Blue Owl: Rees’s pieces must mesh to keep egos and investors sweet

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Private equity groups are accustomed to rolling up industries, conjuring up synergies and making fortunes in the process. It is trickier to pull off the same manoeuvre in-house.

In 2020, a Spac merger created listed alternatives asset manager Blue Owl. This combined two well-known businesses: Owl Rock and Dyal Capital. The former was a corporate lender. The latter pioneered trading in minority stakes of other buyout groups.

There was no obvious link between the two. But combined assets of just above $50bn were high enough to support a public stock.

Blue Owl had done well enough since then, even though last year was not a pleasant one for asset managers locked into funding deals and participants in highly leveraged transactions. Yet news broke earlier this year that Dyal founder Michael Rees had fallen out with the Owl Rock side, who were allegedly seeking to oust him.

During Tuesday’s quarterly earnings call, Rees downplayed any tension. There was just the merest hint of dissonance in his decision to take all his pay for the next three years in Blue Owl stock. But at least he is staying put.

The shares traded down 2 per cent on the day. Blue Owl’s share price is up a fifth in 2023, though that is far less than rivals such as Ares and titans like Apollo and Blackstone.

Blue Owl now has $150bn in assets under management. It has acquired a real estate manager, Oak Street, to lead its third leg and insists the disparate pieces fit together. All appendages are propelled by steady management fees from so-called permanent capital that readily replenishes. In its most recent quarter, per share fee and cash earnings were up year over year.

Investment firms dream they can outlast any single or group of personalities and achieve institutional status. Every high-powered Wall Street partnership has to balance egos with what is good for the company. It is now Blue Owl’s turn to try to solve that riddle. The key will be to extract synergies from itself, not just businesses it buys out.