What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-04 · 206 added, 192 removed, 489 unchanged (45% 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 Second Quarter Overview

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

2022 Third Quarter Overview

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

Net Loss Attributable to Blue Owl Capital Inc.

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

(After May 19, 2021) / Owl Rock (Prior to May 19, 2021) $ 2,060 $ (53,323) $ (10,881) $ (376,253)

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

Our results for the third quarter of 2021 do not include the results of Oak Street or Wellfleet;

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

Our results for the nine months ended September 30, 2021 do not include the results of Oak Street or Wellfleet, and include partial results 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.

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$18.6 billion

$10.4 billion

Diversified Lending

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$18.6 billion

$10.4 billion

Technology Lending

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We finished the quarter with $132.1 billion of AUM, which included $84.1 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.

During the third quarter of 2022, approximately 93% of our management fees were earned on AUM from Permanent Capital.

As of September 30, 2022, we have approximately $10.7 billion in AUM not yet paying fees, providing approximately $139 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.

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.

In a continuation of the trends seen during the first half of 2022, inflation, interest rates, global gross domestic product (“GDP”) growth, geopolitical instability and the impact of COVID-19 variants on economic growth have remained in the spotlight, driving ongoing volatility in the public markets.

Although U.S.

inflation eased during the third quarter of 2022, it remains at a high level with slower global GDP growth forecasts.

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

Despite the elevated volatility in public markets, our operating trends remained positive and durable across the platform during the third quarter of 2022 with record fundraising that was diversified across institutional and private wealth channels.

Direct Lending products continued to trend positively benefiting from rising interest rates and with limited impact from inflation, GP Capital Solutions products continued to fundraise successfully, and Real Estate products continued to realize 100% rent payment from tenants.

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 interest rates continue to 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:

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.

We are continuing to closely monitor developments related to inflation, rising interest rates, global GDP growth, geopolitical instability and COVID-19, and to assess the impact of these factors 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.

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

As of September 30, 2022, our assets under management included approximately $3.1 billion (includes $1.0 billion related to accrued carried interest) 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.

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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.

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 never 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.

AUM not yet paying fees could pr ovide approximately $139 million of additional annualized management fees once deployed or upon the expiration of the relevant fee holidays.

Permanency and Duration of Assets Under Management

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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.

For example, our Real Estate products have a higher concentration in what we refer to as “long-dated” funds, or funds in which the contractual remaining life is five years or more, 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

Three Months Ended September 30, 2022 Three Months Ended September 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 $ 65,686 $ 47,839 $ 18,614 $ 132,139 $ 34,577 $ 35,940 $ — $ 70,517

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

Nine Months Ended September 30, 2022 Nine Months Ended September 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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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.

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

• $6.1 billion new capital raised in Diversified Lending, primarily driven by retail fundraising in ORCIC and a managed vehicle with a state pension fund.

• $3.2 billion new capital raised in Technology Lending, driven by continued fundraising in ORTF II and ORTIC.

• $9.8 billion of debt deployment across all of Direct Lending, as we continue to opportunistically deploy leverage in our BDCs.

• $6.5 billion from the Wellfleet Acquisition.

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.

There was no material increase or decrease in AUM.

Increase in AUM for the nine months ended September 30, 2022 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.

Increase in AUM for the nine months ended September 30, 2022 was driven by new capital raised of $1.0 billion across various products and debt deployed of $1.6 billion, primarily related to Oak Street Real Estate Trust, our recently launched real estate investment trust (“REIT”).

Changes in FPAUM

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

Three Months Ended September 30, 2022 Three Months Ended September 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 3,595 2,675 1,095 7,365 2,808 1,177 — 3,985

Fee basis change — (881) — (881) — — — —

Distributions (433) (15) (220) (668) (212) (115) — (327)

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Ending Balance $ 45,292 $ 28,457 $ 10,386 $ 84,135 $ 27,240 $ 19,719 $ — $ 46,959

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

Nine Months Ended September 30, 2022 Nine Months Ended September 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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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.

Increase in FPAUM for the nine months ended September 30, 2022 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.

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

Increase in FPAUM for the nine months ended September 30, 2022 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 I of $0.8 billion and Dyal Fund III of $0.9 billion.

Increase in FPAUM for the nine months ended September 30, 2022 was driven primarily by new capital deployed of $1.5 billion in Oak Street Real Estate Capital Net Lease Property Fund.

Product Performance

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ORCC II (9) 2017 $ 2,592 $ 1,355 $ 1,355 $ 314 $ 1,293 $ 1,607 NM 1.21x NM 6.5 %

ORCC III 2020 $ 3,544 $ 1,783 $ 1,783 $ 136 $ 1,749 $ 1,885 NM NM NM NM

ORCC III 2020 $ 3,543 $ 1,783 $ 1,783 $ 179 $ 1,794 $ 1,973 1.11x 1.10x 10.3 % 9.4 %

ORCIC 2020 $ 12,560 $ 4,918 $ 4,918 $ 224 $ 4,706 $ 4,930 NM NM NM NM

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(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.

Gross MoIC is calculated 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.

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(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.

An individual investor’s IRR may differ from 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.

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(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.

Gross MoIC is calculated 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.

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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.

An individual investor's IRR may differ from the reported IRR based on the timing of capital transactions.

(dollars in millions) Year of Inception AUM Capital Raised Invested Capital

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(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.

Gross MoIC is calculated 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.

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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.

An individual investor's IRR may differ from 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.

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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,

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

Dyal Capital’s, Oak Street’s and Wellfleet’s results of operations are included from the business combination dates, May 19, 2021, December 29, 2021, and April 1, 2022, respectively.

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

Three Months Ended September 30,

(dollars in thousands) 2022 2021 $ Change

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Net losses on investments (592) (145) (447)

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

Interest expense (15,027) (6,112) (8,915)

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Net loss attributable to noncontrolling interests 12,068 187,524 (175,456)

Net Loss Attributable to Blue Owl Capital Inc.

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

$ 2,060 $ (53,323) $ 55,383

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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.

The increase in management fees was primarily driven by increased management fees across the Direct Lending products of $56.7 million, which includes both the accretive impact of the Wellfleet Acquisition that closed in April 2022, as well as continued fundraising and deployment of capital within new and existing Direct Lending products.

Management fees also increased $56.8 million in our GP Capital Solutions products, primarily driven by fundraising in Dyal Fund V.

Our Real Estate products contributed $21.1 million towards the increase due to the accretive impact of the Oak Street Acquisition that closed in December 2021.

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.

The decrease in administrative, transaction and other fees was driven primarily by a decrease in fee income earned for services provided to portfolio companies, reflecting a lower volume of transactions on which we earn such fees.

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.

Compensation and benefits expenses increased due to a $92.4 million increase in equity-based compensation, which was driven by the following:

(i) a $47.1 million increase related to acquisitions, driven by the Oak Street and Wellfleet Acquisitions;

(ii) a $27.4 million increase related to recurring annual grants to employees, as such amounts were granted for the first time during the fourth quarter of 2021;

and (iii) a $17.9 million increase related to one-time grants to employees in connection with the Business Combination, as such grants were made during the fourth quarter of 2021.

Additionally, compensation and benefits increased by $16.5 million due to the amortization of cash earnouts, primarily related to the Oak Street Acquisition.

The remaining increase was driven by the 73% increase in headcount from September 30, 2021 to September 30, 2022, which is inclusive of the increase in headcount related to the Oak Street Acquisition and Wellfleet Acquisition.

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.

Amortization of intangible assets increased due to the addition of intangible assets in connection with the Oak Street Acquisition in December 2021 and the Wellfleet Acquisition in April 2022.

See Note 3 to our Financial Statements for additional information.

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.

General, administrative and other expenses increased, primarily driven by a $33.3 million increase in distribution costs due to increased fundraising.

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.

The increase in interest expense was driven by higher average debt outstanding.

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).

The change in the TRA liability for the current year period and prior year period was not material.

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.

In August 2022, the Public Warrants were redeemed, see Note 1 for additional information.

The change in the warrant liability for the current year period was not material.

The change in the warrant liability in the prior year period 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

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

The change in the fair value of the earnout liability for the prior year period was primarily due to the increase in our Class A Share price, as such input was a material driver of the valuation of the Earnout Securities carried at fair value.

Income Tax Expense (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.

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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.

For the period, the income tax benefit decreased due to higher pre-tax income as a result of the drivers discussed above.

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.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (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 income due to the drivers discussed above.

The Common Units represent an approximately 69% interest in the Blue Owl Operating Group during the third 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,

Nine Months Ended September 30, 2022, Compared to the Nine Months Ended September 30, 2021

Nine Months Ended September 30,

(dollars in thousands) 2022 2021 $ Change

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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.

The increase in management fees was primarily driven by increased management fees across the Direct Lending products of $136.4 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.

Management fees also increased $235.9 million in our GP Capital Solutions products, primarily driven by the accretive impact of the Dyal Acquisition that closed in May 2021, as well as continued fundraising in Dyal Fund V.

Our Real Estate products contributed $57.5 million due to the accretive impact of the Oak Street Acquisition.

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.

The increase in administrative, transaction and other fees was driven primarily by the following:

(i) an increase of $15.9 million in administrative fees, driven by a higher level of reimbursable expenses due to growth in our products and business overall;

(ii) a $14.4 million increase in dealer manager revenues due to growth in the distribution of our retail BDCs;

(iii) partially offset by a $21.1 million decrease in fee income earned for services provided to portfolio companies, reflecting a lower volume of transactions on which we earn such fees.

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.

Compensation and benefits expenses decreased due to an $865.0 million decrease in equity-based compensation, which was driven by the following:

(i) a $988.7 million decrease related to acquisitions, primarily due to a $1.2 billion charge related to Blue Owl Operating Group Units issued in connection with the Business Combination, with the remaining offsetting increase related to the Oak Street and Wellfleet Acquisitions;

(ii) an offsetting $69.2 million increase related to recurring annual grants to employees, as such amounts were granted for the first time during the fourth quarter of 2021;

and (iii) an offsetting $54.5 million increase related to one-time grants to employees in connection with the Business Combination, as such grants were made during the fourth quarter of 2021.

Additionally, compensation and benefits was impacted by an increase of $48.7 million due to the amortization of cash earnouts, primarily related to the Oak Street Acquisition.

The remaining offsetting increase was driven by the increase in headcount, which is inclusive of the increase in headcount related to the Dyal Acquisition, Oak Street Acquisition and Wellfleet Acquisition.

Amortization of Intangible Assets.

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

Amortization of intangible assets increased due to the addition of intangible assets in connection with the Business Combination in May 2021, the Oak Street Acquisition in December 2021 and the Wellfleet Acquisition in April 2022.

See Note 3 to our Financial Statements for additional information.

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.

General, administrative and other expenses increased, primarily driven by an increase in distribution costs of $54.3 million due to increased fundraising, partially offset by a $14.6 million decrease in professional fees due in part to Business Combination-related expenses that were incurred in the prior year period.

The remaining net increase was across various categories, driven by our continued growth.

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.

The increase in interest expense was driven by higher average debt outstanding.

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.

The change in the TRA liability for the current year period and prior year period was not material.

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.

In August 2022, the Public Warrants were redeemed, see Note 1 for additional information.

The change in the warrant liability for the current year period was driven by the decrease in the price of our Class A Shares.

The change in the warrant liability in the prior year period 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

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

The change in the fair value of the earnout liability in the prior year period was primarily due to the increase in our Class A Share price, as such input was a material driver of the valuation of the Earnout Securities carried at fair value.

Income Tax Expense (Benefit)

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

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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.

For the period, the income tax benefit decreased due to higher pre-tax income as a result of the drivers discussed above.

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 six months ended June 30, 2022.

The Common Units represented an approximately 70% weighted average economic interest in the Blue Owl Operating Group during the nine months ended September 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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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.

Our non-GAAP measures may not be comparable to other similarly titled measures used by other companies.

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

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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.

such amounts were not material to the prior periods presented, and therefore such periods have not been 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.

Amounts payable for taxes presents the current income taxes payable, excluding the impact of tax contingency-related accrued expenses or benefits, as such amounts are included when paid or received, 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.).

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Fee-Related Earnings and Distributable Earnings Summary

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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Distributable Earnings $ 191,673 $ 142,750 $ 527,801 $ 268,140

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.

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

Fee-Related Earnings and Distributable Earnings increased year-over-year as a result of the accretive impact of the Dyal Acquisition, Oak Street Acquisition and Wellfleet Acquisition, as well as higher FRE revenues in Direct Lending, partially offset by higher FRE expenses, as further discussed below.

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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Total FRE Revenues $ 362,973 $ 235,732 $ 953,382 $ 511,042

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,

For the three months ended September 30, 2022, Direct Lending FRE revenues increased due to both the accretive impact of the Wellfleet Acquisition, as well as continued fundraising and deployment of capital within new and existing Direct Lending products.

GP Capital Solutions FRE revenues increased primarily driven the fundraising in Dyal Fund V.

Our Real Estate products increased due to the accretive impact of the Oak Street Acquisition.

These increases were partially offset by lower administrative, transaction and other fees, driven primarily by a decrease in fee income earned for services provided to portfolio companies, reflecting a lower volume of transactions on which we earn such fees.

For the nine months ended September 30, 2022, Direct Lending FRE revenues increased due to both the accretive impact of the Wellfleet Acquisition, as well as continued fundraising and deployment of capital within new and existing Direct Lending products.

GP Capital Solutions FRE revenues increased primarily driven by the accretive impact of the Dyal Acquisition that closed in May 2021, as well as continued fundraising in Dyal Fund V.

Our Real Estate products increased due to the accretive impact of the Oak Street Acquisition.

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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Total FRE Expenses $ (157,610) $ (92,405) $ (381,451) $ (221,460)

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.

For the three months ended September 30, 2022, FRE compensation and benefits expenses increase was driven by the 73% increase in headcount from September 30, 2021 to September 30, 2022, which is inclusive of the increase in headcount related to the Oak Street Acquisition and Wellfleet Acquisition.

FRE general, administrative and other expenses increased, primarily driven by an increase of $29.2 million in distribution costs due to increased fundraising.

For the nine months ended September 30, 2022, FRE compensation and benefits expenses increase was driven by the increase in headcount, which is inclusive of the increase in headcount related to the Dyal Acquisition, Oak Street Acquisition and Wellfleet Acquisition.

FRE general, administrative and other expenses increased, primarily driven by an increase in distribution costs of $39.6 million due to increased fundraising and the remaining net increase was across various categories, driven by our continued growth.

Non-GAAP Reconciliations

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

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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Strategic Revenue-Share Purchase consideration amortization 9,770 970 27,614 970

Realized performance compensation — — — —

Equity-based compensation - other 27,381 — 69,200 —

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Interest expense 15,027 6,112 42,912 17,787

Realized performance income — — — —

Net losses (gains) on investments 592 145 710 145

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Fee-Related Earnings 209,814 141,858 578,261 286,339

Realized performance income — — — —

Realized performance compensation — — — —

Interest expense (15,033) (6,112) (42,912) (17,787)

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Adjusted EBITDA $ 210,049 $ 142,049 $ 578,955 $ 286,795

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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FRE Revenues $ 362,973 $ 235,732 $ 953,382 $ 511,042

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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FRE Compensation and Benefits $ 98,535 $ 70,664 $ 259,313 $ 171,345

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 2022 2021

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Transaction Expenses (1,761) (4,108) (21,796) (40,211)

Equity-based compensation (309) — (722) —

Equity-based compensation - other — — (722) —

Administrative and other expenses (7,136) (2,589) (20,999) (4,492)

FRE General, Administrative and Other Expenses $ 59,075 $ 21,741 $ 122,138 $ 50,115

Critical Accounting Estimates

We prepare our Financial Statements in accordance with U.S.

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.

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.

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 nine months ended September 30, 2022, or that have been issued but that we have not yet adopted, are expected to substantively impact our future trends.

Liquidity and Capital Resources

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

We ended the third quarter of 2022 with $39.5 million of cash and cash equivalents and $1.0 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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• 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.

• Fund debt and equity 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.

As of September 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 also had $112.0 million outstanding under our Revolving Credit Facility, which amount was fully repaid subsequent to quarter end.

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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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.

Adjusted EBITDA was $210.0 million for the quarter ended September 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.

On May 4, 2022, our Board authorized the repurchase of up to $150.0 million of Class A Shares.

Under the repurchase program (the “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.

The 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 Program or (ii) December 31, 2024.

During the three months ended September 30, 2022, we repurchased 1,021,079 Class A Shares for an aggregate amount of $9.8 million, excluding commission costs, using cash on hand.

The 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.

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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.

As of September 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 $908.2 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.

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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.

In August 2022 (the “Redemption Date”), we redeemed all outstanding Public Warrants.

See Note 1 to our Financial Statements for additional information.

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

Oak Street Cash Earnout and Wellfleet Earnout

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Cash Flows Analysis

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands) 2022 2021 $ Change

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

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

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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.

Cash flows related to financing activities for 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 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.

Cash flows related to financing activities in 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.

We base our estimates on historical experience and other factors that we believe are reasonable under the circumstances.

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.

Because such valuations are inherently uncertain, the valuations may fluctuate significantly over time due to changes in market conditions.

TRA Liability

We carry a portion of our TRA liability at fair value, as it is contingent consideration related to the Dyal Acquisition.

We then apply a discount rate that we believe is appropriate given the nature of and expected timing of payments of the liability.

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.

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.

See Note 9 to our Financial Statements for additional details.

Equity-based Compensation

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 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.

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.

Impairment of Goodwill and Other Intangible Assets

We generally undertake a qualitative review of factors that may indicate whether an impairment exists.

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

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.

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.

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