BLUE OWL CAPITAL INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), should be read in conjunction with the unaudited consolidated and combined financial statements and the related notes included in this report. For a description of our business, please see “Business of Blue Owl” in the Annual Report. 2022 Second Quarter Overview Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 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) Fee-Related Earnings (1) $ 197,064 $ 98,133 $ 368,447 $ 144,481 Distributable Earnings (1) $ 180,402 $ 85,138 $ 336,128 $ 125,390 (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 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, Oak Street Acquisition and Wellfleet Acquisition. Assets Under Management Blue Owl AUM: $119.1 billion FPAUM: $77.5 billion Direct Lending Products AUM: $56.8 billion FPAUM: $41.4 billion GP Capital Solutions Products AUM: $45.7 billion FPAUM: $26.7 billion Real Estate Products AUM: $16.6 billion FPAUM: $9.4 billion Diversified Lending Commenced 2016 AUM: $32.1 billion FPAUM: $22.4 billion GP Minority Equity Commenced 2010 AUM: $44.0 billion FPAUM: $25.7 billion Net Lease Commenced 2009 AUM: $16.6 billion FPAUM: $9.4 billion Technology Lending Commenced 2018 AUM: $12.1 billion FPAUM: $8.1 billion GP Debt Financing Commenced 2019 AUM: $1.4 billion FPAUM: $0.7 billion First Lien Lending Commenced 2018 AUM: $3.4 billion FPAUM: $2.6 billion Professional Sports Minority Investments Commenced 2021 AUM: $0.2 billion FPAUM: $0.2 billion Opportunistic Lending Commenced 2020 AUM: $2.2 billion FPAUM: $1.3 billion CLOs Commenced 2022 AUM: $7.0 billion FPAUM: $7.0 billion 7 Table of Contents We finished the quarter with $119.1 billion of AUM, which included $77.5 billion of FPAUM. 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. Business Environment 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. 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 We present information regarding our AUM, FPAUM and various other related metrics throughout this MD&A to provide context around our fee generating revenues results, as well as indicators of the potential for future earnings from existing and new products. Our calculations of AUM and FPAUM may differ from the calculation methodologies of other asset managers, and as a result these measures may not be comparable to similar measures presented by other asset managers. In addition, our calculation of AUM includes amounts that are fee exempt (i.e., not subject to 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. 8 Table of Contents Composition of Assets Under Management Our AUM consists of FPAUM, AUM not yet paying fees, fee-exempt AUM and net appreciation and leverage in products on which fees are based on commitments or investment cost. AUM not yet paying fees generally relates to unfunded capital commitments (to the extent such commitments are not already subject to fees), undeployed debt (to the extent we earn fees based on total asset values or investment cost, inclusive of assets purchased using debt) and AUM that is subject to a temporary fee holiday. Fee-exempt AUM represents certain investments by us, our employees, other related parties and third parties, as well as certain co-investment vehicles on which we do not earn fees. 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 over $105 million of additional annualized management fees once deployed or upon the expiration of the relevant fee holidays. 9 Table of Contents Permanency and Duration of Assets Under Management Our capital base is heavily weighted toward Permanent Capital. 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. The chart below presents the composition of our management fees by remaining product duration. Changes in these relative percentages will occur over time as the mix of products we offer changes. For example, our Real Estate products have a higher concentration in long-dated funds, which in isolation may cause our percentage of management fees from Permanent Capital to decline. Changes in AUM 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 Beginning Balance $ 44,775 $ 41,153 $ 16,090 $ 102,018 $ 27,777 $ 30,196 $ — $ 57,973 Acquisition 6,529 — — 6,529 — — — — New capital raised 3,015 3,958 208 7,181 749 481 — 1,230 Change in debt 3,142 — — 3,142 2,402 — — 2,402 Distributions (380) (219) (100) (699) (196) (130) — (326) Change in value / other (254) 782 441 969 424 664 — 1,088 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 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. • $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. 10 Table of Contents GP Capital Solutions. 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. Real Estate. There was no material increase or decrease in AUM. Changes in FPAUM 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 Beginning Balance $ 32,658 $ 23,651 $ 9,275 $ 65,584 $ 21,471 $ 18,630 $ — $ 40,101 Acquisition 6,501 — — 6,501 — — — — 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 — — — — Distributions (659) 4 (274) (929) (359) (234) — (593) Change in value / other (1,560) — 303 (1,257) 671 — — 671 Ending Balance $ 41,409 $ 26,678 $ 9,430 $ 77,517 $ 24,162 $ 18,657 $ — $ 42,819 Direct Lending. 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. Increase in FPAUM was driven by new capital raised, primarily in Dyal Fund V, and the expiration of certain fee holidays on January 1, 2022. 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. Real Estate. Increase in FPAUM was driven primarily by capital raised in the Oak Street Real Estate Capital Net Lease Property Fund. 11 Table of Contents Product Performance Product performance for certain of our products is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. The performance information of our products reflected is not indicative of our performance. An investment in Blue Owl is not an investment in any of our products. Past performance is not indicative of future results. As with any investment, there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these products or our other existing and future products will achieve similar returns. MoIC and IRR data has not been presented for products that have launched within the last two years as such information is generally not meaningful (“NM”). Direct Lending MoIC IRR (dollars in millions) Year of Inception AUM Capital Raised (1) Invested Capital (2) Realized Proceeds (3) Unrealized Value (4) Total Value Gross (5) Net (6) Gross (7) Net (8) Diversified Lending ORCC 2016 $ 14,168 $ 6,019 $ 6,019 $ 2,146 $ 5,704 $ 7,850 1.42x 1.30x 11.4 % 8.3 % ORCC II (9) 2017 $ 2,569 $ 1,367 $ 1,340 $ 292 $ 1,290 $ 1,582 NM 1.18x NM 6.1 % ORCC III 2020 $ 3,544 $ 1,783 $ 1,783 $ 136 $ 1,749 $ 1,885 NM NM NM NM ORCIC 2020 $ 9,970 $ 4,094 $ 4,041 $ 135 $ 3,862 $ 3,997 NM NM NM NM Technology Lending ORTF 2018 $ 6,871 $ 3,208 $ 3,208 $ 325 $ 3,279 $ 3,604 1.18x 1.12x 10.8 % 7.2 % First Lien Lending (10) Owl Rock First Lien Fund Levered 2018 $ 2,929 $ 1,161 $ 813 $ 128 $ 803 $ 931 1.20x 1.15x 8.3 % 6.2 % Owl Rock First Lien Fund Unlevered 2019 $ 152 $ 150 $ 150 $ 8 $ 157 $ 165 1.10x 1.06x 4.5 % 2.8 % (1) Includes reinvested dividends and share repurchases, if applicable. (2) Invested capital includes capital calls, reinvested dividends and periodic investor closes, as applicable. (3) Realized proceeds represent the sum of all cash distributions to investors. (4) Unrealized value represents the product’s NAV. There can be no assurance that unrealized values will be realized at the valuations indicated. (5) Gross multiple of invested capital (“MoIC”) is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Gross MoIC is before giving effect to management fees (including Part I Fees) and Part II Fees, as applicable. (6) Net MoIC measures the aggregate value generated by a product’s investments in absolute terms. Net MoIC is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Net MoIC is calculated after giving effect to management fees (including Part I Fees) and Part II Fees, as applicable, and all other expenses. (7) Gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Gross IRRs are calculated before giving effect to management fees (including Part I Fees) and Part II Fees, as applicable. (8) Net IRRs are calculated consistent with gross IRRs, but after giving effect to management fees (including Part I Fees) and Part II Fees, as applicable, and all other expenses. An individual investor’s IRR may be different to the reported IRR based on the timing of capital transactions. (9) For the purposes of calculating Gross IRR, the expense support provided to the fund would be impacted when assuming a performance excluding management fees (including Part I Fees) and Part II Fees, and therefore is not meaningful for ORCC II. (10) Owl Rock First Lien Fund is comprised of three feeder funds: Onshore Levered, Offshore Levered and Insurance Unlevered. The gross and net MoIC and IRR presented in the chart are for Onshore Levered and Insurance Unlevered as those are the largest of the levered and unlevered feeder funds. The gross and net MoIC for the Offshore Levered feeder fund is 1.19x and 1.12x, respectively. The gross and net IRR for the Offshore Levered feeder is 8.1% and 5.0%, respectively. All other values for Owl Rock First Lien Fund Levered are for Onshore Levered and Offshore Levered combined. AUM is presented as the aggregate of the three Owl Rock First Lien Fund feeders. Owl Rock First Lien Fund Unlevered Investor equity and note commitments are both treated as capital for all values. 12 Table of Contents GP Capital Solutions MoIC IRR (dollars in millions) Year of Inception AUM Capital Raised Invested Capital (2) Realized Proceeds (3) Unrealized Value (4) Total Value Gross (5) Net (6) Gross (7) Net (8) GP Minority Equity (1) Dyal Fund I 2011 $ 975 $ 1,284 $ 1,248 $ 583 $ 741 $ 1,324 1.21x 1.06x 4.0 % 1.1 % Dyal Fund II 2014 $ 2,808 $ 2,153 $ 1,846 $ 502 $ 2,075 $ 2,577 1.60x 1.40x 13.4 % 8.7 % Dyal Fund III 2015 $ 8,211 $ 5,318 $ 3,246 $ 2,959 $ 4,009 $ 6,968 2.58x 2.15x 31.2 % 23.4 % Dyal Fund IV 2018 $ 14,449 $ 9,041 $ 4,807 $ 2,494 $ 6,623 $ 9,117 2.28x 1.90x 112.1 % 71.1 % Dyal Fund V 2020 $ 10,901 $ 9,763 $ 1,112 $ — $ 2,019 $ 2,019 NM NM NM NM (1) Valuation-related amounts and performance metrics are presented on a quarter lag and are exclusive of investments made by us and the related carried interest vehicles of the respective products. (2) Invested capital includes capital calls. (3) Realized proceeds represent the sum of all cash distributions to investors. (4) Unrealized value represents the product's NAV. There can be no assurance that unrealized values will be realized at the valuations indicated. (5) Gross MoIC is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Gross MoIC is before giving effect to management fees and carried interest, as applicable. (6) Net MoIC measures the aggregate value generated by a product's investments in absolute terms. Net MoIC is calculated by adding total realized proceeds and unrealized values of a product's investments and dividing by the total amount of invested capital. Net MoIC is calculated after giving effect to management fees and carried interest, as applicable, and all other expenses. (7) Gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Gross IRRs are calculated before giving effect to management fees and carried interest, as applicable. (8) Net IRR is an annualized since inception net internal rate of return of cash flows to and from the product and the product's residual value at the end of the measurement period. Net IRRs reflect returns to all investors. Net IRRs are calculated after giving effect to management fees and carried interest, as applicable, and all other expenses. An individual investor's IRR may be different to the reported IRR based on the timing of capital transactions. Real Estate MoIC IRR (dollars in millions) Year of Inception AUM Capital Raised Invested Capital (2) Realized Proceeds (3) Unrealized Value (4) Total Value Gross (5) Net (6) Gross (7) Net (8) Net Lease (1) Oak Street Real Estate Capital Fund IV 2017 $ 1,438 $ 1,250 $ 1,250 $ 1,078 $ 855 $ 1,933 1.70x 1.53x 29.1 % 23.3 % Oak Street Real Estate Capital Net Lease Property Fund 2019 $ 5,908 $ 3,161 $ 2,600 $ 213 $ 2,980 $ 3,193 1.24x 1.23x 20.5 % 19.4 % Oak Street Real Estate Capital Fund V 2020 $ 3,632 $ 2,500 $ 1,147 $ 322 $ 1,103 $ 1,425 NM NM NM NM Oak Street Asset-Backed Securitization (9) 2020 $ 3,003 $ 2,713 $ 342 $ 60 $ 370 $ 430 NM NM NM NM (1) Valuation-related amounts and performance metrics, as well as invested capital and realized proceeds, are presented on a quarter lag where applicable. (2) Invested capital includes investments by the general partner, capital calls, dividends reinvested and periodic investors closes, as applicable. (3) Realized proceeds represent the sum of all cash distributions to all investors. (4) Unrealized value represents the fund’s NAV. There can be no assurance that unrealized values will be realized at the valuations indicated. (5) Gross MoIC is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Gross MoIC is before giving effect to management fees and carried interest, as applicable. (6) Net MoIC measures the aggregate value generated by a product's investments in absolute terms. Net MoIC is calculated by adding total realized proceeds and unrealized values of a product's investments and dividing by the total amount of invested capital. Net MoIC is calculated after giving effect to management fees and carried interest, as applicable, and all other expenses. (7) Gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Gross IRRs are calculated before giving effect to management fees and carried interest, as applicable. (8) Net IRR is an annualized since inception net internal rate of return of cash flows to and from the product and the product's residual value at the end of the measurement period. Net IRRs reflect returns to all investors. Net IRRs are calculated after giving effect to management fees and carried interest, as applicable, and all other expenses. An individual investor's IRR may be different to the reported IRR based on the timing of capital transactions. (9) Capital raised for this product includes the par value of notes issued in the securitization. Invested capital, realized proceeds, unrealized and total values relate to the subordinated notes/equity of the securitization. 13 Table of Contents GAAP Results of Operations Analysis 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 Revenues Management fees, net (includes Part I Fees of $46,346 and $36,073) $ 284,325 $ 142,135 $ 142,190 Administrative, transaction and other fees 42,921 37,125 5,796 Total Revenues, Net 327,246 179,260 147,986 Expenses Compensation and benefits 218,118 1,221,565 (1,003,447) Amortization of intangible assets 64,885 21,336 43,549 General, administrative and other expenses 54,389 51,520 2,869 Total Expenses 337,392 1,294,421 (957,029) 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) Change in TRA liability 1,370 (1,146) 2,516 Change in warrant liability 20,723 (15,300) 36,023 Change in earnout liability (208) (462,970) 462,762 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 Attributable to Blue Owl Capital Inc. $ (1,126) $ (362,344) $ 361,218 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 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 an increase in administrative services provided to products managed by the Company. Expenses Compensation and Benefits. 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. 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. 14 Table of Contents General, Administrative and Other Expenses . 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. Other Loss 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. 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. 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. 15 Table of Contents 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 Revenues 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 Expenses 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. Expenses 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. 16 Table of Contents Other Loss 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 $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. Change in TRA liability. The change in TRA liability in 2022 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). The TRA was entered into in connection with the Business Combination in May 2021. 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. 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. 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 Interest 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 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. Non-GAAP Analysis In addition to presenting our consolidated and combined results in accordance with GAAP, we present certain other financial measures that are not presented in accordance with GAAP. Management uses these measures to assess the performance of our business, and we believe that this information enhances the ability of shareholders to analyze our performance from period to period. These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of our GAAP results, and such measures should not be considered as indicative of our liquidity. Our non-GAAP measures may not be comparable to other similarly titled measured used by other companies. Please see “—Non-GAAP Reconciliations” for reconciliations of these measures to the most comparable measures prepared in accordance with GAAP. Fee-Related Earnings and Related Components Fee-Related Earnings is a supplemental non-GAAP measure of operating performance used to make operating decisions and assess our operating performance. Fee-Related Earnings excludes certain items that are required for the presentation of our results on a GAAP basis. Management also reviews the components that comprise Fee-Related Earnings (i.e., FRE Revenues and FRE Expenses) on the same basis used to calculate Fee-Related Earnings, and such components are also non-GAAP measures and have been identified with the prefix “FRE” in the tables and discussion below. Management believes that by excluding these items, which are described below, Fee-Related Earnings and its components can be useful as supplemental measures to our GAAP results in assessing our operating performance and focusing on whether our recurring revenues, primarily consisting of management fees, are sufficient to cover our recurring operating expenses. 17 Table of Contents Fee-Related Earnings exclude various items that are required for the presentation of our results under GAAP, including the following: noncontrolling interests in the Blue Owl Operating Partnerships; equity-based compensation expense; compensation expenses related to capital contributions in certain subsidiary holding companies that are in-turn paid as compensation to certain employees, as such contributions are not included in Fee-Related Earnings or Distributable Earnings; amortization of acquisition-related earnouts; amortization of intangible assets; “Transaction Expenses” as defined below; net gains (losses) on investments, changes in TRA liability, earnout and warrant liabilities; net losses on retirement of debt; interest and taxes. 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 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; such amounts were not material to the prior periods presented, and therefore such periods have not be restated for this change. Distributable Earnings Distributable Earnings is a supplemental non-GAAP measure of operating performance that equals Fee-Related Earnings plus or minus, as relevant, realized performance income and related compensation, interest expense, as well as amounts payable for taxes and payments made pursuant to the TRA. Amounts payable for taxes presents the current income taxes payable related to the respective period’s earnings, assuming that all Distributable Earnings were allocated to the Registrant, which would occur following the exchange of all Blue Owl Operating Group Units for Class A Shares. Current income taxes payable and payments made pursuant to the TRA reflect the benefit of tax deductions that are excluded when calculating Distributable Earnings (e.g., equity-based compensation expenses, net losses on retirement of debt, Transaction Expenses, tax goodwill, etc.). If these tax deductions were to be excluded from amounts payable for taxes, Distributable Earnings would be lower and our effective tax rate would appear to be higher, even though a lower amount of income taxes would have been paid or payable for a period’s earnings. We make these adjustments when calculating Distributable Earnings to more accurately reflect the net realized earnings that are expected to be or become available for distribution or reinvestment into our business. Management believes that Distributable Earnings can be useful as a supplemental performance measure to our GAAP results assessing the amount of earnings available for distribution. Fee-Related Earnings and Distributable Earnings Summary Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 FRE revenues $ 317,811 $ 171,541 $ 590,409 $ 275,310 FRE expenses (122,106) (71,556) (223,841) (129,055) 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 Distributable Earnings $ 180,402 $ 85,138 $ 336,128 $ 125,390 Fee-Related Earnings and Distributable Earnings increased year-over-year as a result of the accretive impact of the Dyal Acquisition and Oak Street Acquisition, as well as higher FRE revenues from our Direct Lending products. These increases were offset by higher FRE expenses, primarily due to compensation and benefits as discussed further below. 18 Table of Contents FRE Revenues Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 Direct Lending Products Diversified lending $ 108,909 $ 83,773 $ 214,361 $ 160,251 Technology lending 23,803 16,727 46,833 30,584 First lien lending 3,973 3,817 7,654 7,632 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 Administrative, transaction and other fees 23,396 29,406 37,869 38,462 FRE Revenues - Direct Lending Products 169,106 134,464 317,283 238,233 GP Capital Solutions Products GP minority equity investments 124,434 36,341 226,534 36,341 GP debt financing 3,366 736 6,458 736 Professional sports minority investments 513 — 1,013 — Management Fees, Net 128,313 37,077 234,005 37,077 Administrative, transaction and other fees 1,168 — 2,739 — FRE Revenues - GP Capital Solutions Products 129,481 37,077 236,744 37,077 Real Estate Products Net lease 19,224 — 36,382 — Management Fees, Net 19,224 — 36,382 — FRE Revenues - Real Estate Products 19,224 — 36,382 — Total FRE Revenues $ 317,811 $ 171,541 $ 590,409 $ 275,310 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. FRE Expenses Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 FRE compensation and benefits $ (85,809) $ (56,141) $ (160,778) $ (100,681) FRE general, administrative and other expenses (36,297) (15,415) (63,063) (28,374) Total FRE Expenses $ (122,106) $ (71,556) $ (223,841) $ (129,055) 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. See “—GAAP Results of Operations Analysis” for additional information on these drivers. 19 Table of Contents Non-GAAP Reconciliations The table below presents the reconciliation of the non-GAAP measures presented throughout this MD&A. Please see “—Non-GAAP Analysis” for important information regarding these measures. 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 (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 — 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 — Acquisition-related cash earnout amortization 16,111 — 32,193 — Amortization of intangible assets 64,885 21,336 126,411 21,336 Transaction Expenses 10,398 35,213 20,035 36,103 Interest expense 15,051 5,817 27,885 11,675 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 Change in warrant liability (20,723) 15,300 (38,481) 15,300 Change in earnout liability 208 462,970 704 462,970 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) Taxes and TRA payments (1,617) (7,178) (4,440) (7,416) Distributable Earnings 180,402 85,138 336,128 125,390 Interest expense 15,045 5,817 27,879 11,675 Taxes and TRA payments 1,617 7,178 4,440 7,416 Fixed assets depreciation and amortization 241 135 459 265 Adjusted EBITDA $ 197,305 $ 98,268 $ 368,906 $ 144,746 Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 GAAP Revenues $ 327,246 $ 179,260 $ 603,223 $ 287,484 Strategic Revenue-Share Purchase consideration amortization 8,922 — 17,844 — Administrative and other fees (18,357) (7,719) (30,658) (12,174) FRE Revenues $ 317,811 $ 171,541 $ 590,409 $ 275,310 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 - 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) — Acquisition-related cash earnout amortization (16,111) — (32,193) — Administrative and other expenses (10,973) (6,827) (16,796) (10,271) FRE Compensation and Benefits $ 85,809 $ 56,141 $ 160,778 $ 100,681 20 Table of Contents Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 GAAP General, Administrative and Other Expenses $ 54,389 $ 51,520 $ 97,683 $ 66,380 Transaction Expenses (10,398) (35,213) (20,035) (36,103) Equity-based compensation (309) — (722) — Administrative and other expenses (7,385) (892) (13,863) (1,903) FRE General, Administrative and Other Expenses $ 36,297 $ 15,415 $ 63,063 $ 28,374 Liquidity and Capital Resources Overview We rely on management fees as the primary source of our operating liquidity. From time to time we may rely on the use of revolving credit facilities between management fee collection dates, which generally occur on a quarterly basis. We may also rely on our Revolving Credit Facility for liquidity needed to fund acquisitions, which we may replace with longer-term financing, subject to market conditions. 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 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. Over the short and long term, we may use cash and cash equivalents, issue additional debt or equity securities, or may seek other sources of liquidity to: • Grow our existing investment management business. • Expand, or acquire, into businesses that are complementary to our existing investment management businesses or other strategic growth initiatives. • Pay operating expenses, including cash compensation to our employees. • Repay debt obligations and interest thereon. • Opportunistically repurchase Class A Shares pursuant to the share repurchase program discussed below. • Pay income taxes and amounts due under the TRA. • Pay dividends to holders of our Class A Shares, as well as make corresponding distributions to holders of Common Units at the Blue Owl Operating Group level. • Fund investment commitments to existing or future products. Debt Obligations 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. We may choose to refinance all or a portion of any amounts outstanding on or prior to their respective maturity dates by issuing new debt, which could result in higher borrowing costs. We may also choose to repay borrowing by using proceeds from the issuance of equity or other securities, which would dilute shareholders. 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. Adjusted EBITDA is equal to Distributable Earnings plus interest expense, taxes payable and TRA payments, and fixed assets depreciation and amortization. Adjusted EBITDA is a non-GAAP financial measure that supplements and should be considered in addition to and not in lieu of our GAAP results, and such measure should not be considered as indicative of our liquidity. Adjusted EBITDA may not be comparable to other similarly titled measured used by other companies. 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. 21 Table of Contents 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 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 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. The actual increase in tax basis of the Blue Owl Operating Group assets resulting from an exchange or from payments under the TRA, as well as the amortization thereof and the timing and amount of payments under the TRA, will vary based upon a number of factors, including the following: • The amount and timing of our taxable income will impact the payments to be made under the TRA. To the extent that we do not have sufficient taxable income to utilize the amortization deductions available as a result of the increased tax basis in the Blue Owl Operating Partnerships’ assets, payments required under the TRA would be reduced. • The price of our Class A Shares at the time of any exchange will determine the actual increase in tax basis of the Blue Owl Operating Partnerships’ assets resulting from such exchange; payments under the TRA resulting from future exchanges, if any, will be dependent in part upon such actual increase in tax basis. • The composition of the Blue Owl Operating Group assets at the time of any exchange will determine the extent to which we may benefit from amortizing the increased tax basis in such assets and thus will impact the amount of future payments under the TRA resulting from any future exchanges. • The extent to which future exchanges are taxable will impact the extent to which we will receive an increase in tax basis of the Blue Owl Operating Group assets as a result of such exchanges, and thus will impact the benefit derived by us and the resulting payments, if any, to be made under the TRA. • The tax rates in effect at the time any potential tax savings are realized, which would affect the amount of any future payments under the TRA. Depending upon the outcome of these and other factors, payments that we may be obligated to make under the TRA in respect of exchanges could be substantial. In light of the numerous factors affecting our obligation to make payments under the TRA, the timing and amounts of any such actual payments are not reasonably ascertainable. 22 Table of Contents Warrants We classify the warrants issued in connection with the Business Combination as liabilities in our consolidated and combined statements of financial condition, as in the event of a change in control, warrant holders have the ability to demand cash settlement from us. In addition, we have the option to cash settle outstanding warrants when certain criteria is met, as described in Note 2 to our Financial Statements. 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. 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. 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 We intend to continue to pay to Class A Shareholders (and Class B Shareholders in the future to the extent any Class B Shares are outstanding) a quarterly dividend representing approximately 85% of Distributable Earnings following the end of each quarter. Blue Owl Capital Inc.’s share of Distributable Earnings, subject to adjustment as determined by our Board to be necessary or appropriate to provide for the conduct of our business, to make appropriate investments in our business and products, to comply with applicable law, any of our debt instruments or other agreements, or to provide for future cash requirements such as tax-related payments, operating reserves, clawback obligations and dividends to shareholders for any ensuing quarter. All of the foregoing is subject to the qualification that the declaration and payment of any dividends are at the sole discretion of our Board, and our Board may change our dividend policy at any time, including, without limitation, to reduce or eliminate dividends entirely. The Blue Owl Operating Partnerships will make cash distributions (“Tax Distributions”) to the partners of such partnerships, including to Blue Owl GP, if we determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. Generally, Tax Distributions will be computed based on our estimate of the taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, New York State and New York City income tax rates prescribed for an individual or corporate resident in New York City (taking into account certain assumptions set forth in the relevant partnership agreements). Tax Distributions will be made only to the extent distributions from the Blue Owl Operating Partnerships for the relevant year were otherwise insufficient to cover the estimated assumed tax liabilities. Holders of our Class A and B Shares may not always receive distributions or may receive lower distributions on a per share basis at a time when we, indirectly through Blue Owl GP, and holders of our Common Units are receiving distributions on their interests, as distributions to the Registrant and Blue Owl GP may be used to settle tax and TRA liabilities, if any, and other obligations. Dividends are expected to be treated as qualified dividends under current law to the extent of the Company’s current and accumulated earnings and profits, with any excess dividends treated as a return of capital to the extent of a shareholder’s basis, and any remaining excess generally treated as gain realized on the sale or other disposition of stock. 23 Table of Contents Risks to our Liquidity Our ability to obtain financing provides us with additional sources of liquidity. Any new financing arrangement that we may enter into may have covenants that impose additional limitations on us, including with respect to making distributions, entering into business transactions or other matters, and may result in increased interest expense. If we are unable to secure financing on terms that are favorable to us, our business may be adversely impacted. 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, 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. LIBOR Transition On March 5, 2021, the UK Financial Conduct Authority announced that it would phase out LIBOR as a benchmark immediately after December 31, 2021, for sterling, euro, Japanese yen, Swiss franc and 1-week and 2-month U.S. Dollar settings and immediately after June 30, 2023, the remaining U.S. Dollar settings. Our Notes are fixed rate borrowings, and therefore the LIBOR phase out will not have an impact on this borrowing. The Revolving Credit Facility is subject to SOFR rates at our option, or alternative rates that are not tied to LIBOR. Certain of our products hold investments and have borrowings that are tied to LIBOR, and we continue to focus on managing any risk related to those exposures. 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” in our Annual Report. Cash Flows Analysis Six Months Ended June 30, (dollars in thousands) 2022 2021 $ Change Net cash provided by (used in): Operating activities $ 245,494 $ 18,320 $ 227,174 Investing activities (175,111) (977,440) 802,329 Financing activities (64,220) 1,383,523 (1,447,743) Net Change in Cash and Cash Equivalents $ 6,163 $ 424,403 $ (418,240) Operating Activities. Our net cash flows from operating activities are generally comprised of management fees, less cash used for operating expenses, including interest paid on our debt obligations. One of our largest operating cash outflows generally relates to bonus expense, which are generally paid out during the first quarter of the year following the expense. Net cash flows from operating activities increased from the prior year period due to the inclusion of the GP Capital Solutions and Real Estate related cash flows, as well as higher management fees from our Direct Lending products. These increases were partially offset by higher 2021 discretionary bonuses, which were paid in the first quarter of 2022, as compared to discretionary bonuses in 2020, which were paid in the first quarter of 2021. Investing Activities. 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 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. 24 Table of Contents 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 We prepare our Financial Statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make estimates that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated and combined financial statements. We base our estimates on historical experience and other factors that we believe are reasonable under the circumstances. These estimates, however, are subjective and subject to change, and actual results may differ materially from our current estimates due to the inherent nature of these estimates, including uncertainty in the current economic environment due to unexpectedly high and persistent inflation, a shifting interest rate environment, geopolitical events, and ongoing impact from COVID-19 globally. For a summary of our significant accounting policies, see Note 2 to our Financial Statements. Estimation of Fair Values Investments Held by our Products The fair value of the investments held by our Direct Lending products is the primary input to the calculation for the majority of our management fees. Management fees from our GP Capital Solutions and Real Estate products are generally based on commitments or investment cost, so our management fees are generally not impacted by changes in the estimated fair values of investments held by these products. However, to the extent that management fees are calculated based on investment cost of the product’s investments, the amount of fees that we may charge will increase or decrease from the effect of changes in the cost basis of the product’s investments, including potential impairment losses. In the absence of observable market prices, we use valuation methodologies applied on a consistent basis and assumptions that we believe market participants would use to determine the fair value of the investments. For investments where little market activity exists, the determination of fair value is based on the best information available, we incorporate our own assumptions and involves a significant degree of judgment, and the consideration of a combination of internal and external factors. Our products generally value their investments at fair value, as determined in good faith by each product’s respective board of directors or valuation committee, as applicable, based on, among other things, the input of third party valuation firms and taking into account the nature and realizable value of any collateral, an investee’s ability to make payments and its earnings, the markets in which the investee operates, comparison to publicly traded companies, discounted cash flows, current market interest rates and other relevant factors. Because such valuations are inherently uncertain, the valuations may fluctuate significantly over time due to changes in market conditions. These valuations would, in turn, have corresponding proportionate impacts on the amount of management fees that we may earn from certain products on which revenues are based on the fair value of investments. TRA Liability We carry a portion of our TRA liability at fair value, as it is contingent consideration related to the Dyal Acquisition. The valuation of this portion of the TRA liability is mostly sensitive to our expectation of future cash savings that we may ultimately realize related to our tax goodwill and other intangible assets deductions. We then apply a discount rate that we believe is appropriate given the nature of and expected timing of payments of the liability. A decrease in the discount rate assumption would result in an increase in the fair value estimate of the liability, which would have a correspondingly negative impact on our GAAP results of operations. However, payments under the TRA are ultimately only made to the extent we realize the offsetting cash savings on our income taxes due to the tax goodwill and other intangibles deduction. See Note 9 to our Financial Statements for additional details. 25 Table of Contents Earnout Liability and Private Placement Warrants Liability The fair values of our Earnout Securities liability and Private Placement Warrants liability were determined using various significant unobservable inputs. The assumptions used could have a material impact on the valuation of these liabilities, and include our best estimate of expected volatility, expected holding periods and appropriate discounts for lack of marketability. Changes in the estimated fair values of these liabilities may have material impacts on our results of operations in any given period, as any increases in these liabilities have a corresponding negative impact on our GAAP results of operations in the period in which the changes occur. See Note 9 to our Financial Statements for additional details. Equity-based Compensation 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. For the Oak Street Earnout Units that were classified as equity-based compensation for GAAP, we used Monte Carlo simulations that had various significant unobservable inputs. The assumptions used have a material impact on the valuation of these grants, and include our best estimate of expected volatility, expected holding periods and appropriate discounts for lack of marketability. The higher the expected volatility, the higher the compensation expense taken each period for these grants. The higher the expected holding periods and discount for lack of marketability, the lower the compensation expense taken each period for these grants. See Note 8 to our Financial Statements for additional details. Deferred Tax Assets Substantially all of our deferred tax assets relate to the goodwill and other intangible assets deductible for tax purposes, as well as subsequent payments expected to be made under the TRA. In accordance with relevant tax rules, we expect to take substantially all of these goodwill and other intangible deductions over a 15-year period following the applicable transaction. To the extent we generate insufficient taxable income to take the full deduction in any given year, we will generate a net operating loss (“NOL”) that is available for us to use over an indefinite carryforward period in order to fully realize the deferred tax assets. When evaluating the realizability of deferred tax assets, all evidence—both positive and negative—is considered. This evidence includes, but is not limited to, expectations regarding future earnings, future reversals of existing temporary tax differences and tax planning strategies. We did not take into account any tax planning strategies when arriving at this conclusion; however, the other assumptions underlying the taxable income estimates, are based on our near-term operating model. If we experience a significant decline in AUM for any extended time during the period for which these estimates relate and we do not otherwise experience offsetting growth rates in other periods, we may not generate taxable income sufficient to realize the deferred tax assets and may need to record a valuation allowance. However, given the indefinite carryforward period available for NOLs and the conservative estimates used to prepare the taxable income projections, the sensitivity of our estimates and assumptions are not likely to have a material impact on our conclusion that a valuation allowance is not needed. Impairment of Goodwill and Other Intangible Assets Our ongoing accounting for goodwill and other intangible assets acquired as part of the Business Combination requires us to make significant estimates and assumptions as we exercise judgement to evaluate these assets for impairment. We generally undertake a qualitative review of factors that may indicate whether an impairment exists. We take into account factors such as the growth in AUM and FPAUM, general economic conditions, and various other factors that require judgement in deciding whether a quantitative analysis should be undertaken. 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. 26 Table of Contents 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 June 30, 2022, or that have been issued but that we have not yet adopted, are expected to substantively impact our future trends.