Hank Tucker is a staff writer based in New Jersey who covers investing trends and Wall Street's difference-makers. He joined Forbes in 2019 and has also reported on the world's billionaires for Forbes' wealth team and was previously an assistant editor covering money and markets.
Amid private credit ’s gold rush, New York City’s Blue Owl is providing the “picks and shovels” for deal-hungry private equity firms. It also injects liquidity into the partnerships, minting billionaires in the process.
Blue Owl’s core private credit business has closed no fewer than 600 loans amounting to $100 billion in gross originations since Owl Rock’s founding in 2016. Some $15 billion of those loans are held by Blue Owl Capital Corp., one of the company’s NYSE-listed business development companies, which has logged an internal rate of return of 9.8% since inception in 2016.
“We want to make sure we get back 80 cents on the dollar . Most deals don’t go distressed right out of the gate, so if I could get a couple years of coupon and get back 80, that means I’ve gotten our investors back par,” says Ostrover, explaining the firm’s philosophy towards minimizing risk and backing industries like software whose models support annuity-like cash flows. “Our goal is not to have the highest yield of anyone in the market.
“We started thinking, well, we’re the number one originator. The deals we can originate that we know have alpha attached to them, rather than go syndicate those and sell those to PIMCO and Fidelity and Blackrock, why don’t we create a business where we keep those really good loans?” says Ostrover. “Today, that’s called direct lending. Back then, virtually no one was doing it.”
Meanwhile, Lipschultz was head of energy and infrastructure investments at KKR, having started at the famed buyout firm in 1994 fresh out of Harvard Business School. Lipschultz had billion-dollar wins to his credit for deals like Hilcorp and East Resources, but he also got caught with losers like TXU when commodity prices fell. When Ostrover called him with the opportunity to come to the lower volatility world of private credit, he jumped at it.
Ostrover soon realized that if Owl Rock really wanted to be an “indispensable partner to the private markets ecosystem,” Dyal was a natural fit to combine with. Owl Rock provided credit for private equity firms’ deals, and with Dyal, they could offer cash directly to the owners of these firms, the general partners, as well., including Silver Lake’s Egon Durban, Platinum Equity’s Tom Gores and Starwood’s Barry Sternlicht, into billionaires.
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