Blue Owl Capital Inc. (NYSE:OWL) Q3 2023 Earnings Call Transcript

Blue Owl Capital Inc. (NYSE:OWL) Q3 2023 Earnings Call Transcript November 2, 2023

Blue Owl Capital Inc. reports earnings inline with expectations. Reported EPS is $0.16 EPS, expectations were $0.16.

Operator: Ladies and gentlemen, thank you for standing by. My name is Bhavesh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Blue Owl Q3 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there be a question-and-answer session. [Operator Instructions] Thank you. I will now hand the call over to Ann Dai, Head of Investor Relations. You may begin your conference.

Ann Dai: Thanks, Operator, and good morning, everyone. Joining me today are Doug Ostrover and Marc Lipschultz, Co-Chief Executive Officers; and Alan Kirshenbaum, our Chief Financial Officer. I’d like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company’s control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time-to-time in Blue Owl Capital’s filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements.

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We’d also like to remind everyone that we’ll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Investor Resources section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl Fund. This morning we issued our financial results for the third quarter of 2023, reporting fee-related earnings or FRE of $0.17 per share and distributable earnings or DE of $0.16 per share. We declared a dividend of $0.14 per share for the third quarter payable on November 30th to holders of record as of November 20th. During the call today, we’ll be referring to the earnings presentation, which we posted to our website this morning, so please have that on-hand to follow along.

With that, I’d like to turn the call over to Doug.

Doug Ostrover: Thank you, Ann, and good morning, everyone. I want to thank all of you for joining us today. It’s been a pleasure to spend the last two years on these earnings calls with our shareholders and analysts. As we move through the transition of the Co-CEO structure that we announced earlier this year, we decided to take a divide and conquer approach to allow each member of the management team to leverage their time more efficiently. And so going-forward, you’ll be hearing from Marc and Alan on our quarterly earnings calls, while, Michael and I will be taking a step back from this aspect of the business. To be clear, I’m not going anywhere. I’ll continue to be very available and accessible and I look-forward to seeing many of you at upcoming conferences and meetings.

That said, given the rapid growth that we’ve had at Blue Owl and what now feels like a pretty well-oiled earnings process. It feels like the right time for me to focus my attention more fully on the many strategic growth initiatives we have in the works right now. So with that, let me hand things over to Marc.

Marc Lipschultz: Thanks so much, Doug. Today, we again demonstrated the steady and resilient growth that we believe sets Blue Owl apart in the alternative asset management space with our 10th straight quarter as a public company, also being our 10th straight quarter of generating FRE growth. When we think about what’s happened in the world over that timeframe. This time in 2021 10-year treasuries were around 1.5% and a year ago, they just crossed 4%, with the expectation by the end of 2023, we’ll be talking about rate cuts. Obviously, those expectations have shifted meaningfully over the past year. In the first three quarters of 2022, S&P 500 corrected 25% as interest rates marched upwards, only to reverse and rally 20% over the next year, despite elevated rates and ongoing geopolitical risks.

The capital markets and M&A have been installed for the better part of the year, and in March, we witnessed a handful of bank failures that took the market completely off-guard. All of this is to say, the only thing that’s been clear over the past couple of years is the lack of clarity into the short-term path of rates for the longer term impact of those rates on economic growth and how liquid markets will react to the information we have on-hand. In contrast, we’ve been able to demonstrate our Blue Owl permanent capital at FRE centric model by design, creates a differentiated and more predictable earnings profile. And on a last 12-month basis, we have grown DE by 28% and FRE by 26% despite of these market headwinds, since we’ve been public management fee growth has been over 40% per year.

That’s not to say that this growth has come easily, but one advantage we have structural is that very few assets leave our system, because our AUM is mostly permanent capital. So the capital we’re raising is generally additive instead of replacing assets that are being returned to investors. On top of that, our business is positively levered to many of the ongoing secular tailwinds within alternatives, including the continued growth of direct lending, larger managers benefiting from ongoing consolidation across alts and private wealth’s incremental adoption of alternatives as a core component of an investor portfolio. For these reasons, we feel confident that Blue Owl will remain a differentiated story with a differentiated growth trajectory.

As it relates to the fundraising landscape, we continue to see very positive indications for demand across our strategies, which are generally income-oriented and downside protection-focused. Across our perpetually offered products and wealth, we raised $1.5 billion in the third quarter, a nearly 20% step up from the prior quarter. Over the last 12 months, we have been the top fundraiser in the industry in both credit and real estate when looking at net flows, and on a gross basis, we have been the second-best fundraiser over that period. Both of these are extraordinary statistics and I think testaments to the many years that we’ve been building our platform and relationships in this space. Now, a lot of firms are trying to catch up to where we are and given the size of the opportunity, this is not a zero-sum game.

We and others can do well at the same time and there will be a lot of growth ahead across the industry. But I wanted to take a moment to recognize what we’ve been able to accomplish so far. I think we are exceeding expectations in the face of headwinds and I’m very enthused about what lies ahead for this business. On the institutional side of our business, we announced $1 billion mandate from a leading sovereign wealth firm, reflecting continued progress in the strategic and geographic expansion of our LP base. We have improving visibility into the end-of-year flows as we launch fundraising for a handful of strategies, including GP Stakes, for which we anticipate a small close for our sixth fund before the end of this year. We are very excited about the potential for cross-sell for this fund with our credit and real estate investors and we’ve seen strong demand to bring the GP Stakes strategy to a number of new wealth platforms as well.

In real estate, we remain very well positioned, despite the substantial headwinds in this space. Having already reached our $4 billion target for this latest vintage of our flagship fund, getting to the $5 billion hard cap, which we expect to hit, will represent a doubling in the size from the prior vintage, a challenging feat even in strong markets and reflective of the distinctive and attractive attributes of our net lease strategy. And as I mentioned earlier, in the wealth channel, we are outselling competitors by a wide margin and we continue to build out that syndicate. And we remain engaged in a number of institutional investor dialogues regarding separate accounts and upcoming launches, some of which may close during the fourth quarter.

Moving on to the business performance. In credit, we saw improving trends in deployment, with Blue Owl taking lead roles in some of the largest deals and refinancing announced or closed across the market, including Finastra and PetVet. Repayments during the quarter were elevated relative to levels seen earlier in the year, providing additional opportunities to redeploy capital at even more attractive levels. Overall, we continue to see our direct lending business expand as we meet the capital needs of an evolving marketplace. And the risk-reward opportunity presented by private credit today remains one of the best we’ve seen in our tenures as investment professionals, a sentiment that we often hear echoed back by our investors. In our GP Stakes business, we continue to witness the resilience of larger cap GPs, with these managers being the beneficiaries of market share gains during more challenging fundraising environments.

In real estate, we’ve been active in deploying capital at attractive cap rates, with Fund VI about 20% committed or deployed and have continued to monetize at meaningful spreads to our entry points. Bringing all of this together, we think of our business as Alternative Asset Manager 3.0, meaning our business offers the steady stream of management fee-driven earnings that investors have been asking for in conjunction with the robust growth that they expect and we have a greater ability to keep assets in our system due to our permanent capital. Our financial profile is very simple and durable, and doesn’t depend on realizations or capital market fees to drive earnings growth. As a premier solutions provider to a large and growing market, we think we offer a very attractive proposition of strong earnings and dividend growth underpinned by a core asset base that is exceptionally stable and we look forward to continuing to prove this model out to all types of market conditions.

With that, let me turn to Alan to discuss our financial results.

Alan Kirshenbaum: Thank you, Marc. Good morning, everyone. Thanks for joining us today. To start off, we are pleased with our third quarter and LTM results. Marc mentioned this, but I want to reiterate that this is our 10th consecutive quarter. It’s actually been every quarter since becoming a public company of both management fee and FRE sequential growth. The only alternative asset manager that has demonstrated this over the past two and a half years. And as Marc also referred to earlier, as you can see on slide five, our management fees have grown at a 42% CAGR since we became a public company. We’re talking not just very good growth, but steady, consistent, resilient growth through what has obviously been a very challenging and volatile market environment.

So let’s go through some of the key highlights of our LTM results through September 30th. Management fees are up 32% for the LTM period versus a year ago, and 93% of these management fees are from permanent capital vehicles. FRE is up 26% for the LTM period versus a year ago and our FRE margin is right on top of our 60% target, which we continue to expect to be the target for the next few years. And DE is up 28% for the LTM period versus a year ago. Now I’d like to spend a moment on our fundraising efforts. As you can see on slide 12, we raised $2.9 billion in the third quarter and over the last 12 months, we raised $14.5 billion. I’ll break down the third quarter numbers across our strategies and products. In credit, we raised over $2.1 billion.

$1.2 billion was raised in our diversified and first-lien lending strategies, including over $900 million raised in our wealth distributed credit income BDC, OCIC, returning to a pace we haven’t seen since the first half of 2022. And approximately $1 billion was raised in our tech lending strategies, including approximately $300 million raised in our wealth distributed tech lending BDC, OTIC. In GP strategic capital, we raised approximately $100 million during the third quarter and in October, we closed on approximately $400 million for a GP Stakes co-investment vehicle with a longstanding and valued partner, which will invest side by side with our fifth and sixth GP stakes funds. In real estate, we raised approximately $700 million, approximately half of that in our sixth vintage of our real estate strategy and the other half in our wealth distributed non-traded REITs, ORENT.

We have now raised over $2 billion of equity in ORENT since its launch a year ago, primarily through just one wire house and during what has been an exceptionally challenging environment for real estate. So we’re pleased with those results. And since May, we have launched ORENT on a few additional platforms and have some meaningful launches ahead for the fourth quarter and into 2024. As Marc alluded to earlier, we continue to see strong institutional interest in our products and we are expecting a strong finish to the year in the institutional channel. As we have discussed throughout the year overall, as we head into the end of 2023, we continue to see fundraising tilting institutional for the year. In the wealth channel, we have continued to see solid interest in our strategies with steady increases again in our fundraising levels quarter-over-quarter and we believe that will continue to build on itself through the end of this year and into next year.

We are very excited about where we can be next year. All in all, we’ve raised over $36 billion of fee-paying AUM since January 1, 2022. When I think about fundraising overall, we’ve always talked about how permanent capital differentiates us, because assets not leaving the system means that we have higher growth for the same amount of fundraising. Said another way, we keep more of the capital we raise than our peers. Putting some numbers around that, for approximately every $5 of fee-paying AUM inflows we bring in, we see just $1 going out in the form of distributions or redemptions. For our peers, on average, every $2 raised is met with $1 leaving their system, meaning half of their fundraising covers assets that are being paid out to investors in one form or another.

That’s a huge difference. It’s a big advantage for us. In addition to the staying power of existing AUM and the benefit of ongoing fundraising, we have substantial embedded earnings that we will unlock over time. AUM not yet paying fees was $12.6 billion at September 30th. This AUM corresponds to an expected increase in annual management fees, totaling over $175 million once deployed. And as many of you will recall, we have over $200 million of management fees in aggregate that will turn on upon the listing of our private BDCs over time. We believe, in part because of these things and in part because of our permanent capital, we have a higher quality of earnings. Moving on to our credit platform, we had gross originations of $4.4 billion for the quarter and net funded deployment of $2.1 billion.

This brings our gross originations for the last 12 months to $13 billion with $7.4 billion of net funded deployment. So as it relates to the $9.3 billion of AUM not yet paying fees and credit, it would take us a little over one year to fully deploy this capital based on our average net funded deployment pace over the last 12 months. With that said, as Marc commented earlier, we have been seeing a considerable uptick in pipeline activity in our direct lending platform and believe the fourth quarter could be a much bigger quarter for deployment than previous quarters this year. Although the impact of management fees in 2023 will be nominal, it’s a great place to start 2024. Our credit portfolio returned 4.1% in the third quarter and 17.4% over the LTM, while annualized realized losses remain approximately 6 basis points on a gross basis and have been fully offset by realized gains.

Rated average LTVs remain in the low 40s across direct lending and in the low 30s specifically in our tech lending portfolio. For our GP strategic capital platform, total invested commitments for our fifth GP Stakes fund, including agreements in principle, are approximately $11 billion of capital with line of sight into about $2 billion of opportunities, which if all signs would bring us through the remaining capital available in Fund V. And performance across these funds remain strong with a net IRR of 23% for Fund III, 46% for Fund IV and 21% for Fund V, all of which compare favorably to the median returns for private equity funds of the same vintages. And in our real estate platform, deployment activity remains robust with over $1 billion deployed during the quarter.

And our pipeline of opportunities remained strong with over $4 billion of transaction volume under letter of intent or contract to close. With regards to performance, we achieved gross returns across our real estate portfolio of 2.4% for the third quarter and 13.8% for the last 12 months. Okay, let’s wrap up here with one closing thought, dividend growth. This year, we will have posted dividend growth of 22% over last year and since becoming a public company, we have achieved a 28% CAGR for our dividend, the highest in the public alternative asset manager space and we feel this is truly reflective of how we have grown our business. Dividend growth is our north star. It reflects our pace of growth, but also informs about the quality of the earnings underlying that growth and the confidence we have in the staying power of those earnings.

It’s a metric that captures all aspects of our business, including fundraising, deployment, revenue growth, embedded future earnings and so on. And for that reason, it’s one of the metrics that we think investors should be most focused on for us. Thank you again to everyone who has joined us on the call today. With that, Operator, can we please open the line for questions?

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Q&A Session

Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead with your question.

Craig Siegenthaler: Good morning, Doug, Alan. Hope everyone’s doing well. Following Alan’s comments around a strong finish to 2023 in the institutional channel, we wanted to get your perspective on the quarterly inflow of $1 billion and how we should think about the level of institutional fundraising over the next few quarters, actually especially with a first close in GP Stakes VI by December 31, especially?

Marc Lipschultz: Hey, Craig. This is Marc. Thank you for the question. Look, this quarter is — quarter four is expected to be a strong one from a fundraising point of view across wealth and institutional. We’re seeing terrific strength in wealth continue to grow there. As you know, we’ve been the number one net fundraiser in the market and we continue to see substantial growth as we head into this month and this quarter. And then institutional as well with GP Stakes VI, we do expect to do our first close in the fourth quarter. And so I guess it leads probably to a broader point, which is to call it what it is, look, we expect fourth quarter to be very strong. This quarter, the timing between when things close for us is a little less predictable.

We just don’t run as many funds. So we don’t like to get either overexcited about a particularly strong quarter or overly concerned about a quarter that’s a little bit lighter. We look forward to long-term strong predictable dividend growth. We just don’t run as many funds, as you know and we don’t expect we will. Today, we have the highest fee rate in the industry. We run products where we are going to deliver superior risk returns and where we can build true scale, as you know, in really just about everything we do. We’re a market leader, if not the singular market leader and that’s going to continue to be our center of gravity. What we want to do is grow FRE and grow dividends, and of course, did that again this quarter, and we plan to do it again next quarter and keep on keeping on in that regard.

So between wealth institutional and having a flagship product back in the market in Q4, we do anticipate it being strong.

Craig Siegenthaler: Thanks, Marc.

Marc Lipschultz: Of course. Thank you.

Craig Siegenthaler: Just for my follow-up, we were looking for an update on Oak Trust’s fundraising trajectory. So I was wondering if you could share how many large retail platforms it’s on today. And if you have line of sight into more platform additions over the near-term. And any other comments around its net flow potential would be helpful, too? Thank you.

Alan Kirshenbaum: Sure. Thanks, Craig. We are currently live on three platforms, three large platforms. We added one currently in the fourth quarter and we anticipate coming on one or more additional large platforms in one queue. The trajectory continues to look strong, again, in the face of incredible headwinds in the world of real estate, and certainly, relatively speaking, very, very strong flows that we’ve seen to-date. If you recall, we’ve raised about $2 billion primarily from really one wire house platform in the face of a number of things that have happened over this past year, and in the face of strong headwinds, as I said, in real estate writ large. So we continue to be cautiously very optimistic about continued trends up and to the right in what we can do with our ORENT product, in particular, in 2024 and forward.

Marc Lipschultz: I’ll just add something to that and I — linking kind of the two comments, my comment and Alan’s comment, together. ORENT’s a great example of a truly distinctive product in the real estate space and one where we see really substantial long-term potential and growth. It is a far more durable product. We continue to generate extremely attractive positive returns in ORENT during markets where people are maybe a little less discerning about risks, those distinctions don’t appear significant. Then you get into a world of uncertainty and products that are really built for durability, which is the hallmark of what we do at Blue Owl, really sing. And that is in no small part why ORENT is by far the number one net fundraiser in the market and we are continuing to grow at a time when the word real estate is out of favor and that’s exactly what makes the opportunity for ORENT and for us so substantial because we’re delivering excellent returns in that market and frankly originating at really attractive cap rates with outstanding counterparties.

So that is an area where I think you’ll continue to see us. When we look forward, we think it’s one of the most exciting areas we have. We see it on the institutional side, frankly, as well. We have already closed $4 billion for Fund VI, which was our target. We’ll hit our hard cap of $5 billion and that’ll be double the size of our last fund. And I’ll mark it again where everyone else in real estate is going the other way. That’s that kind of durability, predictability and product differentiation that’s going to continue to be our hallmark and I do think ORENT in particular will be an extraordinarily attractive growth engine for us. It produces a great yield with great predictability and stability.

Craig Siegenthaler: Marc, Alan, thank you.

Alan Kirshenbaum: Thank you, Craig.

Marc Lipschultz: Thank you.

Operator: Thank you. Our next question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead with your question.

Alex Blostein: Hi. Good morning. Thanks for the question. Actually, a question for Doug, maybe going back to the first point you made in the beginning of the call around some of the changes in sort of leadership priorities and how you guys are going to be spending your time. So maybe help us frame kind of what your strategic growth initiatives are that you expect to focus on over the near-term and really which one of these are you expecting to be most sort of needle moving in terms of revenue growth into 2024?

Doug Ostrover: Sure. I’m so happy I get a question. I was sitting here dying to speak. First of all, let me just say I’m not going anywhere and for better or worse, you’re going to be stuck with me for a long time. I’m incredibly proud of what we’ve built and I think we’re in the early innings of taking this business to a whole other level. And we’ve always wanted to create and I think we’re executing on becoming one of the most unique alternative asset managers. And just for everybody listening, I really plan on just spending as much time as possible with our stakeholders, our LPs and shareholders. Look, we have a number of initiatives and I’m happy to offline to go into a lot of them. But let me just give you one that I think will resonate.

About six and a half years ago, we saw a really interesting opportunity in the software space. It was a growing sector. There were no dedicated pools of capital there. We launched our first dedicated software lending product and today we have about $20 billion of capital focused on that sector. If you look what we’ve done in healthcare today, we’ve spent a lot of time working with buyout firms. We’ve done, I think, almost $14 billion of deals in the space and have a great track record. We’ve added expertise in Royalty Pharma. We’ve now — we just made a small acquisition to add life sciences expertise and we’re spending a lot of time thinking about could a dedicated healthcare product be comparable or the TAM is certainly bigger than the software space.

So that’s the kind of thing we’re working on and where I plan to spend the bulk of my time.

Alex Blostein: All right. Awesome. And we definitely look forward to still speaking with you. So my second question may be less strategic and a little bit more micro. So, Alan, I think this one’s for you. I think in your prepared remarks, you suggested that FRE margins will hover around 60% for the next several years. I guess I’m just better trying to understand, why isn’t there more operating leverage in the business that’s growing revenues at a pace that you guys have been able to put up and are likely to continue to put up over the next few years.

Alan Kirshenbaum: Sure. Thanks, Alex. So we’ve talked about FRE margins. We think operating at a 60% FRE margin is a very strong margin. It’s obviously among the best or the best in the industry. And as we continue to grow, Doug just talked about, some new product launches. As we continue to grow our business, we’re going to continue to invest in that business, whether it’s people, whether it’s real estate, whether it’s placement costs, whether it’s comp. And so I would expect a high growth rate for our expense line, no different than for our revenue line. Obviously, ideally, our revenue line outpaces the expenses. But as we continue to reinvest in the business, I continue to think a 60% FRE margin is the right place for our business to operate for the next few years.

Doug Ostrover: Yeah. I — Alex, look, there is would be natural scale economies, to your point. But we continue to be very focused, not just measured in quarters or even a couple years, but many, many years on continuing to deliver really strong FRE and dividend growth and so we do want to continue to put some capital and some of our available revenue into starting new products. We’ve done a lot very successfully organically and we continue to want to do that. We want to continue to invest in building the infrastructure, world-class infrastructure, in our organization to be the best in the areas we’re in. So, I think at already the highest margin in the industry, it’s not particularly a priority to see how to make that higher relative to making sure we continue to grow revenue at an extremely attractive rate and therefore convert that into FRE and into dividends.

Alan Kirshenbaum: When you think about what we’re investing in, Alex, we think about healthcare, as Doug just mentioned, in terms of organic product launches. We think about our strategic equity product that we’re in the process of launching. These are all organic that we’re building from scratch internally here or that we have been building from scratch. Think about continued investment in our institutional fundraising platform, continuing investment in our wealth fundraising platform. These are all things that are critical to that revenue growth that we continue to talk about. And you pull the lens back and you think about how simple our business is. We’ve taken an FRE revenue growth number times 60%. FRE margin, that’s our FRE growth and that translates to very high continued dividend growth year-after-year.

Alex Blostein: Yeah. All right. Thank you all very much.

Marc Lipschultz: Thank you.

Operator: Thank you. Our next question comes from Patrick Davitt from Autonomous Research. Please go ahead with your question.

Patrick Davitt: Hey. Good morning, everyone. My first one is on deployment. Craig Packer was super bullish on deployment on your most recent update call and indeed the gross net originations were up 30% sequentially, but both FPAUM inflow and transaction fees were down sequentially. So could you help us better frame how to model the ins and outs of the movements of those line items against activity levels, which were obviously much better?

Alan Kirshenbaum: Sure. Why don’t I…

Marc Lipschultz: Well, I’ll tell you what, let’s do this. Let me start on kind of what we’re seeing in total in the marketplace originations, you’re obviously driven from that and then Alan will connect in with some to kind of a specific question of how do you model it, so to speak. So your observation, of course, is absolutely spot on. The originations were up and measured in percentage terms up quite substantially at 30%. That’s not — that’s pretty meaningful in the context of our business. That said, we’re still at levels obviously below originations where they were a year ago, when times were much, much more active in the M&A market. So a couple of observations that remain true today. First and foremost, the direct lending role in the financing markets remains extremely substantial.

And I don’t know if you like to use the word market share. I’m not a big fan of the word market share because it suggests that, we and the banks are competing for the same financings. We’re really not. We’re offering a completely different value proposition and we’re a holder, not an intermediary of debt. But in any case, just to use that word for a moment as a shorthand, the share for direct lending is extremely high and Blue Owl’s role remains leading. We continue to be absolutely a key driving force in many of the very biggest financings for the very best companies and biggest sponsors. So all of that is very positive and in part reflected in the 30% growth. On the other hand, it is a statement of the obvious that M&A remains low in total and we can only have — we can have as full a share as we all collectively want and Lester’s M&A activity, it can only translate into so many dollars.

And sitting here today, we continue to see good activity levels in terms of inflows. Certainly seems to be more convergence between buyers and sellers in converging on prices. Quality of assets is excellent. The things we are seeing, the things we are originating, the quality is outstanding. Now that may reflect our own origination and our own very, very selective financing choices. We’ve looked at 8,400 loans to make the 500 or so we have. But I think it also reflects the reality of the marketplace today, which is higher quality companies are what can be sold and higher quality companies are ones that can be financed, certainly by us. We focus on very high quality companies. And so I think in total, what we’re seeing is a very, very strong position in a kind of tepid M&A market.

It will return. One might have thought, a few weeks ago it would return even sooner sitting here now with the geopolitical world we’re in. I don’t know. You all have as good a perch as any. But we have had a — continue to have a very nice pipeline of certainly very high quality product. And with that in terms of how to think about the flows the ins and outs. Maybe we turn it to Alan a little bit on that one.

Alan Kirshenbaum: Great. Thank you, Marc. So, Patrick, when we think about — there’s a number of different factors that all drive through what you’re referring to, what your question is. When we have fundraise, obviously fundraise raises are AUM and fee-paying AUM. Generally speaking, we’ll have some fee-free capital that we’ll raise from time-to-time, like what we closed a little bit of in 3Q that goes to AUM but obviously doesn’t accrue to fee-paying AUM. We’ll have AUM going up for fair value increases that also doesn’t accrue to fee-paying AUM. Gross deployment will. Sometimes we’ll have paydowns during the quarter on loans that we originate that are paid back. That doesn’t leave the system. That just needs to sit until it gets redeployed.

And so you have different things moving different of those ratios up and down. And then you also have debt. So for us, there’s a number of our products where we earn a management fee on debt, on total assets, so equity plus leverage. And when we raise debt in those products, that goes to fee-paying AUM. So they won’t always move in sync, but generally speaking, you should see all of them increase over time.

Patrick Davitt: Okay. Thanks. And any update on thoughts about expanding into more kind of closed-end fund wrappers like some of the other large direct lending players do?

Marc Lipschultz: Other — when you — other closed-end fund wrappers meaning?

Patrick Davitt: Meaning like a more institutional kind of drawdown type fund structure.

Marc Lipschultz: Oh! Got you. Look, we have — yes, we have a strategy of being, as you know, the market leader in large cap, high quality financing solutions. We have a model that’s distinctive, which is anything we originate gets shared between the handful of funds that we manage. We have a much, much simpler business, both to understand, to manage, for infrastructure, as you know, than our peers and fewer different vehicles, as noted. However, in answer to your question, yes, we continue to look at ways to meet the market where they want us. That is to say, to meet structures that serve different constituents’ needs. So, yes, we have continued to expand the types of offerings we have, to your point about other types of closed-end funds that may look like more traditional funds.

Absolutely. We’re pursuing putting those in place as well. We’re all about creating the on-ramps that meet the needs of our investors so that that’s designed for them and then delivering to all of them a common, high quality experience by being able to share in every loan that we make that’s appropriate to a strategy. So that itself, as you know, is pretty distinctive. So we will continue to add those on-ramps into our product suites. Yes.

Doug Ostrover: I think I would just add here, Patrick, generally speaking, we have a wrapper for each type of distribution channel for each of our strategies. A lot of those wrappers will take both institutional and wealth clients and investors, but we do have GP LP structures that meet the needs for each of our strategies. Some of them are just not as scaled as, let’s say, our BDC platform and so they don’t drive the numbers as much, so you don’t hear about them as much on these earnings calls. But we do have products that suit those needs.

Marc Lipschultz: I realize this isn’t the question that you asked exactly, but I just want to add one other thought. Look, it is not our intention, though, to proliferate products so that we can just gather assets. We’ve said this before, we are keenly interested in growing FRE and dividends. We are not keenly interested in growing AUM for the sake of growing AUM. There’s a lot of very low-margin AUM that’s available, right? And so gathering assets, launching vehicles, we’re just not going to pursue having dozens and dozens of vehicles just so we can get a dollar. What we want to do is get very high-quality dollars. Our fee rate is the highest in the industry and that reflects the quality of what we deliver to investors and the kinds of assets we raise and that, I think, will continue to be very important to us. We’re not in the AUM gathering business. We’re in the outstanding results and market leadership business.

Patrick Davitt: Thank you.

Alan Kirshenbaum: Thanks, Patrick.

Operator: Thank you. Our next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead with your question.

Steven Chubak: Hi. Good morning. Thanks for taking my questions.

Marc Lipschultz: Thanks, Steven.

Doug Ostrover: Good morning.

Steven Chubak: So I wanted to start off with a question just on your European expansion plans. There’s been some press articles suggesting you’re exploring a deal for a direct lender in Europe. I don’t expect you to comment on that specific deal. Maybe just speak to your broader preference to build versus buy to expand your footprint in the region and whether recent speculation that peers are looking to launch no-carry credit funds in Europe informs your appetite to grow.

Marc Lipschultz: Great. Thank you. So as noted and appreciated, obviously, we won’t comment on any particular speculation in terms of M&A. But to say this, look, we as a firm, I would put in order three kind of priorities when we think about how we grow our business. Well, above all of it, of course, is delivering outstanding risk-adjusted returns at all moments, right? Our LP experience is monumentally important ultimately to us. It actually doesn’t impact our financials, as you know, because we are a fee-based business. So our business is distinctively predictable. We don’t have performance fees. But to us, delivering outstanding results will always be, lifeblood from our point of view. Now, with that said, there’s three ways for us to grow the business, all three of which we have done and will continue to look at.

But in this order, it is organic growth of our base product business, base products. Again, we have market-leading positions, decidedly the market-leading position in triple net lease for high quality — high credit-quality counterparties, decidedly the market-leading position in GP strategic capital. And one of, don’t want to overstate it, one of the market-leading positions in direct lending. And continuing to lead those markets is going to be our focus, continuing to have scaled products, which lead to very strong margins and strong fee rates because we have a great value proposition for those investors, is going to continue to be where we will focus first and foremost. And remember, because our capital is permanent, 93% of our revenues are based on permanent capital.

So that growth, every time we bring in a dollar, we’re keeping those dollars, we’re a layer cake, not the spinning wheel, and as you heard us say, we’ll take in, for every dollar, for every $1 that leaves our system by virtue of say a quote realization or a return, we have $5 coming in. Our average competitor has $2. That is a huge difference in growth impact in that organic phase. So that’s going to be priority one. Priority two is add in products where we can ultimately become the market leader, a market leader, but most importantly, deliver a really strong experience. Take our Blue Owl strategic equity product. GP-led secondaries. Huge market opportunity. That’s a place where we’ll do our first close in Q4. We have a really distinctive solution.

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.

The opportunities to be in the big credits where you have that durability because they’re strategic assets that someone will buy, even if they stumble, even if they get in trouble. And that, to your point, which we couldn’t agree more, is all about maximizing recoveries. The last part you said was in these growthier businesses, software businesses. Actually, the reason we like those businesses is because the recoveries will actually be the highest in our view. Those businesses, if and when they have a problem, they still have enormous amounts of gross margin, right? These companies, the ones we finance and the ones that are bought have extremely high, let’s set aside even the growth rate, assume that somehow has to get tempered if we’re going to have one of these problems that you’re talking about.

But these are still businesses that have hundreds of millions of dollars of customers that are really for all intents and purposes dependent on the use of a piece of software with 80% to 90% gross margins. Taking that and consolidating it with another strategic owner of a software business is exactly the kind of way out that we’re talking about. Someone wants that business. That is a valuable cash flow stream, unlike a traditional industrial business where let’s suppose you’re out in a deep cycle and nobody wants the capacity. Who wants a factory that doesn’t have any use for its capacity? That’s just not what you have in these software businesses. So, it’s exactly why we like it. It’s why, in point of fact, we have still not ever had a default in a software business, let alone a problem with a recovery.

Steven Chubak: Those are great insights. Thanks so much for taking my questions.

Marc Lipschultz: Thank you.

Operator: Thank you. Our next question comes from Brian McKenna from JMP Securities. Please go ahead with your question.

Brian McKenna: Thanks. Good morning, everyone. So, you’ve been clear about your expectations for growth in 2023 and then you also have the dollar dividend target out there for 2025. So, first, are you still comfortable with the dollar dividend target at this point? And then how should we think about the underlying trajectory of growth in 2024? This year, FRA growth will total in the low-to-mid 20s. So, is that a good starting point for next year?

Alan Kirshenbaum: Thanks, Brian. I’ll take the last part of that question. When you do go out to the dollar-shared dividend based on our Investor Day, you could certainly see both revenue growth and FRA growth for the next two years in the approaching 30% or 30%-plus range. I’ll leave it to Marc to touch on the dollar-shared dividend and how we feel about that goal.

Marc Lipschultz: Look, the dollar-shared dividend remains our north star. That — we’ve just talked about this numerous times. We are about durability, predictability, FRA growth and dividend growth and the dollar remains our target. There’s no doubt, it’d be silly not to observe we’re in a more volatile world. We have been during the course of this year and now in the last few weeks, it’s going to be kind of a wild eye not to say we’re in an ever more volatile world given what’s happening geopolitically. So, does that create incremental risk to that dollar? Sure, it creates some incremental risk, some incremental variability. But remember, because we’re a permanent capital business and because we have very predictable fee rates and because we have all this capital that’s already in the system that’s being deployed, our model is extremely durable.

So, the band around, say, the dollar is a tight band. We don’t have performance fees and things that are going to drive meaningful variation. So, is there a little more risk to it? Sure, there’s a little more risk to it. But that risk is very banded and it continues to be our north star is driving our way to that dollar.

Brian McKenna: Helpful. Thanks. And then, Alan, I believe you noted that Real Estate Fund VI is 20% funded or committed. Clearly, the deployment environment is very constructive right now and you noted a healthy pipeline of potential deals. So how should we think about the quarterly pace of deployment for this fund, kind of moving into next year? And then, can you remind us at what level of funded or committed do you typically start raising for the VI Asset Fund?

Marc Lipschultz: So, on the real estate front, we’re very active. This is a good time for the triple net lease real estate business for a couple of reasons. One is, look, in a world with much less functional capital markets, the use of a real estate asset as part of a financing plan is more interesting to every kind of user. Remember, our partners in that business are people like Amazon and Walgreens and Starbucks. I mean, it’s not as if these are people that have financial challenges, but using real estate versus where the world was a couple of years ago where issuing nearly free IG borrowings, that’s changed, right? So, it creates more interest in these types of novel solutions. We are originating today at incredibly compelling cap rates, close to 8% kinds of cap rates for IG counterparties.

So, we love what we’re getting. The pipeline is very, very active as a result. We’ve already now deployed about 20% of Fund VI. And as I said, we’re doing great on fundraising for Fund VI, perhaps no surprise, given that we’ve been able to continue to generate really outstanding returns in an asset class that many people have found they struggle with now. So, in terms of the exact pace of deployment, again, like anything, it will vary quarter to quarter, but I would call our pipeline in real estate extremely strong. So, we expect that to continue to be a pretty robust deployment arena for us.

Alan Kirshenbaum: And we’ll typically look to the industry level of 75% to start thinking about the next follow-on fund.

Brian McKenna: Great. Thank you, guys.

Marc Lipschultz: Thank you.

Alan Kirshenbaum: Thank you, Brian.

Operator: Thank you. Our next question comes from line of Brennan Hawken from UBS. Please go ahead with your question.

Brennan Hawken: Good morning. Thanks for taking my questions. You guys had an acquisition here this quarter, a small one with Par-Four. Could you let us know what the impact was for revenue from that deal, what we should expect in the fourth quarter? And then, more broadly, this is not the first COO manager you’ve bought. Should we continue to expect you to roll up some more of these COO managers and build out the business and the scale in that business for yourselves?

Marc Lipschultz: So, with regard to Par-Four and then the more general question, I would — per the framework I described, look, we will always look at acquisitions where they are additive or strategic, if you want to use that term. And Par-Four is a really great example of this build versus buy, organic. And I also think maybe it’s sometimes — not lost, but I think it’s worth calling back out in the context of things like growth and fundraising versus AUM. The — at the end of the day, we can launch CLOs and we can, like every other firm, use a bit of capital to do that or maybe even some cases firms a lot of capital to do that and that would lead to raising $1.6 billion and that would show up in our fundraising column.

But instead, we’d say, look, we can, for what turned out to be really de minimis consideration, acquire these contracts, and instead of building them, in that case, buy them, and that actually is another $1.6 billion of fee-paying AUM, the jointer system. Now, again, I don’t want to get over focused on AUM, but I do want to point out that in our system, we’re constantly going to look at what is the best way to get those assets, the most effective way to do it, that is accretive for the continued growth and dividends of our business. So, Par-Four is a great example of substituting, I would say, an acquisition for very little investment in place of an organic build of the very same CLOs that we could have undertaken. So, that’s there.

Will we continue to add to that? Sure, opportunistically, we’re happy to add to it. CLOs are a much lower margin business. Our specialty, without question, is in the world of private capital solutions, so you should not expect us to become a large liquid manager. That’s a very different, lower margin business. Our products are much more distinctive in the world of privates. We stay focused on what we’re really, really good at. But, yes, it’s an area we can continue to add to. It’s not an imperative for us to become particularly large in CLOs.

Brennan Hawken: Thanks. And the impact of revenue for the quarter, what we should expect for 4Q?

Alan Kirshenbaum: Brennan, we haven’t disclosed that.

Brennan Hawken: Okay. Then one last one, more of a sort of housekeeping item. Now that members of senior management are going to be paid in all stock, should we expect that adjustment, the equity-based comp adjustment to sort of ramp a little bit here — from here? What kind of impact should we expect there?

Alan Kirshenbaum: Sure. So all of our senior members of the management team, Doug, Marc, Michael, Marc Zahr, others, have been taking stock comp entirely for the last two-plus years, almost since we’ve been a public company. So that continues its tremendous alignment with our shareholders and you shouldn’t expect a meaningful increase due to that.

Brennan Hawken: Excellent. Thanks for taking my questions.

Alan Kirshenbaum: Thank you, Brennan.

Operator: Thank you. Our next question comes from Kenneth Worthington from JPMorgan. Please go ahead with your question.

Alex Bernstein: Hi. This is Alex on for Ken. Thank you so much for taking our questions. Two questions, please. The first one, can you double-click on the real estate segment again? You posted positive returns, which is definitely a nice difference versus what we’ve seen in some other parts of the market. Can you please speak about what’s sort of driving that and maybe some of the differentiation that you’re seeing relative to other players? And then the second question is, I notice that just about the Cowen HealthCare acquisition, if you could talk about that one as well, that would be great? Thanks so much.

Marc Lipschultz: Great. Yes. I’m happy to comment on both. Let me start with the Cowen HealthCare question. So Cowen HealthCare, another great example of being able, by virtue of our platform to grow both capability and add to our earnings simultaneously. As Doug commented, healthcare has been a very, very significant focus for us. We’ve deployed significant capital in healthcare lending, royalties, structured solutions and now, by virtue of adding the Cowen business, are adding in even greater depth on the pharma side. And in the pharma side of the business, of course, there’s technical skills involved. There are knowledge that the Cowen HealthCare team has in spades. They’ve made investments in 60 different companies over time, pharma-centric companies.

So by adding that capability, we now have added to a full spectrum of abilities within healthcare that will allow us to really take that business forward in life sciences over the next 20 years. In our humble view, it’s going to be an area of enormous opportunity, much like info services was the last 20 years. Probably not a coincidence that we’ve been able to build the market-leading position in software lending and looking ahead to see an opportunity in healthcare with some similarities. So that is kind of on a chase for strategic reasons. But done the way we have, by adding Blue Owl and making Blue Owl a platform that people want to join, we have a team that said, look, this is where we want to bring our platform. The consideration was very, very minor for that business, because it was really about the team coming and finding a home.

So what we have managed to do in that case is add to our capabilities terrific people and add $1 billion of assets and add earnings as a result. So it wasn’t an or. We didn’t have to go pay some huge price in order to get admission. Quite the opposite. We have a great team join us, get a team and assets and earnings. So that was really what’s behind the Cowen business. Very excited about Kevin and his team. With regard to real estate. So on the real estate side, we’ve been able to continue to post attractive returns, because we have a very, very distinctive proposition. We don’t do in real estate what other people do. We don’t own things that have to be released. We don’t own things that have vacancies. We don’t own things where this inflationary environment and the expenses flow through to us.

We have a vacancy. Now you also have the expenses. We have triple net leases, the expenses, the inflation that has obviously been occurring in the world. That’s the responsibility of our tenant. Our tenants sign up with us for 20 years at a time. If you look at, for example, in Q3, just to give you a sense of the power of this model, because again, we offer a value proposition to our investors. We partner with the Walgreens of the world. We’re not just out in the market buying from brokers, like, I’ve heard before, I can recall being in a setting where one of the leaders, one of the biggest brokers in the country said, we never sell anything to Blue Owl, because they originate at rates way higher, way more attractive than we sell at and you can see that in our practice.

So if you look during Q3, for example, we purchased 71 different properties for over $1 billion at an average cap rate of 7.9% with a 16-year average lease. I don’t mean to just spew numbers, but just think about that for a minute. Roughly 8% cap rate, 16 per year average lease, triple net. So we are not taking risks. In fact, we’ve made basically the equivalent of loans to mostly IG companies and we own real estate as a backup in the case that we needed it. At the same time, during the same period, we sold 16 properties for over $0.25 billion, $267 million to be precise, at an average cap rate of 5.4%. So we’re buying at 8%, we’re selling to 5.4%, generating on average a 31% net IRR and a nearly 2-time net equity multiple. So why do I say that?

What I’m saying is our business and the role we play as a strategic partner to large corporates allows them to conduct what amounts to wholesale transactions, to get dollars that matter to them. Selling a store doesn’t do any good. Selling a warehouse has limited impact. Having a true partnership with someone that has billions of dollars to offer them, that has value. So we can buy it wholesale. And then at times, we will go ahead and sell those properties and we consistently have at prices meaningfully better than the prices we acquire at. So you’ll hear even in a very disrupted market, rising rates, real estate is disrupted. I mean, not that it’s hard to describe a worse environment for real estate, but this is a pretty choppy one.

We were buying it at 8 and selling at 5.4%.

Alex Bernstein: Very helpful. Thank you so much.

Marc Lipschultz: Thank you.

Alan Kirshenbaum: Thanks.

Operator: Thank you. Our next question comes to the line from Mike Brown from KBW. Please go ahead with your question.

Mike Brown: Okay. Great. Thanks for taking my question. On the fundraising front, it looks like all three business segments could see a better year in 2024 versus the challenge 2023. Can you just maybe help me summarize the building blocks for next year? So in GP Solutions, you’ll have the Outlook Fund VI. In direct lending, you’ll have both from BDCs, SMAs, and perhaps, CLOs. And then in the real estate side, Fund VI should be done, so I guess most of the contributions would actually be from ORENT. Is that correct? Am I summarizing those pieces correctly? And I guess if you just summed it all up, what would be kind of the most important fundraising campaigns?

Alan Kirshenbaum: Yes. You summed it up correctly, Mike. BDCs, SMAs on the credit side, CLOs, GP Stakes Fund VI and ORENT. And you’re right, Fund VI will be largely wrapped up by then. There are new product launches that we talked about earlier that Doug and Marc hit on, whether it’s healthcare. We have an interesting new real estate product or products coming out to the market in 2024 that we think we could raise some good dollars on. And some other strategies we haven’t talked about to-date that we think could be interesting in 2024.

Mike Brown: Okay. Great. So I guess more to come on those. And then maybe just a quick follow-up on the dollar dividend commentary. You’ve really delivered exceptional growth on the dividend thus far and your payout has consistently been in that kind of mid to high 80% range relative to GE. Is that payout still the right way to think about that dollar dividend as well in 2025 or is there kind of like an evolution in the business or a change in the balance sheet that would allow you to maybe increase that payout closer to 100% or even if you were to do so somewhat temporarily? Thanks.

Alan Kirshenbaum: Yeah. I don’t think — it’s a great question, Mike. I don’t think there’s an evolution in the business. I have commented on previous calls that that number can move up and down. We’ve seen it as low as mid-80%s. I think this quarter is about 88%. You can see that certainly rise in some quarters in some years. I think I framed it as it could be as low as an 80%-ish, maybe a little lower. It could be as high as 90% or 95%. So we’re going to continue to focus on dividend growth. We’ve got a 28% CAGR on our dividend growth since becoming a public company. It’s the highest out there and we’re all very aligned. We own 25% of the outstanding shares, so we sit right there with our shareholders and we’ll continue to focus on strong FRE management fee growth, FRE growth and without a doubt, of course, dividend growth.

Mike Brown: Okay. Great. Thank you, Alan.

Alan Kirshenbaum: Thank you, Mike.

Operator: Thank you. Our final question of the day comes from Patrick Davitt from Autonomous Research. Please proceed with your question.

Patrick Davitt: Hey. Thanks for the follow-up. I’m going to take a flyer on this one. Would you be willing to give any early read on the November first flows for the three flagship retail products?

Alan Kirshenbaum: I think, Patrick, we may have to decline commenting. Those are SEC registrants and they have not filed yet. I think you heard earlier in the call we feel like we have very good momentum in the wealth channels quarter-over-quarter increasing and we think we have very good prospects, if not very strong prospects, for what we’re going to see in the wealth channels in 2024.

Patrick Davitt: Thank you.

Alan Kirshenbaum: Thank you, Patrick.

Marc Lipschultz: Well, thank you all very much. We really appreciate the time and we’re going to continue to focus on strong, predictable, high growth and delivering those dividends to all of you. Thank you.

Alan Kirshenbaum: Thank you, everyone. Have a good day.

Operator: Thank you, ladies and gentlemen. That does conclude today’s conference call. Thank you for participating. You may now disconnect.