Chapter 1: What is the main topic discussed in this episode?
Hello, I'm Joel Weber. And I'm Eric Balchunas. We're the hosts of the Trillions podcast from Bloomberg, a deep dive into all things ETFs and investing. Eric, what's so amazing about ETFs?
It's never a dull moment. They track everything under the sun, four new ETFs launch a day, and they take in $4 billion every day. So it's where all the money's flowing to and a lot of the innovation is happening. I call it the Silicon Valley of the investing world.
As you can hear, Eric's passionate about them. My role is to try and keep him in check and make all of this a little bit more understandable for the rest of us. Not always easy, but always worth a listen.
So listen to Trillions on Apple, Spotify, or wherever else you get your podcasts.
Blue Owl reported results this week after joining forces with Meta on AI data centers. The firm reported a 21% year-over-year jump in AUM as it continues to reinforce its long-term growth pipeline. Joining us for more is Mark Lipschultz, Blue Owl Capital co-CEO. Mark, wonderful to have you on this morning.
And look, I know whenever anyone asks about the equity price, you very stutely are like, we don't concentrate on the short term. But there was a decline after earnings, so we have to address it. You had record fundraising, maybe a concentration on some of the flat fees. Why the disconnect between the two?
Yeah, look, we had a great quarter. We had continued extraordinary growth, 20 plus percent growth on the top line. I think there is, as you just noted, this disconnect, which is having acquired very successfully and very fortunately businesses like our digital infrastructure, business IPI, you issue shares, but then you don't have a full year of their results. So it's actually just math.
As you look at our run rate growth per share. It is continuing to accelerate and it continues to be incredibly robust. So yeah, there's a little bit of math, but it really is just simple math. Business is really thriving.
I learned so much from watching Danny's interviews with people like you. So she had- To be clear, you're learning more from Mark than you are from me. Yes, I learned from Danny. I'm just happy And from Z and from Henry McVeigh and from John Gray, you were talking with him, Danny, and he was saying something about easing excess returns in private capital. And there's a market saturation.
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Chapter 2: What were Blue Owl Capital's recent earnings results?
So we want a very healthy ecosystem, and we have a very healthy ecosystem. We really do, and we can certainly come back to that. So credit quality is excellent in our book, and that doesn't mean no defaults. Everyone's going to have defaults now and then. We all, we said multi-trillion dollar industry. That's okay.
You just can't have many, and you have to get good recoveries, and that's exactly what we do at Blue Island. By the way, so do our peers, and so do the banks. So the system is in a strong place. Then, of course, there's base rates. And, of course, the direction of base rate travel, everyone obviously sees it having eased from the peak.
But, again, every time consensus builds to, oh, it's obvious, you look at the Fed commentary, now it's not quite so obvious how fast rates are going to go down. And then last is spread. And spreads are on the lower side of where we operate, but over a 10-year window, they ebb and they flow.
And remember, we're building portfolios that have hundreds of names in them, some are from a couple years ago, some are current.
Chapter 3: How did the partnership with Meta influence Blue Owl's growth?
And most importantly, our overall spread, the premium that we offer to the alternative, the traditional marketplace, has actually been stunningly steady at close to a couple hundred basis points. So, yeah, we don't live in a vacuum. And so spreads in the whole world are tight. Of course, ours are tighter. Equity markets are at all time highs. We don't live in isolation.
And in that world, spreads are a little bit tighter. But in total, we continue to deliver really outstanding investor results. And that's why we had record fundraising results.
I really like that point you made about, okay, if we're concerned about private credit, shouldn't we be concerned about equity markets too? They both are trading and reflect a large part of this economy. I would then love to get your take on Meta yesterday. I know you're not a public stock guy, but when they issued more debt, Meta shares fell.
Do you think that there are starting to creep into the market some concern with Medivh, of course, as one of your partner, but the large hyperscale spending and the amount of financing and debt that they're taking on? Is there any reason to be concerned? Because clearly the equity market is starting to show at least a little bit of nerves about it.
Well, there's been several earnings reports this year, this week, from tech companies. And actually, some of them performed extraordinarily well announcing big capital programs, right, Amazon. And so I think it's hard to attribute it to one specific action.
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Chapter 4: What factors contributed to the disconnect between fundraising and equity price?
In fact, the collective result is, of course, tech is touching all-time highs at the moment where, as of this week, people announced, you know what, we're actually going to spend a lot more on AI infrastructure than we thought. Much more, actually. This continuing curve, every time you look, it just keeps going up.
And you listen to the commentary, and the commentary is, we don't think we're spending enough. Microsoft says, we don't have actually enough capacity to even fuel both AI and kind of our core business. So that gap, while very expensive to cross that Rubicon,
of course is what creates the opportunity for great partnerships for us to bring that kind of capital in conjunction with these spectacular companies to build the backbone, which for us is the very safe way to participate, build the backbone for the infrastructure for this AI future.
I was talking with Z about the intel he gathers and you obviously are in the same sort of privileged position, right? You're talking to so many portfolio companies and CEOs and you have an incredible view of, for example, the labor market. So what are you seeing in your portfolio companies or what are you hearing people say about the economy in regards to the labor market?
Are they going to be slowing hiring or even reducing jobs as they replace some of that productivity with AI?
So portfolio companies are, let's start with very strong and healthy. We have 400 or so in our portfolio. And on average, growth remains both revenue and earnings in the high single digits. So it's a very healthy place. But strong companies can reduce headcount as well. Absolutely. So we have not seen any meaningful change in labor practices.
But it is certainly the case that technology itself is making a lot of activity already more productive. And we're at the very front edge. So, you know, this all it is certainly the case that when you build and invest this kind of capital, you do ultimately have to get a return on it. And some of that will disrupt the traditional labor market.
We are not hearing anything I would call systemic or dramatic at this point within the portfolio. And to the degree it's happening, it's really more about efficiency technology. It's not about concern about the economy today.
Blue Owl has also been on the forefront in moving into retail and offering wealth products to a wider swath of investors than traditionally had been. I just wonder, Mark, because this has been a period where it feels like people are laser focused with a magnifying glass, if I can mix all my metaphors, on private credit with Jamie Dimon saying cockroach here, concern about fraud there.
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Chapter 5: How is Blue Owl Capital addressing concerns in the private credit market?
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