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From Wall Street to Melrose Avenue. We're going mainstream. Venture capitalists to athletes to creators to the person who's collecting trading cards. We're going mainstream. Collision of culture and finance. We're going mainstream.
Welcome back to the Alt Goes Mainstream podcast. We had a chance to sit down recently with Blue Owl co-CEO Marc Lipschultz at their Nest Network Summit for RIAs and private banks in Laguna Beach. It was a perfect setting to discuss Blue Owl's incredible growth, which has been in part due to their unique and focused partnership with the wealth channel.
Blue Owl is one of the industry's largest alternative asset managers and has charted an impressive growth path in the nine years since their founding. They've scaled to over $250 billion of AUM and have proven to be one of the top firms in raising capital from the wealth channel. Marc is a private markets industry veteran who has been instrumental in building not just one but two of the industry's biggest players. He spent over two decades at KKR, serving on the firm's management committee and was the global head of energy and infrastructure after joining the firm as one of the first 20 employees. He then partnered with Blackstone GSO founder Doug Ostrover and Goldman Sachs partner and co-head of leveraged finance Craig Packer to co-found Owl Rock Capital Partners, the predecessor firm to Blue Owl's credit platform. Owl Rock combined with Dyal Capital Partners to become a publicly traded entity, Blue Owl, in May 2021 and has since grown to over $250 billion in AUM and $2.2 billion in revenue. Owl Rock and now Blue Owl's flight is emblematic of the evolution of alternative asset managers. Marc and I had a fascinating conversation about how Blue Owl's growth highlights trends that have propelled alternative asset management into the mainstream: scale, a focus on private credit, data centers and digitalization, a focus on private wealth, and the power of permanent capital. Thanks, Marc, for coming on the show to share your wisdom and expertise in private markets.
Marc, welcome to the Alt Goes Mainstream podcast.
Thank you. Very good to be here.
Pleasure to have you. We're in such a fascinating setting. You're here in Laguna hosting a number of firms in the wealth management space. I think that's so emblematic of many of the things you've done as a firm and your focus on the wealth channel. So I certainly want to get into that as we talk all about the business that you've built, how you're thinking about working with the wealth channel. But first, I think it's really helpful to start with your background. You have been in private markets for a long time. You're very senior at KKR. You've done it once, now you're doing it again. So tell us kind of how you got to building Owl Rock and then Blue Owl.
It is an interesting subject to have this conversation, and you've been so deep on the topic of wealth management, how it meets the private market. So I love to have this chance. So wealth management, which of course we'll come back to, has been bedrock as a part of our firm from day one, and I'll come on to that. But of course that itself starts much longer ago, to your point. So I've been in the private markets business for 30 years now, which is, you know, sometimes hard to say out loud and contemplate. But I started at KKR in 1995. And at that time, the alternatives universe — first of all, we didn't use the term alternatives. It was just these kind of exotic investment strategies. And there we didn't have the word private equity. We were an LBO firm. And when I joined KKR, we had 20 total professionals, front, mid and back office. And of course, the business was focused on a very small number of institutions. So there's certain resonances for sure, as you know, which is you go back to that moment in time and you had two LBO firms of any scale. You had KKR and Forstmann Little. These other firms that today are of course Goliaths were startups, you know, if they existed at all. And the investors, much like the wealth kind of composition looks like today, was a small group of power users and a lot of people that didn't use it at all. And that's kind of where the journey for me started.
And during that, you know, I spent 21 years at KKR, and I was really fortunate to be part of an incredible firm at this incredible evolutionary moment where we went from that couple of boutiques, couple of power users to alternatives — now let's just use that term, alternatives or private markets — becoming a multi-trillion dollar industry. And to have a front row seat to that and, you know, play my own part in it was really exciting. And again, it was good fortune more than anything. But I did private equity throughout that time and started an infrastructure business and some other businesses and served on the management committee. We went from being a very secretive, albeit very well-known firm in '95 to becoming a public company. Of course, they're an even larger global enterprise now. But when I left to form Owl Rock, predecessor to Blue Owl, with Doug Ostrover and Craig Packer, you know, the opportunity then from our point of view was to say, well, now there's this multi-trillion dollar world called alternatives, and we can build a business serving them, and we can build a business that is going to serve institutions and individuals as true peers in that journey.
So many things to pull out in there. I want to start with the concept of growth. You saw growth at KKR. You're now seeing growth at Owl Rock, now Blue Owl. I think recently in your earnings report, you showed how much growth the firm has had. And across pretty much every key metric, from fee-paying AUM to revenue to stock price to employee number, you've grown like three to four times. And when you think about that, that's a high-growth company. What do you think you learned from your time in the early days of private markets, which has certainly grown to where it is today, that you've been able to apply to the business?
Two things that come immediately to mind, and definitely things that I learned in my journey at KKR and working with — I mean, Henry Kravis and George Roberts are incredible investors, that's obvious, but incredible human beings. So, you know, I got to learn from the best. Two things. One, the preeminent importance of culture. I don't think you can build a durable, successful investment firm without having a strong culture. Now, there's different kinds of cultures. It's not one-size-fits-all. But when we set out to create Blue Owl, we had a very clear view about the kind of organization we wanted to build. The kind of organization around mutual respect, and that's both an internal and external idea, around constructive dialogue. You know, people need to speak up. We need to do our best to come up with the best answer for our investors. Excellence. If we're going to do it, do it really well or don't do it at all. And one team, that we are all in it to serve one end, which is going to bring me to my second point.
We ultimately work for our LPs, our investors — a lot of different terms — but the people that entrust us with their capital. That's who we work for. And we have a job. Our job is to do everything we can do with our team and our knowledge and our capabilities to deliver on the expectations they have of us. Outperform, preferably, but make sure we meet their needs because, look, they're counting on us. These are people's retirement savings. These are people's nest eggs. These are pension funds that policemen and firemen are counting on the proceeds. And I don't say that to sound either overly high-minded or overly philosophical. Having an eye on who you really work for and what they're expecting of you, and delivering results, is part two. So great culture. Great culture allows you to deliver great results. Great results yields growth. Growth isn't an input to me. Growth is an output.
How do you operationalize that concept of culture when it comes to making sure you're connecting that to the investor and the outcomes that you're helping provide them?
So culture, from my point of view, again, needs to be — it's kind of a consistency, which is to say that it's not, well, here's how we think internally and here's how we think externally. It really is this idea, and let me again use mutual respect, this idea that that's how we operate with each other. That's how we operate with the professional service companies that work with us. That's how we operate with every one of our investors. There's simply no room in our world — the no-jerk policy. And so I think the way we operationalize that is by living it consistently. First off, it has to be authentic. I mean, one thing about any culture, it's only going to work if it's really endemic, you know, to who you are and you really believe it's true. And I do. I really believe that there's power in having great people working together. And in fact, like, enjoying it. And I'm not pretending that, you know, work is supposed to be every day a party or like every day is fun, but every day can be meaningful. And certainly every day can be, I like the people I work with. And again, I mean that both internally and externally. And having that level of respect, I think, is what allows us to operationalize it amongst our team, but equally importantly with each one of our investors. Again, we work for them. We've been successful because of them. There's nothing so great about us — yeah, we've been lucky, we built a really great business, but it's because of them and the results we've delivered.
You say something that's really important in the context of the story of Owl Rock and then Blue Owl, which is we've built this because of them. One thing you've done from the outset, and different from many other firms in the alternative asset management world, particularly at Owl Rock, was you focused on the wealth channel from the outset. Why?
So I'll flash back 10 years to roughly the inception of Blue Owl. And there were a couple observations we made. Most importantly, now let's just talk about it as a business matter. This idea of democratization of alts, which is an overly fancy-sounding term and frankly even a little self-aggrandizing, but this idea of, hey, how can we bring new clients to this business and do right by them, which will do right by us. Again, it wasn't a selfless undertaking. Or maybe put another way, I fully subscribe to the idea that you can do well and do good simultaneously. So yeah, I do like — actually, I really do get satisfaction out of knowing we're helping individuals meet their goals. I really do. But it's also a good business. So what we said was this. If you looked at my own 20-year experience prior to starting Blue Owl, it was all about the evolution of alts from a niche part of institutional portfolios to a core driver of their success. Why have pension funds and endowments and others done so well now for decades? And they've done it because they've had intelligent use, access to private markets as part of a well-managed portfolio. And that happened for institutions over that 20-year period. So then when we started Blue Owl, we said, well, again, do well, do good. Hey, we ought to bring that opportunity to individuals because that is a big addressable market.
To do that, what we really believed with a lot of conviction was you had to, a, invest in the people to support it. You can't just say, oh, I want to serve individuals, I'm just going to treat them like they're an institution. They're not. They have different needs, different expectations. It's a different infrastructure. And so from day one, we invested heavily in having the team and the best-of-breed people to meet that need. A culture, which we've talked about, that says, hey, look, we have a lot of respect for, admiration for these individuals, like we owe them. We have to earn their trust. It's not, oh look, I serve institutions and maybe I can deign to, you know, to be bothered with serving an individual. I think that's the exact wrong mindset. And then really importantly for us, really importantly structurally, was this observation for those who had started to serve individuals. It was observable that in most cases what that was was someone putting a brand or a title on a product and then delivering something totally different from what the institutions were getting. Nobody needs that. So our model from the beginning was individuals — the main thing they want from us is the same investment experience that our institutions are going to get. So we built our firm from brick one with this idea that individuals and institutions are peers. We are built to serve both, and we're built to make sure that we meet their needs, but they all get access to our best investment ideas.
I think that's a really important point when thinking about the wealth channel is they want that same experience. Now, it's easier said than done, right? And I think that gets to some of the building of the firm from the early days. How different did you have to construct the firm? Because there's not just pre-investment, but there's post-investment on the operational and client servicing side. There's the educational piece. There's so many aspects of working with the wealth channel that are so different. And I think that make — we'll talk about scale later on — but I think that make it much easier for certain firms in this industry to be able to serve the wealth channel than other firms. So what did you do differently when it came to actually setting up the firm? Did you have more people focused on wealth? How did you help investment professionals understand what it meant to invest for the wealth channel because maybe they needed to think about investing differently? Maybe you needed to think about new product structures in different ways.
Yeah, I think you've touched on some really key components. So let's start with the baseline. You have to make a decision. You're going to put a lot of resources and invest ahead of the opportunity. And I suppose like any new market, you know, early on there's a lot of uncertainty about that. But we did — we made an early decision that we were going to commit to having kind of an overbuilt team in terms of capability and just sheer number of people to support delivering the right product with the right, as you said, operational support, the right information. Today we have 125,000 investors. Alts firms were never built for that before, and so you did have to build the backbone to go with it. So of course one of our earliest partners that helped build this firm from day one, Alan Kirshenbaum, was the CFO of TPG. So we had Craig coming from Goldman. I came from KKR. Doug had started GSO and then sold to Blackstone, come from Blackstone. We had Alan from TPG. And the idea was to take those — are credible firms, they were then and are now — but to take the best of what we had seen, but then create our own business model around a focus on private capital solutions that are more about lower volatility, risk management, private credit, GP stakes, triple net lease now as the business has evolved.
But also we're really purpose-built to serve the individual investor, and that took also not just an investment in the wealth platform and having from day one that be a big part of the firm, integrated into the firm from day one, but also having the operational capability. And part of what Alan and we all did was we said, we're going to build a backbone of quality that any institution would say, well, that's as good as any I've seen. And we're going to build it knowing that we want it to serve individuals and therefore it has to be more scalable. Again, clean sheet of paper allows you to do that from the ground up.
One thing that's really interesting there that Sean Connor said this when he came on the Mainstream podcast a while ago was that you have three different business units from the investing side — GP strategic capital, real assets, credit — but you have one unified platform on the wealth side and operations side. That seems from a DNA perspective very different from many firms. How did you think about and conceive of that? Because that also enables you to continue to expand your platform as you've done with other acquisitions, but they all benefit from the shared services.
It is a great observation and a very important part of our firm, which is our wealth platform, our team of 140 people and growing today. Again, we understand our job. Our job is to partner with financial advisors and to work with them to say, well, what needs do you have and how do our products marry with those needs? And again, to have more the view we're not trying to sell you a product. We do think we have a lot of really good products for individual investors, but our job is to provide that education to the FA and the partnership and then say, well, what fits? Because not every product is right for every person. I'm not one of these people that says, well, every single person ought to have their whole portfolio in alts. That's silly. I mean, a well-constructed portfolio is tailored to the person and their needs. So for us what was important was to say, well, that's a unified question, which is we're going to be a strategic partner, and we've been very lucky to be partners to, you know, the very best wirehouses and the very best RIAs and independent broker-dealers, and it's their capability married with ours that is really the solution. But we want to be, again, a one-stop shop, easy interface for them. They know who to talk to. And if they have clients that are saying, well, I'm in a high-tax state, so I'm much more tax-sensitive, well, that might lead them to certain real estate strategies. Well, I'm looking to manage around interest rate risk. Well, that might lead them, of course, to private credit. Or look, I understand private markets are growing. How can I participate in the GP role? Like, looks like it's a pretty good business to be a GP. Okay, well, then that's GP strategic capital. So our job is to help kind of make those marriages, and that's why we've built it the way we have.
How do you balance being bespoke to the end client? Because as you say, different clients have different needs, with being this one-stop shop, because we're seeing this one-stop shop theme continue in private markets. Firms are getting bigger and the scale helps and matters, and I'd love to hear your perspective on that. But balancing those two things seems like it can be — there's both benefits to that because you add other platforms and strategies, and I think you've talked about how you've added all these different strategies or specific businesses. Adali being one example, Oak Street being another example, or IPI in the data center space. How do you think about the interplay between those two things? I think that's — it's an interesting — you need to be a one-stop shop to be able to serve everyone, but then how do you create more bespoke, customized solutions for even just the wealth channel, which has so many different stripes and flavors within types of clients you have?
Yeah, and I think there's a balancing act in there because here's another thing I would say about — I talked earlier about culture and product, and the other thing I should say, which probably marries to the culture point, is look, I think organizations have DNA, and I think at the end of the day you do have to know what you're good at. And so on the one hand, the one-stop shop in the way I mean it is largely about trying to optimize the benefit of saying for a user of capital, their propensity to want to come to me first, last, look, pay us more because they like the partnership — like that's the value in the one-stop shop for someone using our capital. For someone investing with us, to a degree, the one-stop shop is, look, I know and I understand the products, and it would be productive for me to have maybe more than one thing we can do together. However, there is a balancing act. It is not our strategy at Blue Owl, and there are different strategies. We're not trying to be all things to all people because this will tie back to this DNA point. I don't believe you can be good at being all things to all people. I believe that you're right.
There's this exercise we're always going through, which is how do we take best-of-breed investment capabilities and make sure that everyone who's got their day jobs — as I'm waking up and I am thinking about how to deliver the best results for someone in our asset-backed lending products, the best results for someone in our digital infrastructure product — but marry that with a culture and a firm that says, well, the best results will come from all of us cooperating to drive, for example, originations across the platform, to drive this idea of sharing intellectual capital. If you have knowledge and you share it, that didn't hurt your LP base, and the corollary, sharing will help your LP base. So I think there is a bit of this, how do you keep — and this is what we've tried to build, either organically or through acquisitions — people that are the best at what they do, but then marry them to a culture that says, but we're one team. So again, culture is going to show up. And then what I would say, maybe adding to that operationally, is seeing synergy again as more about origination and intellectual capital. It's not about cost. In fact, when we acquire a business, we generally think we're going to put more money into it. Many of the entrepreneurial businesses actually tend to run thinner than the way we want to put the resources behind them.
So last, to wrap this thought up, the problem with trying to be all things to all people is like in a DNA imprint, I think you have to know what. So we really focus on downside protection. We focus on stability, income generation, generally inflation protection, and that wires like our mindset and our processes and our infrastructure and our teams in a way that's focused on delivering that kind of base result for an investor. I don't really believe that as a general matter, and maybe with rare exception, although it'd be hard to point to it, people can be really good at something like credit where everything is about you get your money back and a coupon or you lose money. Those are the outcomes. Marry that to venture capital where one deal makes the whole, five go away, and you know, four are okay in between, is a completely opposite mindset on decision-making. And I just don't think organizations — is why we don't see them cohabitating or coexisting. You can't be, I'm about seeking the gem in the rough, and I'm about being right every time, and just switch on and off. I just don't think it works.
Interesting point because there's two both intersecting but competing points within that comment within the wealth channel in particular, right? And I think we're even seeing this in the institutional space too. Many firms are starting to be able to cross-sell the investment products or strategies that they have, and LPs are now investing across different platforms or strategies because LPs, they want convenience in a sense. They want quality, but they want convenience. And marrying that with what you just said, I think it's a really interesting question around brand. So how do you think about brand in the context of what I just shared about? Brand matters, and that to some extent will drive how people think about the firm and why people decide to work with a certain firm. But then also the other side of that is you can't necessarily be everything to everyone.
Yeah, and this brand topic I think is a topic for the industry at large because for obvious reasons, I mean, brands by definition are supposed to stand for something. And of course we want ours to stand for trust and like and respect. I mean, that's the relationship we want to have with our investors and what we want our brand to mean. But importantly, our brand in our mind does mean strategies that share those attributes I described. It doesn't just mean we do alts. And by the way, someone could say my brand is I do alts, but what does that really mean to the user? Again, I'm about the end result for the investor. Alts aren't an end state. Alts are a methodology. Alts are a path to get a result. And by the way, not the only path. They're part of a holistic path. So you could have a brand that just means I'm all about alts, but I'd prefer to have a brand that's about what matters to them, which is the results. Our brand, we like to think — and I don't want to overstate it, you know, we claim, you know, we're not Coca-Cola — but our brand, we hope connotes to people something about focus on performance, about downside protection, about earning income, about reliability, about transparency, about that experience, whether institution or individual. And that's what I agree with you. There is this — you want the convenience and comfort of a brand, but they want the results as a result, not just, oh, that's neat to be invested with that company. And the thing that the industry I think is facing, will face, is a little bit of like brand — people get a little weary of, well, I don't really want a ninth product by company X. And so I think there probably is a bit of this balancing act, and it probably reflects an underlying idea, whether people say it or not, that I just know explicitly or intuitively there's just no way you're going to be good at everything. So there has to be a coherence to the products you're building and what that brand therefore means.
How do you think that'll manifest itself in terms of what are on a lot of CEOs' and executives' minds, which is build, buy or partner as an alternative or even traditional asset manager?
So for us, we start with where is there an opportunity to deliver an excellent risk-adjusted return, again with a particular emphasis on risk management. Okay, we start there. That will lead to where are there places where a couple of attributes show up. Most simply put, where is demand for capital high relative to the supply of capital, or at least the properly constructed supply of capital? So that'd be one, just simple supply-demand. Where are there disconnects there? That's an opportunity potentially. Then to us, it's within that opportunity, is there a way to earn returns for something other than just having the capital? Because if all you're doing is competing on cost of capital, I mean, it might be a perfectly fine result, but it's pretty uninteresting. So we're always looking for places where people care. Of course they care about the capital itself. Of course they care that it's priced within what they would deem reasonable for their business. But what we want in every instance is someone who also says, but I care who I get it from. I care who the partner is.
So if I think about our triple net lease real estate business, and you think about some of the biggest, best credits in the world, the Microsofts, the Amazons, of course they can work with anybody they want, and their cost of capital could be about as low as they want it to be, but who they work with matters to their strategic ends. To build a bespoke hyperscale data center today, you need a lot of skills, and you need to be a very reliable partner. We said, okay, mismatch of capital, clearly more demand for hyperscale data centers than supply, and there's only a few people in the world that have true demonstrated expertise in I can assemble the land, the power, the cooling, and build to your spec and deliver on time, and then operate it for the next 15 years the way you want it operated. IPI was decidedly one of those, and I think the best of them. And therefore we said, opportunity, capability, can't build this organically, but what a great low-risk, very return, income-oriented with cap gain upside strategy. So we acquire an IPI and marry that into our fabric.
So I think what you're getting at is a really interesting point around scale. So I want to touch on that in two different conceptual frameworks. One, why is scale so important in private markets to accomplish the things like you just mentioned around data centers, and you're playing in a space where more capital is required? So how do you think about the concept of scale in that regard?
So I think scale is a meaningful advantage in some markets, and scale — nothing comes for free, right? There's always going to be trade-offs. I think there's probably businesses where scale is not particularly an advantage. Again, I'll just use the same example. Like in venture capital, it's not at all clear to me that things scale. It might be a...
Disadvantage. And I'm not pretending it's not my area of expertise, but it's apparent that some of the most successful venture firms are still pretty small and pretty focused and very, very kind of built around the individual practitioner. So scale is not necessarily a good thing. Now, in certain markets, it is. And I think it is for a few reasons. One, it gets down to information and knowledge and being able to invest heavily in knowing the latest and having insights. You know, take like our software lending business. We have looked at so many software companies, thousands of software companies in every imaginable niche. We have specialists in cyber. We have specialists in payments. And so our knowledge base is of value both to making the decision, but importantly in someone picking who do they want to finance with. They're saying, you know what, I like financing with Blue Owl. You actually help me. You, you know, in fact, you've probably seen companies we haven't seen, industry trends we might not be tuned into. So together, actually, you're helping us make a better decision. I'm not overstating our role. These PE firms are phenomenal at what they do and they have incredible knowledge. But having a partner who also has knowledge and understands them and their business has value you will pay for. So I think to me that's kind of how you kind of pull it together around scale. In some cases it matters a lot. In some cases it probably doesn't.
The other aspect of scale that I imagine is on a lot of people's mind is particularly in private credit. There's been significant amount of growth. More capital's come into the space. At the top end, there's only a certain number of firms who can achieve that scale, but service those larger companies. What has that done in terms of how you have to underwrite deals, how you have to compete to win deals? Do you have to also go lower on return, on yield, because you have to provide better terms? What are the dynamics of scale manifesting itself as the space grows?
