Tuesday, June 18, 2024

Blue Owl targets infrastructure investors in hunt for acquisitions

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The co-founder of Blue Owl, one of Wall Street’s largest alternative asset managers, said the group was planning to keep pursuing acquisitions to expand the firm further beyond its core business of arranging financing for other private equity groups.

Marc Lipschultz, co-chief executive, said the New York-based investment group was considering acquiring an infrastructure investor or a lender with a focus on originating securitised debts backed by assets such as aircraft or rental equipment.

“There are other businesses we will add that are either adjacent lanes, or that fill in gaps for us,” he told the Financial Times, highlighting both infrastructure investments and the origination of asset-backed debts as “an area where we could grow organically or acquire new capabilities”.

Large institutional investors have been piling into the infrastructure sector as they seek to reap rewards from changes in the global economy such as the rise of digital communications networks and the reshoring of supply chains.

Blue Owl has been one of the private capital industry’s most acquisitive groups since it went public in 2021 through the merger of its lending unit, once named Owl Rock Capital, with Dyal Capital, a group focused on buying passive minority stakes in other private asset managers.

Lipschultz and his co-founders have rapidly expanded Blue Owl in recent years through a stream of acquisitions that relied on its listed stock as a financing tool.

Blue Owl in 2021 acquired Oak Street, a real estate specialist that buys property owned by large companies and leases the real estate back to them, financing the deal with a mixture of cash and stock.

The company agreed last month to acquire Kuvare Asset Management for $750mn, extending its reach into the life insurance sector, a market coveted by many private investment groups.

Kuvare manages insurance portfolios for annuity products that offer fixed payouts to the annuity holder each year. Private equity groups expect to earn a premium above those payouts on the investments they make, capturing a spread. Blue Owl also recently announced the acquisition of Prima Capital Advisors, a specialist in real estate finance.

The acquisitions and strong performance in most of Blue Owl’s biggest business units have more than tripled its overall assets under management from $52bn when it listed to $174bn at present.

In first-quarter earnings on Thursday it reported a 15 per cent increase in its distributable profits — a metric favoured by analysts as a proxy for its cash flows. The results generally surpassed expectations from analysts polled by Bloomberg.

Blue Owl has become a dominant force in the burgeoning private credit industry, often extending multibillion-dollar loans to corporations side-by-side with heavyweights such as Ares, Sixth Street and HPS Investment Partners. Its credit operations now account for $91bn of the $174bn it manages. Its credit funds returned 13.3 per cent over the past year net of fees.

The company’s shares have risen almost 75 per cent over the past year, outpacing the benchmark S&P 500’s 22 per cent gain. Its public valuation now stands at nearly $27bn.

The growth in private credit has drawn scrutiny from regulators and monetary authorities including the Bank of England, which recently warned that large lenders were “flying blind” to the risks in private markets.

Lipschultz said Blue Owl was seeing no signs of credit stress resulting from higher interest rates. While many have predicted a wave of restructuring, Lipschultz said “defaults are and remain very low”.

“We don’t even see the precursors we would need to see before a material number of defaults,” he said, citing an absence of warning signs such as companies violating financial covenants on their debt agreements or burning through their short-term credit facilities.

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