We think that could be a very large addressable market and we have a capability to originate, underwrite and make investment decisions that is truly distinctive and we think will allow us to deliver outstanding results. So part two, build new organic products. Doug just talked about healthcare. We can do in healthcare what we’ve done in software and technology. We have the capabilities. We’ve built out, you saw our acquisition of the common health business, finishes rounding out extremely deep intellectual capital and relationships to do that. Three and it is acquisitions. When we can find a business as fantastic as Oak Street, we’re going to want to buy it and add it because it’s incredibly accretive and additive in every sense. Marc Zahr is a brilliant investor and senior leader for this firm, and so that’s an addition along with, obviously, terrific growth.
It’s been our highest growth business. So when we can find that cultural fit, strategic fit, we’re going to do it. So I appreciate that was all a lot, but I do want to really talk about how we build our business going forward. As for, therefore, say, European direct lending. Well, look, strategically, it’s a perfectly coherent place for us to be, right? We are a market leader in U.S. direct lending. Now, we like the U.S. market a lot. The risk return is very compelling in the U.S. market. Being in European direct lending makes perfect sense. Is it necessary? No, it’s not necessary. If we can find the right platform, whether that would be organic or inorganic, I’d say in Europe it’s more logically inorganic, acquired, given the scale and complexity of the marketplace.
But it could be either over time. We’ll look at both. And getting at that market is something that would be very logical and certainly something we’re serious about. But we don’t have to do it. We’re only going to do it if we can do it really, really well and when we do it, we’re going to deliver great results doing so and we’re going to be disciplined about it. So that’s kind of the framework when we think about European direct lending. Good business for us to be in on the right basis. It doesn’t make our U.S. business better. It doesn’t make Blue Owl better unless we can be a market leader and that’s what we’re focused on. With that said, and last question you raised about people and the kind of fee structure in Europe.
Look, our fees are the highest fee rate in the industry for a reason, because we deliver great returns, and people are willing to and should be willing to pay for that. It’s a net result that will matter for our investors. I can’t comment on anybody else’s specific strategy, but look, when you’re trying to get into a market like direct lending where we’re a leader, sometimes people can try to attack on price. I don’t — It’s not part of the way we see the world. It’s not part of the way we operate. But look, in every market where someone wants to get in or is trying to catch up, sometimes they’ll may try price as a lever.
Steven Chubak: Thanks for the fulsome response there and maybe just for my follow-up on credit performance. The credit backdrop has been benign for the last decade plus. We’re starting to see some evidence of defaults rising with higher for longer rates. Not a surprising development, but one variable that we’ve been paying closer attention to is recovery rates. That’s been steadily declining for two decades plus, mind you. I know you spoke about LTVs in the low 40s provide significant loss cushion. I just want to get your thoughts on where recovery rates could settle out this cycle, especially given your heavier exposure to growthier sectors such as software and healthcare.
Marc Lipschultz: Well, let’s start with, I would say, how many years has it been that people have said, oh, the credit problems are coming, the credit problems are coming, we just don’t know in direct lending, these sort of very amorphous and I’m not saying you’re saying this, but these kind of amorphous, spooky-sounding questions, which I think, we can guess sometimes who the people are that advocate that story. Let’s just start with a few facts. The fact of the matter is we haven’t seen any uptick in defaults, any uptick in losses. In point of fact, we’re still running at a 6-basis-point annualized loss rate since inception, all of which has been offset by realized gains and a bit more than that. Now, I appreciate and agree it’s been a generally benign environment economically, but, I mean, we did have a pandemic.
We have had a war in Ukraine. We have had rates rise dramatically and we’ve had many peers experience a lot more credit problems than we have. I’m not saying that with complacency or arrogance or anything like it, but at the end of the day, there are differences in the way we operate, the credits we pick, how we pick them. You noted the most important part from our point of view, which is loan-to-value. Having lots of cushions, both in percentage and absolute terms. Remember, when we’re lucky enough to partner with Thoma Bravo and lead a financing for, say, Anaplan, not only is it a 70% equity check, it’s a $7 billion equity check. Both of those matter in this calculus, percentage and scale, and that’s why we focus where we do. So, with regard to default rates, let me just observe that the signs that will presage, that will come ahead of a meaningful change in default rates, those are not in any manner flashing yellow yet.
That’s not to suggest that there won’t be a recession at some point. In fact, as credit people, it’d be crazy for us not to contemplate and plan for that. But today, our portfolio, right now, revenue and EBITDA on average across the portfolio grew 10% quarter-over-quarter. That is pretty robust. Now, that’s partly the favorable selection of the kinds of businesses we underwrite, but pretty favorable. We aren’t seeing any meaningful change in requests for out-of-the-ordinary course amendments. We aren’t seeing any meaningful change in requests for PIC. We aren’t seeing meaningful changes in running out of liquidity. So, I say all of that to say that we don’t see any of those, not just warning signs, they sort of are checkpoints that have to happen before you get to meaningful defaults.
Then you get to recoveries, to your point, which we couldn’t agree more, in some regards is the critical item, because a default in and of itself isn’t a problem. Now, we’re better off to avoid them and we can count the number of defaults we’ve had literally on things like fingers. So, keeping defaults really low remains the most important thing we can do and will do. But when we’ve taken companies, our recoveries have been extremely strong and keeping loan to value is the way to ensure that. When you’re running 40% of a purchase price in a loan, a fire sale still gets you your money back and that is really important. That’s why we like these big, durable, strategic assets. We’ve said this from inception and there’s been lots of questions along the way as we led the market toward this direction of lender of first choice going to the biggest credits, the best credits, why, lots of talk about all those, there’s more opportunities in the small market, there’s not.
