversight compliance, codes of
ethics, compliance systems, communication of compliance guidance
and employee education and training. All employees must annually
certify their understanding of and compliance with key global
policies, procedures and code of ethics. We have a compliance group
that monitors our compliance with the regulatory requirements to
which we are subject and manages our compliance policies and
procedures. Our Chief Compliance Officer supervises our compliance
group, which is responsible for monitoring all regulatory and
compliance matters that affect our activities. Our compliance
policies and procedures address a variety of regulatory and
compliance risks such as the handling of material
non-public
information, personal securities trading, valuation of investments,
document retention, potential conflicts of interest and the
allocation of investment opportunities.
Many jurisdictions in which we operate have laws and regulations
relating to data privacy, cybersecurity and protection of personal
information, including the General Data Protection Regulation,
which expands data protection rules for individuals within the
European Union (the “EU”) and for personal data exported outside
the EU, and the California Consumer Privacy Act, which creates new
rights and obligations related to personal data of residents (and
households) in California. Any determination of a failure to comply
with any such laws or regulations could result in fines or
sanctions or both, as well as reputational harm. As these laws and
regulations or the enforcement of the same become more stringent,
or if new laws or regulations or enacted, our financial performance
or plans for growth may be adversely impacted.
We provide investment advisory services through several entities
that are registered as investment advisers with the SEC pursuant to
the Advisers Act. Our BDCs elect to be regulated under the
Investment Company Act and the Exchange Act and, in certain cases,
the Securities Act. As compared to other, more disclosure-oriented
U.S. federal securities laws, the Advisers Act and the Investment
Company Act, together with the SEC’s regulations and
interpretations thereunder, are highly restrictive regulatory
statutes. The SEC is authorized to institute proceedings and impose
sanctions for violations of the Advisers Act and the Investment
Company Act, ranging from fines and censures to termination of an
adviser’s registration.
Under the Advisers Act, an investment adviser (whether or not
registered under the Advisers Act) has fiduciary duties to its
clients. The SEC has interpreted these duties to impose standards,
requirements and limitations on, among other things, trading for
proprietary, personal and client accounts; allocations of
investment opportunities among clients; and conflicts of
interest.
The Advisers Act also imposes specific restrictions on an
investment adviser’s ability to engage in principal and agency
cross transactions. Our registered investment advisers are subject
to many additional requirements that cover, among other things,
disclosure of information about our business to clients;
maintenance of written policies and procedures; maintenance of
extensive books and records; restrictions on the types of fees we
may
charge, including realized performance income or carried interest;
solicitation arrangements; maintaining effective compliance
program; custody of client assets; client privacy; advertising; and
proxy voting. The SEC has authority to inspect any registered
investment adviser and typically inspects a registered investment
adviser periodically to determine whether the adviser is conducting
its activities in compliance with (i) applicable laws,
(ii) disclosures made to clients and (iii) adequate
systems, policies and procedures to ensure compliance.
A significant portion of our revenues are derived from our advisory
services to our BDCs. The Investment Company Act imposes
significant requirements and limitations on BDCs, including with
respect to their capital structure, investments and transactions.
While we exercise broad discretion over the
management of our BDCs, each of our BDCs is also subject to
oversight and management by a board of directors, a majority of
whom are not “interested persons” as defined under the Investment
Company Act. The responsibilities of each board include, among
other things, approving our advisory contract with our BDC;
approving certain service providers; determining the valuation and
the method for valuing assets; and monitoring transactions
involving affiliates and; approving certain
co-investment
transactions. The advisory contracts with each of our BDCs may be
terminated by the stockholders or directors of such BDC on not more
than 60 days’ notice, and are subject to annual renewal by each
respective BDC’s board of directors after an initial
two-year
term.
Generally, affiliates of our BDCs are prohibited under the
Investment Company Act from knowingly participating in certain
transactions with their affiliated BDCs without prior approval of
the BDC’s board of directors who are not interested persons and, in
some cases, prior approval by the SEC. The SEC has interpreted the
prohibition on transactions with affiliates to prohibit “joint
transactions” among entities that share a common investment
adviser.
Certain of our products are permitted to
co-invest
with other products managed by us as a result of exemptive relief
granted by the SEC, so long as such transactions are negotiated in
a manner consistent with our BDCs’ investment objectives,
positions, policies, strategies and restrictions as well as
regulatory requirements and other pertinent factors, provided that
certain directors of any of our participating BDCs make certain
determinations. Our investment allocation policy incorporates the
conditions of the exemptive relief. As a result of the exemptive
relief, there could be significant overlap in the investment
portfolios of our BDCs and other of our products that could avail
themselves of the exemptive relief. Additionally, we have been
granted exemptive relief to permit certain of our BDCs to offer
multiple classes of shares of common stock and to impose
asset-based distribution fees and early withdrawal fees.
Other Regulators;
Self-Regulatory Organizations
In addition to the SEC regulatory oversight we are subject to under
the Investment Company Act and the Advisers Act, there are a number
of other regulatory bodies that have or could potentially have
jurisdiction to regulate our business activities.
Blue Owl Securities is registered as a broker-dealer with the SEC,
which maintains registrations in many states, and is a member of
FINRA. As a broker-dealer, Blue Owl Securities is subject to
regulation and oversight by the SEC and state securities
regulators. In addition, FINRA, a self-regulatory organization that
is subject to oversight by the SEC, promulgates and enforces rules
governing the conduct of, and examines the activities of, its
member firms. Due to the limited authority granted to Blue Owl
Securities in its capacity as a broker-dealer, it is not required
to comply with certain regulations covering trade practices among
broker-dealers and the use and safekeeping of customers’ funds and
securities. As a registered broker-dealer and member of a
self-regulatory organization, Blue Owl Securities is, however,
subject to the SEC’s uniform net capital rule. Rule
15c3-1
of the Exchange Act, which specifies the minimum level of net
capital a broker-dealer must maintain and also requires that a
significant part of a broker-dealer’s assets be kept in relatively
liquid form.
Blue Owl Capital UK Limited (“Blue Owl UK”) is an entity organized
and operating in the United Kingdom whose employees assist in the
marketing and distribution of Blue Owl funds in Europe, the Middle
East, and
Africa. Blue Owl Capital HK Limited (“Blue Owl HK”) is an entity
organized and operating in Hong Kong whose employees together with
the employees of Blue Owl Capital Singapore Pte. Ltd. (“Blue Owl
Singapore”), an entity organized and operating in Singapore assist
in the marketing and distribution of Blue Owl funds in the
Asia-Pacific region. Blue Owl HK is registered with the Hong Kong
Securities & Futures Commission. Blue Owl Capital Canada
ULC (“Blue Owl Canada”) is an entity organized and operating in
Canada whose employees assist in the marketing and distribution of
Blue Owl funds in Canada.
We may from time to time be involved in litigation and claims
incidental to the conduct of our business. Our businesses are also
subject to extensive regulation, which may result in regulatory
proceedings against us. See
We are not currently subject to any pending legal (including
judicial, regulatory, administrative or arbitration) proceedings
that we expect to have a material impact on our consolidated and
combined financial statements. However, given the inherent
unpredictability of these types of proceedings and the potentially
large and/or indeterminate amounts that could be sought, an adverse
outcome in certain matters could have a material effect on Blue
Owl’s financial results in any particular period. See Note 11 to
our Financial Statements for additional information.
BLUE OWL’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
In this section,
unless the context otherwise requires, references to “Blue Owl,”
“we,” “us,” “our,” and the “Company” are intended to mean the
business and operations of Blue Owl Capital Inc. and its
consolidated subsidiaries. The following discussion analyzes the
financial condition and results of operations of the Company.
Additional terms used by the Company are defined in the Glossary
and throughout Blue Owl’s Management’s Discussion and Analysis in
this prospectus.
The following
discussion and analysis contains forward-looking statements and
involves numerous risks and uncertainties, including, but not
limited to those described in the section entitled “
Risk Factors
and should be read
in conjunction with the consolidated and combined financial
statements and the related notes included in this prospectus.
2021 was a pivotal year for Blue Owl. We completed our transition
to a publicly traded company, a successful combination of Owl Rock
and Dyal Capital, record level of AUM and FPAUM, over
$1.0 billion raised in the debt markets and closed out the
year with the closing of the Oak Street Acquisition.
2021 GAAP and
Non-GAAP
Results
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Net Loss Attributable to Blue Owl Capital Inc. (After May 19,
2021) / Owl Rock (Prior to May 19, 2021)
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Distributable Earnings
(1)
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