What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-08 · 186 added, 182 removed, 536 unchanged (41% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), should be read in conjunction with the Financial Statements.

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

As part of our brand’s evolution, we have transitioned to one Blue Owl.

In connection with this initiative, our legacy brands - Owl Rock, Dyal Capital and Oak Street - have been renamed to Credit, GP Strategic Capital and Real Estate investment platforms, respectively, including products within each of these investment platforms.

The strategic shift to a unified brand reflects our long-term commitment to delivering the collective power of our investment capabilities to the market.

As we emerge as one Blue Owl, our mission and the solutions we provide to our investors and users of our capital remain unchanged.

2023 Second Quarter Overview

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

For a description of our business, please see “Item 1.

Business” in our Annual Report and “Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—One Blue Owl” in our quarterly report on Form 10-Q for the quarter ended June 30, 2023 .

2023 Third Quarter Overview

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

(dollars in thousands) 2023 2022 2023 2022

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Please see “—GAAP Results of Operations Analysis” and “—Non-GAAP Analysis” for a detailed discussion of the underlying drivers of our results.

On August 15, 2023, we closed the Par-Four Acquisition (as defined in Note 1 to our Financial Statements), expanding our product offering in our liquid credit strategy.

See Note 3 to our Financial Statements for additional information.

On October 30, 2023, we announced an agreement to acquire funds managed by Cowen Healthcare Investments, a life sciences investment manager, from Cowen Investment Management.

The transaction is subject to customary closing conditions and expected to close in the fourth quarter of 2023.

The acquisition is expected to add approximately $1 billion in assets under management across several funds and further strengthen Blue Owl’s market presence in the life sciences sector with an emphasis on mid-to-late-stage equity investments into biopharmaceutical and healthcare companies.

Assets Under Management

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Commenced 2022

As of June 30, 2023, our AUM was $149.6 billion, which included $93.6 billion of FPAUM.

For the six months ended June 30, 2023, approximately 93% of our management fees were earned on AUM from Permanent Capital.

As of June 30, 2023, we have $12.0 billion in AUM not yet paying fees, providing approximately $170 million of annualized management fees once deployed or upon the expiration of certain fee holidays.

As of September 30, 2023, our AUM was $156.9 billion, which included $97.0 billion of FPAUM.

For the nine months ended September 30, 2023, approximately 92% of our management fees were earned on AUM from Permanent Capital.

As of September 30, 2023, we have $12.6 billion in AUM not yet paying fees, providing approximately $175 million of annualized management fees once deployed.

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

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We believe that our management-fee centric business model and base of Permanent Capital contribute to the resiliency of our earnings and the strength of our business growth, including during periods of market uncertainty and volatility.

During the second quarter of 2023, the persistence of elevated inflation, in conjunction with higher interest rates and slowing global gross domestic product growth, continued to weigh on industry deal activity.

However, compared to the first quarter of 2023, announced global M&A and capital markets issuances increased.

During the quarter, 93% of our management fees were generated by Permanent Capital and the remainder from long-dated capital, with no meaningful pressure to our asset base from redemptions.

During the third quarter of 2023, uncertainty around the pace of inflation growth, in conjunction with elevated interest rates and slowing global gross domestic product growth, continued to weigh on industry deal activity, though activity has picked up from earlier in the year.

During the quarter, 92% of our management fees were generated by Permanent Capital and the remainder predominantly from long-dated capital, with no meaningful pressure to our asset base from redemptions.

As a result, fundraising and capital deployment contributed to continued management fee and earnings growth for Blue Owl.

We also ended the second quarter of 2023 with substantial available capital to deploy, reporting $12.0 billion of AUM not yet paying fees.

As a number of legacy participants have remained on the sidelines in the broadly syndicated loan market, direct lenders continue to take market share, providing financing solutions to sponsors and companies at wider spreads and lower loan to value ratios on average.

An increase in repayments over the prior quarter allowed us to redeploy capital into higher yielding opportunities, while rising interest rates continue to have a beneficial impact on our management fees as higher base rates continue to drive increased Part I Fees.

We continue to see attractive deployment opportunities for our GP Strategic Capital products, as capital needs across the private alternative asset management sector remain elevated.

We also ended the third quarter of 2023 with substantial available capital to deploy, reporting $12.6 billion of AUM not yet paying fees.

While broadly syndicated loan market activity modestly picked up, direct lenders continued to occupy a substantial share of the leveraged loan market.

Increasing repayments from levels seen earlier in the year allowed us to redeploy capital into higher yielding opportunities, while elevated interest rates continue to have a beneficial impact on our management fees compared to the prior year.

We continue to see attractive deployment opportunities for our GP Strategic Capital products, as capital needs across the private alternative asset management sector remain elevated, particularly in the current challenging fundraising and realization environment.

In Real Estate, industry valuations and transaction volumes remain under pressure due to a combination of rising interest rates, cost inflation, elevated vacancy rates and uncertainty around future capital availability.

In contrast, our Real Estate business, focused on triple net lease, continued to deploy significant capital and identify opportunities to monetize assets at meaningful spreads to our entry points.

Our investors continue to benefit from the inflation-mitigating characteristics of the net lease structure and ongoing 100% rent collection across the portfolio, and we are raising capital through various new products launched in 2022.

Our investors continue to benefit from the inflation-mitigating characteristics of the net lease structure, highly predictable net rent growth, and long-duration contractual income across the portfolio, and we are raising capital through various new products launched in 2022.

We are continuing to closely monitor developments related to the macroeconomic factors that have contributed to market volatility, and to assess the impact of these factors on financial markets and on our business.

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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, 2023, assets under management related to us, our executives and other employees totaled approximately $3.4 billion (including $1.3 billion related to accrued carried interest).

As of September 30, 2023, assets under management related to us, our executives and other employees totaled approximately $2.9 billion (including $1.7 billion related to accrued carried interest).

A portion of these assets under management are not charged fees.

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Changes in AUM

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

(dollars in millions) Credit GP Strategic Capital Real

Estate Total Credit GP Strategic Capital Real

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

(dollars in millions) Credit GP Strategic Capital Real Estate Total Credit GP Strategic Capital Real Estate Total

Beginning Balance $ 73,793 $ 50,934 $ 24,826 $ 149,553 $ 56,827 $ 45,674 $ 16,639 $ 119,140

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Ending Balance $ 79,527 $ 51,398 $ 25,941 $ 156,866 $ 65,686 $ 47,839 $ 18,614 $ 132,139

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

(dollars in millions) Credit GP Strategic Capital Real

Estate Total Credit GP Strategic Capital Real

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(dollars in millions) Credit GP Strategic Capital Real Estate Total Credit GP Strategic Capital Real Estate Total

Beginning Balance $ 68,607 $ 48,510 $ 21,085 $ 138,202 $ 39,227 $ 39,906 $ 15,362 $ 94,495

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Ending Balance $ 79,527 $ 51,398 $ 25,941 $ 156,866 $ 65,686 $ 47,839 $ 18,614 $ 132,139

Increase in AUM for the six months ended June 30, 2023 was driven by the following:

Increase in AUM for the nine months ended September 30, 2023 was driven by the following:

• $1.6 billion of products in the liquid credit strategy were added in connection with the Par-Four Acquisition that closed in August 2023.

• $3.3 billion new capital raised in diversified lending, primarily driven by private wealth fundraising in OCIC and a separately managed account.

• $1.0 billion new capital raised in technology lending, driven by continued fundraising in OTF II and OTIC.

• $1.7 billion of overall appreciation across the platform.

• $1.9 billion new capital raised in technology lending, driven by continued fundraising in OTIC, a separately managed account and OTF II.

• $3.6 billion of additional net debt commitments primarily in diversified lending and technology lending strategies, as we continue to opportunistically manage leverage in our BDCs.

• $1.6 billion in distributions, which primarily relate to dividends paid from our BDCs.

Redemptions from these products were not material during the first half of 2023.

• $2.6 billion of overall appreciation across the platform.

• $2.5 billion offsetting decrease in distributions, which primarily relate to dividends paid from our BDCs.

Redemptions from these products were not material.

GP Strategic Capital.

Increase in AUM for the six months ended June 30, 2023 was driven by the overall appreciation across all of our major products of $3.0 billion and new capital raised of $0.5 billion, primarily in our professional sports minority stakes strategy, partially offset by distributions in Blue Owl GP Stakes IV and Blue Owl GP Stakes III.

Increase in AUM for the six months ended June 30, 2023 was driven by new capital raised of $2.7 billion across various products, primarily Blue Owl Real Estate Fund VI (“OREF VI”), our recently launched triple net-lease drawdown fund, Blue Owl Real Estate Net Lease Trust (“ORENT”), our recently launched real estate investment trust, and Blue Owl Real Estate Net Lease Property Fund (“ONLP”), overall appreciation across the platform of $0.8 billion and additional debt commitments of $0.7 billion, primarily related to ONLP, partially offset by distributions in ONLP and Blue Owl Real Estate Capital Fund V.

Increase in AUM for the nine months ended September 30, 2023 was driven by the overall appreciation across all of our major products of $3.4 billion and new capital raised of $0.6 billion, primarily in our professional sports minority stakes strategy, partially offset by distributions in Blue Owl GP Stakes IV and Blue Owl GP Stakes III.

Increase in AUM for the nine months ended September 30, 2023 was driven by new capital raised of $3.4 billion across various products, primarily Blue Owl Real Estate Fund VI (“OREF VI”), our recently launched triple net-lease drawdown fund, Blue Owl Real Estate Net Lease Trust (“ORENT”), our recently launched real estate investment trust, and Blue Owl Real Estate Net Lease Property Fund (“ONLP”), overall appreciation across the platform of $1.4 billion and additional debt commitments of $0.7 billion, primarily related to ONLP, partially offset by distributions in ONLP and Blue Owl Real Estate Fund V.

Changes in FPAUM

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

(dollars in millions) Credit GP Strategic Capital Real

Estate Total Credit GP Strategic Capital Real

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

(dollars in millions) Credit GP Strategic Capital Real Estate Total Credit GP Strategic Capital Real Estate Total

Beginning Balance $ 52,077 $ 28,462 $ 13,084 $ 93,623 $ 41,409 $ 26,678 $ 9,430 $ 77,517

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Ending Balance $ 54,300 $ 28,622 $ 14,099 $ 97,021 $ 45,292 $ 28,457 $ 10,386 $ 84,135

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

(dollars in millions) Credit GP Strategic Capital Real

Estate Total Credit GP Strategic Capital Real

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(dollars in millions) Credit GP Strategic Capital Real Estate Total Credit GP Strategic Capital Real Estate Total

Beginning Balance $ 49,041 $ 28,772 $ 10,997 $ 88,810 $ 32,029 $ 21,212 $ 8,203 $ 61,444

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Ending Balance $ 54,300 $ 28,622 $ 14,099 $ 97,021 $ 45,292 $ 28,457 $ 10,386 $ 84,135

(1) The six months ended June 30, 2022, reflects a change in classification from fee basis step down to new capital raised / deployed for the fee holiday expiration in Blue Owl GP Stakes V of $2.1 billion on January 1, 2022.

Increase in FPAUM for the six months ended June 30, 2023 was driven by a combination of continued fundraising and the overall appreciation across the platform, partially offset by distributions, which primarily related to dividends paid from our BDCs.

(1) The nine months ended September 30, 2022, reflects a change in classification from fee basis step down to new capital raised / deployed for the fee holiday expiration in Blue Owl GP Stakes V of $2.1 billion on January 1, 2022.

Increase in FPAUM for the nine months ended September 30, 2023 was driven by a combination of continued fundraising, primarily in diversified lending and technology lending strategies, the overall appreciation across the platform and the Par-Four Acquisition, partially offset by distributions, which primarily related to dividends paid from our BDCs.

GP Strategic Capital.

FPAUM for the six months ended June 30, 2023 remained relatively unchanged.

Increase in FPAUM for the six months ended June 30, 2023 was driven primarily by capital raised in OREF VI and ORENT, and deployed in OREF VI.

FPAUM for the nine months ended September 30, 2023 remained relatively unchanged.

Increase in FPAUM for the nine months ended September 30, 2023 was driven primarily by capital raised in OREF VI and ORENT, and deployment in OREF VI.

Product Performance

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GAAP Results of Operations Analysis

Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022

Three Months Ended June 30,

Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022

Three Months Ended September 30,

(dollars in thousands) 2023 2022 $ Change

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Total Expenses 336,185 368,552 (32,367)

Other Income (Loss)

Net gains (losses) on investments 3,030 (123) 3,153

Net losses on investments (1,227) (592) (635)

Interest expense, net (13,986) (15,027) 1,041

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Change in earnout liability (2,074) (1,760) (314)

Total Other Income (Loss) (1,816) 6,711 (8,527)

Total Other Loss (19,302) (16,527) (2,775)

Income (Loss) Before Income Taxes 74,163 (14,093) 88,256

Income tax expense 5,402 5,631 (229)

Income tax expense (benefit) 10,652 (4,085) 14,737

Consolidated and Combined Net Income (Loss) 63,511 (10,008) 73,519

Net (income) loss attributable to noncontrolling interests (48,402) 12,068 (60,470)

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

Net Income Attributable to Blue Owl Capital Inc.

$ 15,109 $ 2,060 $ 13,049

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Management Fees .

The increase in management fees was primarily driven by the drivers below.

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

The increase in management fees was primarily due to the drivers below.

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

• Credit increased $56.2 million due to continued fundraising and deployment of capital within new and existing Credit products, including an increase in Part I Fees of $34.1 million driven by higher interest rates.

• GP Strategic Capital increased $5.5 million, primarily driven by continued fundraising in Blue Owl GP Stakes V.

• Real Estate increased $11.2 million due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily ONLP and ORENT.

• GP Strategic Capital decreased $20.5 million, primarily driven by $21.5 million of catch-up fees related to additional closings in Blue Owl GP Stakes V during the prior period.

• Real Estate increased $11.9 million due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily ORENT and OREF VI.

Administrative, Transaction and Other Fees .

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

• $6.3 million increase in dealer manager revenues due to growth in the distribution of our retail BDCs, OCIC and OTIC;

• $3.9 million increase in administrative fees, driven by a higher level of reimbursable expenses due to the growth of our products and business overall.

Compensation and Benefits.

Compensation and benefits expenses decreased primarily due to the following:

• $33.6 million decrease in equity-based compensation, reflecting a $41.2 million decrease in acquisition-related equity-based compensation primarily due to the settlement of the First Oak Street Earnout in January 2023, partially offset by an $8.2 million increase in our other recurring annual equity grants driven by the additional grants made during the fourth quarter of 2022 in connection with year-end bonus compensation.

• $33.1 million decrease in equity-based compensation, reflecting a $41.6 million decrease in acquisition-related equity-based compensation primarily due to the settlement of the First Oak Street Earnout in January 2023, partially offset by

an $8.8 million increase in our other recurring annual equity grants driven by the additional grants made during the fourth quarter of 2022 in connection with year-end bonus compensation.

• $9.9 million decrease in acquisition-related cash compensation, primarily due to the settlement of the First Oak Street Earnout in January 2023.

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Amortization of Intangible Assets.

Amortization of intangible assets increased primarily due to corporate actions taken during the first quarter of 2023, resulting in a change of the estimated useful lives of acquired trademarks.

Amortization of intangible assets decreased primarily due to corporate actions taken during the first quarter of 2023, resulting in a change of the estimated useful lives of acquired trademarks.

The remaining unamortized balances of the trademarks were expensed through June 30, 2023.

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General, administrative and other expenses decreased primarily due to the following:

• a favorable change of $8.7 million in expense support resulting from recoveries with certain products we manage.

• $21.4 million decrease in distribution costs primarily related to our Credit products.

• $7.9 million offsetting increase in professional fees driven by a $7.0 million increase in Transaction Expenses (as defined below).

• $6.8 million offsetting increase in occupancy costs driven by additional leased space to accommodate our continued growth.

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

Other Income (Loss)

Change in TRA Liability.

The change in the TRA liability was driven by the portion of the liability classified as contingent consideration, which amount is carried at fair value.

The change in fair value was driven by a combination of a higher discount rate, as well as a change in the expected timing of future payments.

Change in Warrant Liability.

The change in the warrant liability for the current period was driven by the increase 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 Public Warrants.

In August 2022, the Public Warrants were redeemed.

See Note 1 to our Financial Statements for additional information.

Income Tax Expense

The change in Income tax expense was due to pre-tax income in the current period as a result of the drivers discussed above.

• $6.1 million offsetting increase in reimbursed expenses due to growth in our products and business overall.

The remaining net change was across various categories.

Income Tax Expense (Benefit)

The change in income tax expense (benefit) was due to pre-tax income in the current period 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 (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 68% and 70% weighted average economic interest in the Blue Owl Operating Group for the three months ended June 30, 2023 and June 30, 2022, respectively.

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

Net (income) loss attributable to noncontrolling interests primarily represents the allocation to Common Units (as defined in Note 1 to our Financial Statements) 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 67% and 69% weighted average economic interest in the Blue Owl Operating Group for the three months ended September 30, 2023 and September 30, 2022, respectively.

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

As a result of the Wellfleet Acquisition, prior period amounts may not be comparable to current period amounts or expected future trends.

Wellfleet’s results of operations are included from April 1, 2022.

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands) 2023 2022 $ Change

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Total Expenses 1,036,508 1,004,656 31,852

Other Income (Loss)

Net gains (losses) on investments 2,415 (710) 3,125

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Change in earnout liability (4,912) (2,464) (2,448)

Total Other Income (Loss) (19,685) 1,492 (21,177)

Total Other Loss (38,987) (15,035) (23,952)

Income (Loss) Before Income Taxes 162,078 (45,482) 207,560

Income tax expense 11,842 593 11,249

Income tax expense (benefit) 22,494 (3,492) 25,986

Consolidated and Combined Net Income (Loss) 139,584 (41,990) 181,574

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Management Fees .

The increase in management fees was primarily driven by the drivers below.

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

The increase in management fees was primarily due to the drivers below.

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

• Credit increased $201.5 million due to continued fundraising and deployment of capital within new and existing Credit products, including an increase in Part I Fees of $118.2 million driven by higher interest rates.

• GP Strategic Capital increased $12.9 million, primarily driven by continued fundraising in Blue Owl GP Stakes V.

• Real Estate increased $20.0 million due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily ONLP and ORENT.

• Real Estate increased $31.9 million due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily ORENT, OREF VI and ONLP .

Administrative, Transaction and Other Fees .

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General, administrative and other expenses increased driven by the following:

• $11.1 million increase in distribution costs due to fundraising in our Credit products.

• $19.4 million increase in occupancy costs driven by additional leased space to accommodate our continued growth.

• an offsetting favorable change of $17.6 million in expense support resulting from recoveries with certain products we manage.

• $14.0 million increase in reimbursed expenses due to growth in our products and business overall.

• $19.3 million offsetting favorable change in expense support resulting from recoveries with certain products we manage.

• $10.3 million offsetting decrease in distribution costs primarily related to our Credit products.

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

Other Income (Loss)

Change in TRA Liability.

The change in the TRA liability was driven by the portion of the liability classified as contingent consideration, which amount is carried at fair value.

The change in fair value was driven by a combination of a higher discount rate, as well as a change in the expected timing of future payments.

The change in the TRA liability for the current period was driven by a change in the expected timing of future payments.

The change in the TRA liability for the prior period was driven by a higher discount rate.

Change in Warrant Liability.

The change in the warrant liability for the current period was driven by the increase 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 Public Warrants.

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

In August 2022, the Public Warrants were redeemed.

See Note 1 to our Financial Statements for additional information.

Income Tax Expense

The change in income tax expense was due to pre-tax income in the current period as a result of the drivers discussed above.

Income Tax Expense (Benefit)

The change in income tax expense (benefit) was due to pre-tax income in the current period 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 (Income) Loss Attributable to Noncontrolling Interests

Net (income) loss attributable to noncontrolling interests in the current period and prior period primarily represents the allocation to Common Units (as defined in Note 1 to our Financial Statements) of their pro rata share of the Blue Owl Operating Group’s net income or loss due to the drivers discussed above.

The Common Units represented an approximately 68% and 71% weighted average economic interest in the Blue Owl Operating Group for the six months ended June 30, 2023 and June 30, 2022, respectively.

Net (income) loss attributable to noncontrolling interests primarily represents the allocation to Common Units (as defined in Note 1 to our Financial Statements) of their pro rata share of the Blue Owl Operating Group’s net income or loss due to the drivers discussed above.

The Common Units represented an approximately 68% and 70% weighted average economic interest in the Blue Owl Operating Group for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Non-GAAP Analysis

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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) 2023 2022 2023 2022

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Distributable Earnings $ 229,523 $ 191,673 $ 665,553 $ 527,801

Fee-Related Earnings and Distributable Earnings increased as a result of higher FRE revenues in Credit, GP Strategic Capital and Real Estate, partially offset by higher FRE expenses, as further discussed below.

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

Fee-Related Earnings and Distributable Earnings for the three months ended September 30, 2023, increased as a result of higher FRE revenues in Credit and Real Estate, partially offset by higher FRE expenses, as further discussed below.

Fee-Related Earnings and Distributable Earnings for the nine months ended September 30, 2023, increased as a result of higher FRE revenues in Credit, GP Strategic Capital and Real Estate, partially offset by higher FRE expenses, as further discussed below.

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

(dollars in thousands) 2023 2022 2023 2022

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FRE Management Fees .

For the three and six months ended June 30, 2023, the increase in FRE management fees was primarily driven by the drivers below:

• Credit increased due to continued fundraising and deployment of capital within new and existing Credit products, including higher Part I Fees due to higher interest rates as discussed above in “—GAAP Results of Operations Analysis.”

• GP Strategic Capital increased, primarily driven by continued fundraising in Blue Owl GP Stakes V.

• Real Estate increased due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily ONLP and ORENT.

For the three months ended September 30, 2023, Credit FRE revenues increased due to continued fundraising and deployment of capital within existing Credit products, including increased Part I Fees of $34.1 million driven by higher interest rates.

The change in GP Strategic Capital FRE revenues reflects $21.5 million of catch-up fees related to additional closings in Blue Owl GP Stakes V during the prior period.

Real Estate FRE revenues increased due to continued fundraising and deployment of capital within existing Real Estate products, primarily ORENT and ONLP.

For the nine months ended September 30, 2023, Credit FRE revenues increased due to continued fundraising and deployment of capital within new and existing Credit products, including increased Part I Fees of $118.2 million driven by higher interest rates.

GP Strategic Capital FRE revenues increased due to continued fundraising in Blue Owl GP Stakes V.

Real Estate FRE revenues increased due to continued fundraising and deployment of capital within new and existing Real Estate products, primarily OREF VI and ORENT.

FRE Administrative, Transaction and Other Fees .

For the three and six months ended June 30, 2023, the decrease in FRE 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 e arn such fees.

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

For the three months ended September 30, 2023, the increase in FRE administrative, transaction and other fees was driven primarily by an increase in fee income earned for services provided to portfolio companies.

For the nine months ended September 30, 2023, the decrease in FRE 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 e arn such fees.

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

(dollars in thousands) 2023 2022 2023 2022

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FRE Compensation and Benefits.

For the three and six months ended June 30, 2023, FRE compensation and benefits expenses increased, driven by higher compensation to existing employees, as well as increased headcount due to our continued growth.

For the three months ended September 30, 2023, FRE compensation and benefits expenses increased, driven by higher compensation to existing employees, as well as increased headcount due to our continued growth.

For the nine months ended September 30, 2023, FRE compensation and benefits expenses increased, driven by higher compensation to existing employees, as well as increased headcount due to our continued growth.

FRE General, Administrative and Other Expenses .

For the three months ended June 30, 2023, FRE general, administrative and other expenses increased, primarily driven by an increase in occupancy costs driven by additional leased space to accommodate our continued growth, partially offset by a decrease in distribution costs related to our Credit products.

For the six months ended June 30, 2023, FRE general, administrative and other expenses increased, primarily driven by an increase in occupancy costs driven by additional leased space to accommodate our continued growth and an increase in distribution costs due to higher distribution costs related to fundraising in our Credit products, with the remaining net increase across various categories, driven by our continued growth.

For the three months ended September 30, 2023, FRE general, administrative and other expenses decreased, primarily due to a decrease in distribution costs of $27.6 million, primarily related to our Credit products, partially offset by an increase of $6.8 million in occupancy costs, driven by additional leased space, with the remaining net change across various categories, driven by our continued growth.

For the nine months ended September 30, 2023, FRE general, administrative and other expenses increased, due to an increase of $19.4 million in occupancy costs driven by additional leased space to accommodate our continued growth and other various categories driven by our continued growth, partially offset by a decrease in distribution costs of $23.0 million primarily related to our Credit products.

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) 2023 2022 2023 2022

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Net income (loss) attributable to noncontrolling interests 48,402 (12,068) 103,299 (31,109)

Income tax expense 5,402 5,631 11,842 593

Income tax expense (benefit) 10,652 (4,085) 22,494 (3,492)

GAAP Income (Loss) Before Income Taxes 74,163 (14,093) 162,078 (45,482)

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Adjusted EBITDA $ 250,732 $ 210,049 $ 726,060 $ 578,955

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

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

(dollars in thousands) 2023 2022 2023 2022

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FRE Revenues $ 412,771 $ 362,973 $ 1,191,650 $ 953,382

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

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

(dollars in thousands) 2023 2022 2023 2022

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FRE Compensation and Benefits $ 116,197 $ 98,535 $ 335,418 $ 259,313

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

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

(dollars in thousands) 2023 2022 2023 2022

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FRE General, Administrative and Other Expenses $ 45,643 $ 59,075 $ 132,784 $ 122,138

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 the 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 geopolitical, macro-environmental and other uncertainty.

For a summary of our significant accounting policies, see Note 2 to our Financial Statements and the financial statements in our Annual Report.

Estimation of Fair Values

Investments Held by our Products

The fair value of the investments held by our products in our Credit and Real Estate platforms is the primary input to the calculation for the majority of our management fees.

Management fees from our GP Strategic Capital and other 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 (as defined in Note 1 to our Financial Statements).

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 Warrant Liability

The fair values of our earnout liability and warrant liability were determined using various significant unobservable inputs, including a discount rate and our best estimate of expected volatility and expected holding periods.

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.

See Note 9 to our Financial Statements for additional details.

Equity-based Compensation

The grant-date fair values of our RSU and Incentive Unit (both defined in Note 1 to our Financial Statements) grants, as well as the Wellfleet Earnouts 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 post-vesting transfer restrictions.

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 determines the grant date fair value using 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 for these grants.

The higher the expected holding periods and discount for lack of marketability, the lower the compensation expense taken for these grants.

See Note 8 to our Financial Statements and the financial statements in our Annual Report for additional details.

Deferred Tax Assets

Substantially all of our deferred tax assets relate to goodwill and other intangible assets deductible for tax purposes, as well as 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.

Goodwill and Other Intangible Assets

Our ongoing accounting for goodwill and other intangible assets requires us to make significant estimates and assumptions when evaluating 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 adverse impacts to FPAUM and management fees, 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.

We also estimate the useful lives of our finite-lived intangible assets for purposes of amortization.

The useful lives are based on our judgment of the expected future economic benefits of the assets.

Changes in estimated useful lives could result in significant changes to the amount of amortization expense recognized in future periods.

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 Financial 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 six months ended June 30, 2023, or that have been issued but that we have not yet adopted, are expected to materially impact our future trends.

Liquidity and Capital Resources

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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.

We ended the second quarter of 2023 with $41.3 million of cash and cash equivalents and approximately $1.3 billion available under our Revolving Credit Facility.

We ended the third quarter of 2023 with $76.7 million of cash and cash equivalents and approximately $1.3 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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Debt Obligations

As of June 30, 2023, our long-term debt obligations consisted of $59.8 million aggregate principal amount of 7.397% Senior Notes due 2028 (the “2028 Notes”), $700.0 million aggregate principal amount of 3.125% Senior Notes due 2031 (the “2031 Notes”), $400.0 million aggregate principal amount of 4.375% Senior Notes due 2032 (the “2032 Notes”) and $350.0 million aggregate principal amount of 4.125% Senior Notes due 2051 (the “2051 Notes”and collectively with the 2028 Notes, 2031 Notes and the 2032 Notes, the “Notes”).

We also had $280.0 million outstanding under our Revolving Credit Facility as of June 30, 2023, and as of the date of this filing, the balance was $55.0 million.

As of September 30, 2023, our long-term debt obligations consisted of $59.8 million aggregate principal amount of 7.397% Senior Notes due 2028 (the “2028 Notes”), $700.0 million aggregate principal amount of 3.125% Senior Notes due 2031 (the “2031 Notes”), $400.0 million aggregate principal amount of 4.375% Senior Notes due 2032 (the “2032 Notes”) and $350.0 million aggregate principal amount of 4.125% Senior Notes due 2051 (the “2051 Notes”and collectively with the 2028 Notes, 2031 Notes and the 2032 Notes, the “Notes”).

We also had $270.0 million outstanding under our Revolving Credit Facility as of September 30, 2023, which 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 stockholders.

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

Adjusted EBITDA was $247.2 million and $475.3 million for the three and six months ended June 30, 2023, respectively.

Adjusted EBITDA was $250.7 million and $726.1 million for the three and nine months ended September 30, 2023, respectively.

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

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

As of June 30, 2023, 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 $959.4 million under the TRA (such amount excludes the adjustment to fair value for the portion classified as contingent consideration).

As of September 30, 2023, 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 $961.0 million under the TRA (such amount excludes the adjustment to fair value for the portion classified as contingent consideration).

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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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.

There were no repurchases made under the Program during the three and nine months ended September 30, 2023.

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.

The Program replaced the previously authorized program under which we repurchased 2,000,000 shares during the first quarter of 2022.

1 unchanged sentence

In such instances, we cancel a number of RSUs equivalent in value to the amount of tax withholding payments that we make on behalf of employees out of available cash.

During the three and six months ended June 30, 2023, 39,640 RSUs with a fair value of $0.4 million and 358,946 RSUs with a fair value of $4.8 million, respectively, were withheld to satisfy tax withholding obligations.

During the three and six months ended June 30, 2022 50,189 RSUs with a fair value of $0.6 million and 107,170 with a fair value of $1.3 million, respectively, were withheld to satisfy tax withholding obligations.

During the three and nine months ended September 30, 2023, 542,167 RSUs with a fair value of $6.4 million and 901,113 RSUs with a fair value of $11.2 million, respectively, were withheld to satisfy tax withholding obligations.

During the three and nine months ended September 30, 2022, 45,668 RSUs with a fair value of $0.6 million and 152,838 with a fair value of $1.9 million, respectively, were withheld to satisfy tax withholding obligations.

Oak Street Cash Earnout and Wellfleet Earnout

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Dividends and Distributions

For the second quarter of 2023, we declared a dividend of $0.14 to holders of record as of the close of business on August 21, 2023, which will be paid on August 31, 2023.

For the third quarter of 2023, we declared a dividend of $0.14 to holders of record as of the close of business on November 20, 2023, which will be paid on November 30, 2023.

Starting in 2023, we moved to a fixed quarterly dividend based on our expected annual Distributable Earnings for the current fiscal year, which will be reassessed on an annual basis.

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Cash Flows Analysis

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands) 2023 2022 $ Change

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Net cash flows from operating activities increased from the prior year period due to higher management fees, partially offset by operating expenses, in particular higher bonus payments made during the first quarter related to the prior year.

Included in the six months ended June 30, 2023, were the cash outflows of the portion of the First Oak Street Earnout classified as contingent consideration that settled in January 2023;

Included in the nine months ended September 30, 2023, were the cash outflows of the portion of the First Oak Street Earnout classified as contingent consideration that settled in January 2023;

the amount paid up to the acquisition-date fair value was included in financing activities and the remainder (i.e., accretion since the acquisition date) was included in operating activities.

Investing Activities.

Cash flows from investing activities for the six months ended June 30, 2023, were primarily related to purchases of investments in our Real Estate products, as well as cash outflows related to office space-related leasehold improvements.

Cash flows from investing activities for the six months ended June 30, 2022, were primarily related to cash consideration paid in connection with the Wellfleet Acquisition, as well as cash outflows related to office space-related leasehold improvements and investments by us into our Credit products.

Cash flows from investing activities for the nine months ended September 30, 2023, were primarily related to purchases of investments in our Real Estate products, cash outflows related to office space-related leasehold improvements, as well as cash consideration paid in connection with the Par-Four Acquisition.

In addition, investment activities included inflows from repayments on our notes receivable.

Cash flows from investing activities for the nine months ended September 30, 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 products.

Financing Activities.

Cash flows from financing activities for the six months ended June 30, 2023, were primarily driven by dividends on our Class A Shares and related distributions on our Common Units (noncontrolling interests).

Cash flows from financing activities for the nine months ended September 30, 2023, were primarily driven by dividends on our Class A Shares and related distributions on our Common Units (noncontrolling interests).

In addition, we had borrowings and repayments under our Revolving Credit Facility, as well as the issuance of our 2028 Notes, which borrowings were used to finance working capital needs and general capital purposes.

Included in the six months ended June 30, 2023, were a portion of the cash outflows related to the First Oak Street Earnout classified as contingent consideration that settled in January 2023, as discussed above.

Cash flows from financing activities for the six months ended June 30, 2022, were primarily driven by dividends on our Class A Shares and related distributions on our Common Units (noncontrolling interests).

Included in the nine months ended September 30, 2023, were a portion of the cash outflows related to the First Oak Street Earnout classified as contingent consideration that settled in January 2023, as discussed above.

Cash flows from financing activities for the nine months ended September 30, 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.

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 the Financial Statements.

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 and the financial statements in our Annual Report.

Estimation of Fair Values

Investments Held by our Products

The fair value of the investments held by our products in our Credit and Real Estate platforms 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 (as defined in Note 1 to our Financial Statements).

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 Warrant Liability

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 determined the grant date fair value using Monte Carlo simulations that had various significant unobservable inputs.

The higher the expected volatility, the higher the compensation expense taken for these grants.

The higher the expected holding periods and discount for lack of marketability, the lower the compensation expense taken for these grants.

See Note 8 to our Financial Statements and the financial statements in our Annual Report for additional details.

Deferred Tax Assets

Substantially all of our deferred tax assets relate to goodwill and other intangible assets deductible for tax purposes, as well as 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.

Goodwill and Other Intangible Assets

Our ongoing accounting for goodwill and other intangible assets requires us to make significant estimates and assumptions when evaluating these assets for impairment.

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.

We also estimate the useful lives of our finite-lived intangible assets for purposes of amortization.

The useful lives are based on our judgment of the expected future economic benefits of the assets.

Changes in estimated useful lives could result in significant changes to the amount of amortization expense recognized in future periods.

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 nine months ended September 30, 2023, or that have been issued but that we have not yet adopted, are expected to materially 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