What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 223 added, 101 removed, 458 unchanged (41% of the section changed)

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For a description of our business, please see “Business of Blue Owl” in the Annual Report.

2022 First Quarter Overview

Three Months Ended March 31,

2022 Second Quarter Overview

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

Net (Loss) Income Attributable to Blue Owl Capital Inc.

Net Loss Attributable to Blue Owl Capital Inc.

(After May 19, 2021) / Owl Rock (Prior to May 19, 2021) $ (1,126) $ (362,344) $ (12,941) $ (322,930)

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(1) For the specific components and calculations of these Non-GAAP measures, as well as a reconciliation of these measures to the most comparable measure in accordance with GAAP, see “—Non-GAAP Analysis” and “—Non-GAAP Reconciliations.”

Our results for first quarter of 2021 do not include the results of Dyal Capital or Oak Street;

Our results for the second quarter of 2021 do not include the results Oak Street or Wellfleet, and include partial results for of Dyal Capital;

therefore, prior period amounts are not comparable to current period.

Please see “— GAAP Results of Operations Analysis” and “—Non-GAAP Analysis” for a detailed discussion of the underlying drivers of our results, including the accretive impacts of the Dyal Acquisition and Oak Street Acquisition.

Assets Under Management

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Commenced 2018

$12.1 billion

GP Debt Financing

2 unchanged sentences

Commenced 2018

Professional Sports Minority Investments

Professional Sports

Minority Investments

Commenced 2021

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Commenced 2020

Commenced 2022

We finished the quarter with $119.1 billion of AUM, which included $77.5 billion of FPAUM.

During the first quarter of 2022, approximately 95% of our management fees were earned on AUM that we refer to as permanent capital.

As of March 31, 2022, we have approximately $7.7 billion in AUM not yet paying fees, providing approximately $105.0 million of annualized management fees once deployed or upon the expiration of certain fee holidays.

During the second quarter of 2022, approximately 92% of our management fees were earned on AUM from Permanent Capital.

As of June 30, 2022, we have approximately $8.8 billion in AUM not yet paying fees, providing over $105 million of annualized management fees once deployed or upon the expiration of certain fee holidays.

See “—Assets Under Management” for additional information, including important information on how we define these metrics.

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Our business is impacted by conditions in the financial markets and economic conditions in the U.S., and to a lesser extent, elsewhere in the world.

The public markets have witnessed volatility and dispersion in the first quarter of 2022 resulting from unexpectedly high and persistent inflation, a shifting interest rate environment, geopolitical events, and ongoing impact from COVID-19 globally.

Allocations to alternative strategies have unsurprisingly created some near-term headwinds to industry-wide M&A and capital markets activity as investors paused to react to updated information, market expectations, and a changing investment landscape.

We have benefited from this market volatility as an increasing number of sponsors and private companies have looked to Direct Lending for flexible and dependable financing, and capital that managers need to expand and diversify their platforms through our GP Capital Solutions products.

Higher than expected inflation has impacted expectations for the pace of rate hikes, driving market volatility and adjusting investors’ views on earnings growth for many public companies.

We anticipate a net positive effect on our business from a rising rate environment.

We expect our Direct Lending products to be a beneficiary of rising rates, as investor demand increases for senior secured floating rate assets focused on downside protection, and over time, the effect of rising rates would be positive for the net interest income of our Direct Lending products’ loan portfolios.

For GP Capital Solutions, market volatility should drive demand for products managed by large, diversified managers, benefiting the types of firms our GP Capital Solutions products have typically taken stakes in.

With respect to our Real Estate products, we believe there will continue to be strong demand for real estate strategies with long-term, contractual income that are positively correlated to inflation and backed by investment grade tenants, and that rising corporate borrowing costs will drive incremental demand for our Real Estate net lease solutions.

We believe that our disciplined investment philosophy across our distinct but complementary products contributes to the stability of our performance throughout market cycles.

Our products have a stable base of permanent or long-term capital enabling us to invest in assets with a long-term focus over different points in a market cycle.

In a continuation of the trends seen during the first quarter of 2022, inflation, interest rates, global GDP growth, the ongoing Russia-Ukraine conflict and the impact of COVID-19 variants on economic growth have remained in the spotlight, driving ongoing volatility in the public markets.

We have seen U.S.

inflation continue to rise during 2022, which has been driven by various factors, including supply chain disruptions, consumer demand, employment levels, low mortgage interest rates and a severely distorted supply/demand housing imbalance, and residential vacancy rates.

As expected, the Federal Reserve voted to increase the federal funds rate during the first two quarters of 2022.

We have benefited from this market volatility as an increasing number of sponsors and private companies have looked to our Direct Lending products for flexible and dependable financing, and capital that managers need to expand and diversify their platforms through our GP Capital Solutions products.

We have patient and Permanent Capital and resilient management fees, providing underlying support to our existing earnings

profile even as we continue to grow.

We anticipate a net positive impact to earnings as rates rise, particularly for our Direct

Lending business, where Part I Fees benefit from higher rates.

At the strategy level, that same Permanent Capital allows us to provide flexible, certain financing solutions to sponsors, corporations, and alternative asset managers during a time when liquidity is scarce and public markets are closed or much more expensive than they used to be.

And for the investors in our

strategies, our products offer attractive qualities in volatile, uncertain markets:

income generation, downside protection, positive leverage to rising rates, and structural inflation hedges.

We are continuing to closely monitor developments related to COVID-19, inflation, rising interest rates and the Russia-Ukraine conflict, and to assess the impact on financial markets and on our business.

Our future results may be adversely affected by slowdowns in fundraising activity and the pace of capital deployment, which could result in delayed or decreased management fees.

It is currently not possible to predict the ultimate effects of these events on the financial markets, overall economy and our consolidated financial statements.

See “Risk Factors—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” and “—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 in our Annual Report.”

We believe that we are well positioned to navigate the current market environment.

Pipelines remain robust across the business as we continue to see market share come our way in Direct Lending, despite lower industry M&A volumes, and across our businesses, we believe our scale and capital base create meaningful competitive advantages.

Assets Under Management

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In addition, our calculation of AUM includes amounts that are fee exempt (i.e., not subject to fees).

As of March 31, 2022, our assets under management include approximately $2.2 billion related to us, our executives and other employees.

A portion of these assets under management relate to accrued carried interests, as well as investments that are not charged fees.

As of June 30, 2022, our assets under management included approximately $3.1 billion related to us, our executives and other employees.

A portion of these assets under management relate to accrued carried interests and other amounts that are not charged fees.

Composition of Assets Under Management

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Management uses AUM not yet paying fees as an indicator of management fees that will be coming online as we deploy existing assets in products that charge fees based on deployed and not uncalled capital, as well as AUM that is currently subject to a fee holiday that will expire at a predetermined time in the future.

AUM not yet paying fees could pr ovide approximately $105.0 million of additional annualized management fees once deployed or upon the expiration of the relevant fee holidays.

Approximately $2.2 billion of AUM not yet paying fees moved to FPAUM on January 1, 2022, driven primarily by the expiration of certain fee holidays in Dyal Fund V, which was offset by a decrease in FPAUM for a step down in fee basis in Dyal Fund III of $0.9 billion.

AUM not yet paying fees could pr ovide over $105 million of additional annualized management fees once deployed or upon the expiration of the relevant fee holidays.

Permanency and Duration of Assets Under Management

Our capital base is heavily weighted toward Permanent Capital.

We use the term “permanent capital” to refer to AUM in our products that do not have ordinary redemption provisions or a requirement to exit investments and return the proceeds to investors after a prescribed period of time.

Some of these products, however, may be required, or elect, to return all or a portion of capital gains and investment income.

Permanent capital includes certain products that are subject to management fee step downs and/or roll-offs over time.

Substantially all of our remaining AUM is in what we refer to as “long-dated funds.” These are funds in which the contractual remaining life is five years or more.

We view the permanency and duration of the products that we manage as a differentiator in our industry and as a means of measuring the stability of our future revenues stream.

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Changes in AUM

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

(dollars in millions) Direct Lending GP Capital Solutions Real Estate Total Direct Lending GP Capital Solutions Real Estate Total

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Ending Balance $ 56,827 $ 45,674 $ 16,639 $ 119,140 $ 31,156 $ 31,211 $ — $ 62,367

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

(dollars in millions) Direct Lending GP Capital Solutions Real Estate Total Direct Lending GP Capital Solutions Real Estate Total

Beginning Balance $ 39,227 $ 39,906 $ 15,362 $ 94,495 $ 27,101 $ 26,220 $ — $ 53,321

Acquisition 6,529 — — 6,529 — — — —

New capital raised 4,953 5,524 568 11,045 984 1,392 — 2,376

Change in debt 6,760 — — 6,760 2,731 — — 2,731

Distributions (664) (977) (265) (1,906) (377) (204) — (581)

Change in value / other 22 1,221 974 2,217 717 3,803 — 4,520

Ending Balance $ 56,827 $ 45,674 $ 16,639 $ 119,140 $ 31,156 $ 31,211 $ — $ 62,367

Direct Lending.

Increase in AUM was driven by a combination of continued fundraising and debt deployment across the strategy.

Increase in AUM for the six months ended June 30, 2022 was driven by a combination of the Wellfleet Acquisition, continued fundraising and debt deployment across the strategy.

• $6.5 billion from the Wellfleet Acquisition

• $2.8 billion new capital raised in Diversified Lending, primarily driven by retail fundraising in ORCIC.

• $0.7 billion new capital raised in Technology Lending, driven by continued fundraising in ORTF II, our second technology-focused BDC.

• $1.6 billion new capital raised in Technology Lending, driven by continued fundraising in ORTF II and ORTIC.

• $6.8 billion of debt deployment across all of Direct Lending, as we continue to opportunistically deploy leverage in our BDCs.

GP Capital Solutions.

Increase in AUM was driven by new capital raised, primarily in Dyal Fund V, and overall appreciation across all of our major products.

Increase in AUM was driven by new capital raised, primarily in Dyal Fund V and related co-investment vehicles, and overall appreciation across all of our major products.

There was no material increase or decrease in AUM.

Changes in FPAUM

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

(dollars in millions) Direct Lending GP Capital Solutions Real Estate Total Direct Lending GP Capital Solutions Real Estate Total

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New capital raised / deployed 2,898 3,023 121 6,042 2,506 272 — 2,778

Distributions (381) 4 (113) (490) (210) (245) — (455)

Change in value / other (267) — 147 (120) 395 — — 395

Ending Balance $ 41,409 $ 26,678 $ 9,430 $ 77,517 $ 24,162 $ 18,657 $ — $ 42,819

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

(dollars in millions) Direct Lending GP Capital Solutions Real Estate Total Direct Lending GP Capital Solutions Real Estate Total

Beginning Balance $ 32,029 $ 21,212 $ 8,203 $ 61,444 $ 20,862 $ 17,608 $ — $ 38,470

Acquisition 6,501 — — 6,501 — — — —

New capital raised / deployed 5,098 4,194 1,198 10,490 2,988 1,283 — 4,271

Fee basis change — 1,268 — 1,268 — — — —

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Direct Lending.

Increase in FPAUM was driven by a combination of continued fundraising and debt deployment as discussed in the AUM section above, partially offset by a change in methodology that reduced FPAUM by approximately $1.5 billion.

Increase in FPAUM was driven by a combination of the Wellfleet Acquisition, continued fundraising and debt deployment as discussed in the AUM section above, partially offset by a change in methodology that reduced FPAUM by approximately $1.5 billion.

GP Capital Solutions.

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The expiration of the fee holiday drove an increase in FPAUM of $2.2 billion, which was partially offset by a decrease in FPAUM for a step down in fee basis in Dyal Fund III of $0.9 billion.

There was no material increase or decrease in FPAUM.

Increase in FPAUM was driven primarily by capital raised in the Oak Street Real Estate Capital Net Lease Property Fund.

Product Performance

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GAAP Results of Operations Analysis

As a result of the Dyal Acquisition and Oak Street Acquisition, prior year amounts are not comparable to current year amounts or expected future trends.

Dyal Capital’s and Oak Street’s results of operations are included from the Business Combination Date and December 29, 2021, respectively.

Three Months Ended March 31, 2022, Compared to the Three Months Ended March 31, 2021

Three Months Ended March 31,

As a result of the Dyal Acquisition, Oak Street Acquisition and Wellfleet Acquisition, prior year amounts are not comparable to current year amounts or expected future trends.

Dyal Capital’s, Oak Street’s and Wellfleet’s results of operations are included from the Business Combination Date, December 29, 2021, and April 1, 2022, respectively.

Three Months Ended June 30, 2022, Compared to the Three Months Ended June 30, 2021

Three Months Ended June 30,

(dollars in thousands) 2022 2021 $ Change

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Total Expenses 337,392 1,294,421 (957,029)

Other (Loss) Income

Net gains on investments 5 — 5

Other Income (Loss)

Net losses on investments (123) — (123)

Net losses on retirement of debt — (16,145) 16,145

Interest expense (15,051) (5,817) (9,234)

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Change in earnout liability (208) (462,970) 462,762

Total Other (Loss) Income (5,219) (5,858) 639

(Loss) Income Before Income Taxes (27,954) 39,522 (67,476)

Income tax (benefit) expense (5,038) 188 (5,226)

Consolidated and Combined Net (Loss) Income (22,916) 39,334 (62,250)

Total Other Income (Loss) 6,711 (501,378) 508,089

Loss Before Income Taxes (3,435) (1,616,539) 1,613,104

Income tax expense (benefit) 5,631 (29,199) 34,830

Consolidated and Combined Net Loss (9,066) (1,587,340) 1,578,274

Net loss attributable to noncontrolling interests 7,940 1,224,996 (1,217,056)

Net (Loss) Income Attributable to Blue Owl Capital Inc.

Net Loss Attributable to Blue Owl Capital Inc.

$ (1,126) $ (362,344) $ 361,218

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Management Fees .

Management fees increased primarily due to the $96.8 million accretive impact of GP Capital Solution’s management fees and $17.2 million of Real Estate’s management fees as well as overall growth in FPAUM across all of our Diversified Lending product strategies.

See Note 5 to our consolidated and combined financial statements for additional details on our GAAP management fees by product and strategy.

The increase in our management fees compared to the same period for the prior year was primarily driven by increased management fees across the Direct Lending products of $40.7 million, which includes both the accretive impact of the Wellfleet Acquisition as well as continued fundraising and deployment of capital within new and existing Direct Lending products, the accretive impact of our GP Capital Solutions’ management fees of $82.3 million and our Real Estate management fees of $19.2 million.

See Note 6 to our Financial Statements for additional details on our GAAP management fees by product and strategy.

Administrative, Transaction and Other Fees .

The increase in administrative, transaction and other fees was driven primarily by a $4.8 million increase of dealer manager revenue, a $2.6 million increase of administrative fees related to our Direct Lending products and $3.1 million increase of administrative fees related to our GP Capital Solutions products due to higher compensation and benefits being recovered from our products, which are included from the Business Combination Date.

Also contributing to the year-over-year increase was a $4.3 million increase in fee income earned for services provided to portfolio companies.

The increase in administrative, transaction and other fees was driven primarily by an increase in administrative services provided to products managed by the Company.

Compensation and Benefits.

Compensation and benefits expenses increased by $96.2 million related to amortization of equity grants, $16.1 million related to acquisition related cash earnouts for Oak Street and an additional $33.6 million related to growth in our employee headcount as a result of the Dyal and Oak Street acquisitions as well as organic growth.

C ompensation and benefits expenses decreased compared to the same period for the prior year due to a $1.1 billion decrease in acquisition related compensation charges from equity-based compensation charges in connection with Blue Owl Operating Group Units issued in connection with the Business Combination, partially offset by acquisition related compensation related to Oak Street and Wellfleet.

Excluding these acquisition related charges, compensation and benefits increased $76.9 millio n, driven by a 78% growth in headcount from June 30, 2021 to June 30, 2022, which is inclusive of the increase in headcount related to the Dyal, Oak Street and Wellfleet Acquisitions.

Amortization of Intangible Assets.

These expenses relate to the amortization of intangible assets acquired in connection with the Dyal Acquisition and the Oak Street Acquisition.

The Company incurred certain expenses related to the amortization of intangible assets acquired in connection with the Dyal, Oak Street and Wellfleet Acquisitions.

See Note 3 to our Financial Statements for additional information.

General, Administrative and Other Expenses .

The increase in general, administrative and other expenses was due to Transaction Expenses of $9.6 million, a $7.6 million increase in distribution costs due to placement fees associated with Dyal Fund V and certain private fund closes in Direct Lending as well as ongoing trail fees for historical fundraise Dyal products which are included from the Business Combination Date.

The remaining net increase was driven primarily by our continued growth as a public company and transitioning back to the office from a remote workforce.

General, administrative and other expenses increased primarily driven by $13.4 million increase in distribution costs as well as an increase in expenses due to our continued growth as a public company and transitioning back to the office from working remotely, offset by a decrease in transaction expenses of $24.8 million that were not eligible to be netted against proceeds for GAAP.

Interest Expense .

Interest expense increased compared to the same period for the prior year due to the issuance of $400.0 million 2032 Notes and $350.0 million 2051 Notes.

Change in TRA liability.

The change in TRA liability was due to the impact of the time value of money on the portion of the TRA that is carried at fair value (i.e., Dyal Acquisition contingent consideration).

Change in warrant liability.

The change in the warrant liability for the current period was driven by the decrease in the price of our Class A Shares, as such price directly impacts the value of our warrants.

The change in warrant liability for the same period in the prior year was driven by the increase in the price of our Class A Shares.

Change in earnout liability.

There was no material change to the earnout liability for the current period.

Income Tax Expense

Prior to the Business Combination, our income was generally subject to New York City Unincorporated Business Tax (“UBT”), as the operating entities are partnerships for U.S.

federal income tax purposes.

As a result of the Business Combination, the portion of income allocable to the Registrant is now also generally subject to corporate tax rates at the U.S.

federal and state and local levels.

For the period, the income tax expense increased due to increased pre-tax income as well as nondeductible compensation.

Please see Note 10 to our Financial Statements for a discussion of the significant tax differences that impacted our effective tax rate.

Net Loss Attributable to Noncontrolling Interests

Net loss attributable to noncontrolling interests in the current year primarily represents the allocation to Common Units of their pro rata share of the Blue Owl Operating Group’s post-Business Combination net loss due to the drivers discussed above.

The Common Units represent an approximately 70% interest in the Blue Owl Operating Group during the second quarter of 2022.

Prior to the Business Combination, amounts attributable to noncontrolling interests were not significant.

Six Months Ended June 30, 2022, Compared to the Six Months Ended June 30, 2021

Six Months Ended June 30,

(dollars in thousands) 2022 2021 $ Change

Management fees, net (includes Part I Fees of $93,085 and 64,987)

$ 531,957 $ 236,848 $ 295,109

Administrative, transaction and other fees 71,266 50,636 20,630

Total Revenues, Net 603,223 287,484 315,739

Compensation and benefits 412,010 1,269,549 (857,539)

Amortization of intangible assets 126,411 21,336 105,075

General, administrative and other expenses 97,683 66,380 31,303

Total Expenses 636,104 1,357,265 (721,161)

Other Income (Loss)

Net losses on investments (118) — (118)

Net losses on retirement of debt — (16,145) 16,145

Interest expense (27,885) (11,675) (16,210)

Change in TRA liability (8,282) (1,146) (7,136)

Change in warrant liability 38,481 (15,300) 53,781

Change in earnout liability (704) (462,970) 462,266

Total Other Income (Loss) 1,492 (507,236) 508,728

Loss Before Income Taxes (31,389) (1,577,017) 1,545,628

Income tax expense (benefit) 593 (29,011) 29,604

Consolidated and Combined Net Loss (31,982) (1,548,006) 1,516,024

Net loss attributable to noncontrolling interests 19,041 1,225,076 (1,206,035)

Net Loss Attributable to Blue Owl Capital Inc.

$ (12,941) $ (322,930) $ 309,989

Revenues, Net

Management Fees .

The increase in our management fees compared to the same period for the prior year was primarily driven by increased management fees across the Direct Lending product strategies of $79.6 million, which includes both the accretive impact of the Wellfleet Acquisition as well as continued fundraising and deployment of capital within new and existing Direct Lending products, the accretive impact of our GP Capital Solutions’ management fees of $179.1 million and and our Real Estate management fees of $36.4 million.

See Note 6 to our Financial Statements for additional details on our GAAP management fees by product and strategy.

Administrative, Transaction and Other Fees .

The increase in administrative, transaction and other fees was driven primarily by an increase in administrative services provided to products managed by the Company.

Compensation and Benefits.

C ompensation and benefits expenses decreased compared to the same period for the prior year due to a $1.0 billion decrease in acquisition related compensation charges from the non-cash equity-based compensation charges in connection with Blue Owl Operating Group Units issued in connection with the Business Combination, partially offset by acquisition related compensation related to Oak Street and Wellfleet.

Excluding these acquisition related charges, compensation and benefits increased $146.1 million, driven by a 78% growth in headcount from June 30, 2021 to June 30, 2022, which is inclusive of the increase in headcount related to the Dyal, Oak Street and Wellfleet Acquisitions.

Amortization of Intangible Assets.

These expenses relate to the amortization of intangible assets acquired in connection with the Dyal, Oak Street and Wellfleet Acquisitions.

General, Administrative and Other Expenses .

General, administrative and other expenses increased primarily driven by an increase of $21.1 million increase in distribution costs as well as an increase in expenses due to our continued growth as a public company and transitioning back to the office from a remote workforce, offset by a decrease in transaction expenses of $16.0 million that were not eligible to be netted against proceeds for GAAP.

Interest expense .

The increase in interest expense was driven by higher average debt outstanding, as in 2021 our long-term debt outstanding related to the $250.0 million term loan agreement (the “Term Loan”) that was repaid in the second quarter of 2021 using proceeds from the $700.0 million of 2031 Notes, a larger size facility.

Further, we issued the $350.0 million of 2051 Notes during the fourth quarter of 2021 and $400.0 million of 2032 Notes during the first quarter of 2022.

Further, we issued $350.0 million of 2051 Notes during the fourth quarter of 2021 and $400.0 million of 2032 Notes during the first quarter of 2022.

The impact of higher average borrowing outstanding in fiscal quarter 2022 was partially offset by lower average borrowing rates on the Notes in 2022 compared to the Term Loan in 2021.

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Change in warrant liability.

The change in warrant liability in 2022 was driven by the decrease in the price of our Public Warrants, as such price directly impacts the valuation of our Private Placement Warrants.

The warrants were issued in connection with the Business Combination in May 2021.

The change in the warrant liability for the current period was driven by the decrease in the price of our Class A Shares, as such price directly impacts the value of our warrants.

The change in warrant liability for the same period in the prior year was driven by the increase in the price of our Class A Shares.

Change in earnout liability.

There was no material change to the earnout liability.

Income Tax Benefit

Prior to the Business Combination, our income was generally subject to New York City Unincorporated Business Tax (“UBT”), as the operating entities are partnerships for U.S.

There was no material change to the earnout liability for the current period.

The change in the fair value of the earnout liability for the same period in the prior year was primarily due to the increase in our Class A Share price, as such input is a material driver of the valuation of the Earnout Securities carried at fair value.n earnout liability was primarily due to an increase in the Oak Street Earnouts revenue volatility assumptions offset by the passage of time.

Income Tax Expense

Prior to the Business Combination, our income was generally subject to New York City UBT, as the operating entities are partnerships for U.S.

federal income tax purposes.

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federal and state and local levels.

This resulted in an increase in income tax benefit in the current year period.

For the period, the income tax expense increased due to increased pre-tax income as well as nondeductible compensation.

Please see Note 10 to our Financial Statements for a discussion of the significant tax differences that impacted our effective tax rate.

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The Common Units represented an approximately 71% weighted average economic interest in the Blue Owl Operating Group during the first quarter of 2022.

The Common Units represented an approximately 71% weighted average economic interest in the Blue Owl Operating Group during the six months ended June 30, 2022.

Prior to the Business Combination, amounts attributable to noncontrolling interests were not significant, and related primarily to third-party interests held in certain of our consolidated investment advisor holding companies.

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“Transaction Expenses” as defined below;

net gains (losses) on investments, changes in TRA, earnout and warrant liabilities;

net gains (losses) on investments, changes in TRA liability, earnout and warrant liabilities;

net losses on retirement of debt;

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In addition, management reviews revenues by reducing GAAP administrative, transaction and other fees for certain expenses related to reimbursements from our products, which are presented gross for GAAP but net for non-GAAP measures.

Transaction Expenses are expenses incurred in connection with the Business Combination and other acquisitions and strategic transactions, including subsequent adjustments related to such transactions, that were not eligible to be netted against consideration or recognized as acquired assets and assumed liabilities in the relevant transaction.

Transaction Expenses are expenses incurred in connection with the Business Combinations and other acquisitions and strategic transactions, including subsequent adjustments related to such transactions, that were not eligible to be netted against consideration or recognized as acquired assets and assumed liabilities in the relevant transaction.

Starting in the first quarter of 2022, Transaction Expenses also include expenses paid on behalf of certain products that are expected to be reimbursed in subsequent periods;

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Fee-Related Earnings and Distributable Earnings Summary

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

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FRE expenses (122,106) (71,556) (223,841) (129,055)

Net loss allocated to noncontrolling interests included in Fee-Related Earnings 520 80

Net loss (income) allocated to noncontrolling interests included in Fee-Related Earnings 1,359 (1,852) 1,879 (1,774)

Fee-Related Earnings $ 197,064 $ 98,133 $ 368,447 $ 144,481

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These increases were offset by higher FRE expenses, primarily due to compensation and benefits as discussed further below.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

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Opportunistic lending 2,730 741 4,271 1,304

CLOs 6,295 — 6,295 —

Management Fees, Net 145,710 105,058 279,414 199,771

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Total FRE Revenues $ 317,811 $ 171,541 $ 590,409 $ 275,310

FRE revenues increased due to the accretive impact of the Dyal Capital and Oak Street acquisitions.

FRE revenues also increased as a result of overall growth in FPAUM across all of our Diversified Lending product strategies.

Also contributing to the increase were higher administrative, transaction and other fees due to higher fee income earned for services provided to portfolio companies.

Three Months Ended March 31,

FRE revenues increased due to the accretive impact of the Dyal, Oak Street and Wellfleet Acquisitions.

FRE revenues also increased as a result of overall growth in FPAUM across all of our Direct Lending products.

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

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Total FRE Expenses $ (122,106) $ (71,556) $ (223,841) $ (129,055)

FRE expenses increased primarily due to higher FRE compensation and benefits as a result of increased headcount, both in the legacy Owl Rock business, as well as due to an increase related to the Dyal Acquisition and Oak Street Acquisition.

FRE expenses increased due to the accretive impact of the Dyal, Oak Street and Wellfleet Acquisitions.

FRE expenses increased, primarily due to higher FRE compensation and benefits as a result of increased headcount.

FRE general, administrative and other expenses increased, primarily due to increased distribution costs, increased costs related to being a public company and increased travel and office-related expenses as we transition from working remotely back to the office.

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Please see “—Non-GAAP Analysis” for important information regarding these measures.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

GAAP (Loss) Income Before Income Taxes $ (3,435) $ (1,616,539) $ (31,389) $ (1,577,017)

Net loss allocated to noncontrolling interests included in Fee-Related Earnings 520 80

Net loss (income) allocated to noncontrolling interests included in Fee-Related Earnings 1,359 (1,852) 1,879 (1,774)

Strategic Revenue-Share Purchase consideration amortization 8,922 — 17,844 —

Equity-based compensation 96,601 —

Realized performance compensation — — — —

Equity-based compensation - other 24,293 — 41,819 —

Equity-based compensation - acquisition related 62,139 1,158,597 122,793 1,158,597

Equity-based compensation - Business Combination grants 18,253 — 36,674 —

Capital-related compensation 850 — 1,680 —

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Interest expense 15,051 5,817 27,885 11,675

Net gains on investments (5) —

Realized performance income — — — —

Net losses (gains) on investments 123 — 118 —

Net losses on early retirement of debt — 16,145 — 16,145

Change in TRA liability (1,370) 1,146 8,282 1,146

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Fee-Related Earnings 197,064 98,133 368,447 144,481

Realized performance income — — — —

Realized performance compensation — — — —

Interest expense (15,045) (5,817) (27,879) (11,675)

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Adjusted EBITDA $ 197,305 $ 98,268 $ 368,906 $ 144,746

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

3 unchanged sentences

FRE Revenues $ 317,811 $ 171,541 $ 590,409 $ 275,310

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

GAAP Compensation and Benefits $ 218,118 $ 1,221,565 $ 412,010 $ 1,269,549

Equity-based compensation (96,188) —

Equity-based compensation - other (23,984) — (41,097) —

Equity-based compensation - acquisition related (62,139) (1,158,597) (122,793) (1,158,597)

Equity-based compensation - Business Combination grants (18,253) — (36,674) —

Capital-related compensation (849) — (1,679) —

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FRE Compensation and Benefits $ 85,809 $ 56,141 $ 160,778 $ 100,681

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2022 2021 2022 2021

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To the extent that we have excess liquidity, we may invest such excess liquidity in corporate bonds, agency securities and other investments.

We ended the first quarter of 2022 with $186.0 million of cash and cash equivalents and $714.8 million available under our Revolving Credit Facility.

We ended the second quarter of 2022 with $48.7 million of cash and cash equivalents and $1.1 billion available under our Revolving Credit Facility.

Based on management’s experience and our current level of liquidity and assets under management, we believe that our current liquidity position and cash generated from management fees will continue to be sufficient to meet our anticipated working capital needs for at least the next 12 months.

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• Repay debt obligations and interest thereon.

• Opportunistically repurchase Class A Shares pursuant to the Share Repurchase Program (as defined below).

• Opportunistically repurchase Class A Shares pursuant to the share repurchase program discussed below.

• Pay income taxes and amounts due under the TRA.

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Debt Obligations

As of March 31, 2022, our long-term debt obligations consisted of $700.0 million of 2031 Notes, $400.0 million of 2032 Notes and $350.0 million of 2051 Notes.

As of June 30, 2022, our long-term debt obligations consisted of $700.0 million of 2031 Notes, $400.0 million of 2032 Notes and $350.0 million of 2051 Notes.

We expect to use cash on hand to pay interest and principal due on our financing arrangements over time, which would reduce amounts available for dividends and distributions to our shareholders.

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We may also choose to repay borrowing by using proceeds from the issuance of equity or other securities, which would dilute shareholders.

See Note 3 to our consolidated and combined financial statements in this report for additional information regarding our debt obligations.

See Note 4 to our Financial Statements in this report for additional information regarding our debt obligations.

Management regularly reviews Adjusted EBITDA to assess our ability to service our debt obligations.

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Adjusted EBITDA may not be comparable to other similarly titled measured used by other companies.

Adjusted EBITDA was $171.6 million for the quarter ended March 31, 2022.

Adjusted EBITDA was $197.3 million for the quarter ended June 30, 2022.

Please see “—Non-GAAP Reconciliations” for reconciliations of Adjusted EBITDA to the most comparable measures prepared in accordance with GAAP.

Share Repurchase Program

On May 4, 2022, Blue Owl’s Board authorized the repurchase of up to $150.0 million of Class A Shares.

Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise.

The timing and the actual numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions.

The share repurchase program may be changed, suspended or discontinued at any time and will terminate upon the earlier of (i) the purchase of all shares available under the repurchase program or (ii) December 31, 2024.

As of June 30, 2022, no share repurchases had been made under the program.

This program replaced the previously authorized program, under which program we repurchased 2,000,000 shares during the first quarter of 2022 using cash on hand.

Future share repurchases may be funded using cash on hand, which would reduce amounts available for dividends and distributions, or by incurring additional debt.

Tax Receivable Agreement

As discussed in Note 10 to our consolidated and combined financial statements in this report, we may in the future be required to make payments under the TRA.

As of March 31, 2022, assuming no material changes in the relevant tax law and that we generate sufficient taxable income to realize the full tax benefit of the increased amortization resulting from the increase in tax basis of certain Blue Owl Operating Group assets, we expect to pay approximately $806.5 million under the TRA.

As discussed in Note 11 to our Financial Statements in this report, we may in the future be required to make payments under the TRA.

As of June 30, 2022, assuming no material changes in the relevant tax law and that we generate sufficient taxable income to realize the full tax benefit of the increased amortization resulting from the increase in tax basis of certain Blue Owl Operating Group assets, we expect to pay approximately $847.3 million under the TRA.

Future cash savings and related payments under the TRA in respect of subsequent exchanges of Blue Owl Operating Group Units for Class A or B Shares would be in addition to these amounts.

Payments under the tax receivable agreement are anticipated to increase the tax basis adjustment and, consequently, result in increasing annual amortization deductions in the taxable years of and after such increases to the original basis adjustments, and potentially will give rise to increasing tax savings with respect to such years and correspondingly increasing payments under the TRA.

The obligation to make payments under the tax receivable agreement is an obligation of Blue Owl GP, and any other corporate taxpaying entities that in the future may hold GP Units, and not of the Blue Owl Operating Group.

Payments under the TRA are anticipated to increase the tax basis adjustment and, consequently, result in increasing annual amortization deductions in the taxable years of and after such increases to the original basis adjustments, and potentially will give rise to increasing tax savings with respect to such years and correspondingly increasing payments under the TRA.

The obligation to make payments under the TRA is an obligation of Blue Owl GP, and any other corporate taxpaying entities that in the future may hold GP Units, and not of the Blue Owl Operating Group.

We may need to incur debt to finance payments under the TRA to the extent the Blue Owl Operating Group does not distribute cash to Registrant or Blue Owl GP in an amount sufficient to meet our obligations under the TRA.

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To the extent we have insufficient cash on hand or that we opt to, we may rely on debt or equity financing to facilitate these transactions in the future if needed.

Oak Street Cash Earnout

A portion of the Oak Street Cash Earnout is classified as a liability and represents the fair value of the obligation to make future cash payments that would need to be made if all the respective Oak Street Triggering Events occur.

Further, the portion classified as compensation expense will be expensed and a corresponding accrued compensation liability will be recorded over the service period.

On July 18, 2022, we announced that we will redeem all of the outstanding Public Warrants on August 18, 2022 (the “Redemption Date”).

Holders may exercise Public Warrants and receive Class A Shares in exchange for payment in cash for the warrant exercise price.

Alternatively, a holder may surrender Public Warrants for 0.239 Class A Shares for each Public Warrant.

Any Public Warrants outstanding on the Redemption Date will be redeemed in cash at a price of $0.10 per Public Warrant.

The Private Placement Warrants are not redeemable at our option and will continue to remain outstanding following the Redemption Date.

Oak Street Cash Earnout and Wellfleet Earnout

A portion of the Oak Street Cash Earnout and the Wellfleet Earnout (each as defined in Note 3 to our Financial Statements) is classified as a liability and represents the fair value of the obligation to make future cash payments that would need to be made if all the respective Oak Street Triggering Events and Wellfleet Triggering Events occur.

As we approach each Triggering Event, we generally would expect the respective liabilities to increase due to the passage of time, which would result in mark-to-market losses being recognized in our consolidated statement of operations.

Further, the cash portion classified as compensation expense will be expensed and a corresponding accrued compensation liability will be recorded over the service period.

To the extent we have insufficient cash on hand or that we opt to, we may rely on debt or equity financing to facilitate these transactions in the future.

See Note 2 to our Financial Statements for additional information.

For details on the Oak Street Cash Earnout see Note 3 to the consolidated and combined audited financial statements included in the Company’s Annual Report for additional information.

For the Wellfleet Earnout see Note 3 to our Financial Statements for additional information.

Dividends and Distributions

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No assurance can be given that we will be able to issue new debt, enter into new credit facilities or issue equity or other securities in the future on attractive terms or at all.

Adverse market conditions, including from unexpectedly high and persistent inflation, a shifting interest rate environment, geopolitical events, and ongoing impact from COVID-19 globally, may negatively impact our liquidity.

Adverse market conditions, including from unexpectedly high and persistent inflation, an increasing interest rate environment, geopolitical events, and ongoing impact from COVID-19 globally, may negatively impact our liquidity.

Cash flows from management fees may be impacted by a slowdown or a decline in fundraising and deployment, as well as declines in the value of investments held in certain of our products.

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Our senior management has oversight of these transition efforts.

See “Risk Factors—Risks Related to Legal and Regulatory Environment—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.”

Cash Flows Analysis

Three Months Ended March 31,

Six Months Ended June 30,

(dollars in thousands) 2022 2021 $ Change

10 unchanged sentences

Investing Activities.

Cash flows from investing activities for 2022 were primarily related to leasehold improvements associated with certain office spaces.

In 2021, cash flows related to investing activities were not material.

Cash flows from investing activities for 2022 were primarily related to cash consideration paid in connection with the Wellfleet Acquisition.

In addition, investment activities also included cash outflows related to office space-related leasehold improvements and investments by us into our Direct Lending products.

In 2021, cash flows from investing activities were primarily related to the cash consideration paid in connection with the Dyal Acquisition.

Financing Activities.

Cash flows from financing activities for 2022 were primarily driven by dividends on our Class A Shares and related distributions on our Common Units (noncontrolling interests).

Our cash flows from financing activities also benefited from a net increase to our debt as a result of the proceeds from our 2032 Notes, which were used to finance working capital needs and general capital purposes, partially offset by repayments under our Revolving Credit Facility.

Our 2021 cash flows related to financing activities included borrowings and repayments under our previously outstanding revolving credit facilities.

In addition, distributions related to pre-Business Combination-related earnings was another significant financing cash flow in the prior-year period.

Our cash flows from financing activities also benefited from a net increase related to the proceeds from our 2032 Notes, which were used to finance working capital needs and general capital purposes, partially offset by repayments under our Revolving Credit Facility.

Cash flows related to financing activities for the first half of 2021 were primarily driven by cash proceeds from the Business Combination, as well as related cash consideration paid to certain pre-Business Combination Owl Rock owners.

Additionally, distributions of pre-Business Combination-related earnings were also made during the first half of 2021, with a final distribution of $52.0 million related to pre-Business Combination-related earnings to be made during the third quarter of 2021 (i.e., not included in the cash flows presented above).

Cash flows related to financing activities in the first half of 2021 also included the proceeds from our 2031 Notes, which proceeds were used in part to repay our previously outstanding Term Loan.

We also made various borrowings and repayments under our previously outstanding revolving credit facilities.

Critical Accounting Estimates

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Equity-based Compensation

The fair values of our equity-based compensation RSU and Incentive Unit grants are generally determined using our Class A Share price on the grant date, adjusted for the lack of dividend participation during the vesting period, and the application of a discount for lack of marketability on RSUs and Incentive Units that are subject to a one-year post-vesting transfer restriction.

The fair values of our equity-based compensation RSU, Incentive Unit grants and Wellfleet Earnout are generally determined using our Class A Share price on the grant date, adjusted for the lack of dividend participation during the vesting period, and the application of a discount for lack of marketability on RSUs and Incentive Units that are subject to a one-year post-vesting transfer restriction.

The higher these discounts, the lower the compensation expense taken over time for these grants.

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Our evaluation for indicators of impairment may not capture a potential impairment, which could result in an overstatement of the carrying values of goodwill and other intangible assets.

Variable Interest Entities

The determination of whether to consolidate a variable interest entity (“VIE”) under GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests.

To make these judgments, we conduct an analysis, on a case-by-case basis, of whether we are the primary beneficiary and are therefore required to consolidate an entity.

We continually reconsider whether we should consolidate a VIE.

Upon the occurrence of certain events, such as modifications to organizational documents and investment management agreements of our products, we will reconsider our conclusion regarding the status of an entity as a VIE.

Our judgement when analyzing the status of an entity and whether we consolidate an entity could have a material impact on individual line items within our consolidated and combined statements, as a change in our conclusion would have the effect of grossing up the assets, liabilities, revenues and expenses of the entity being evaluated.

In light of the relevantly insignificant direct and indirect investments into our products, the likelihood of a reasonable change in our estimation and judgement would likely not result in a change in our conclusions to consolidate or not consolidate any VIEs to which we have exposure.

Impact of Changes in Accounting on Recent and Future Trends

We believe that none of the changes to GAAP that went into effect during the three months ended March 31, 2022, or that have been issued but that we have not yet adopted, are expected to substantively impact our future trends.

We believe that none of the changes to GAAP that went into effect during the three months ended June 30, 2022, or that have been issued but that we have not yet adopted, are expected to substantively impact our future trends.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis