Blue Owl: The Next Blackstone?

By Shawn O'Malley · March 02, 2025

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This week, I’m diving into one of the few SPACs from the 2020-era Lollapalooza in financial markets that has actually worked out: a fast-growing alternative asset manager humbly named Blue Owl that, perhaps, has its eyes set on being the next Blackstone?

At scale, the asset management business can have very, very attractive economics. A $10 billion private equity fund doesn’t necessarily require any more manpower or resources to operate than a $1 billion fund, yet the fees generated are 10x higher — talk about operating leverage.

As Blue Owl has ballooned from $45 billion to over $230 billion in assets under management (AUM) in just a few years, let’s see what’s going on with the underlying business.

— Shawn

Blue Owl Capital: Wall Street’s Rising Star

Three Business Pillars

Blue Owl’s diversified model, fueled by permanent capital commitments (91% of its fee-earning AUM), produces a steady stream of fee-related earnings. Unlike ETFs, where investors can withdraw funds at will, Blue Owl’s structures ensure capital stays put for years, if not indefinitely — a financial fortress.

Blue Owl is an alternative asset manager, meaning it specializes in strategies focused on private assets that you can’t invest in through a brokerage app, primarily accessible only to institutions and wealthy individuals, aka “accredited” investors.

There are three pillars underpinning Blue Owl, stemming from three separate firms that merged to form Blue Owl and now make up the core of its separate business units:

Pillar #1 — Private Credit (formerly known as Owl Rock): Provides loans directly to middle-market companies — those too big for traditional bank loans but too small for corporate bond markets (revenue size can range from $50 million up to $1 billion per year.)

Blue Owl’s niche is “direct lending,” which simplifies the process for companies that don’t want to deal with a web of syndicated loans from working with multiple banks. From a borrower’s perspective, having just one counterparty to renegotiate loan terms with is far more preferable, especially in times of crisis; imagine having to navigate pausing repayments during pandemic lockdowns with 20 different banks instead of working with just Blue Owl.

This is often synonymous with private equity, as private credit firms provide loans to finance buyouts.

Pillar #2 — GP Capital Solutions (formerly known as Dyal Capital): Acquires minority stakes in the firms that run private equity funds, as well as hedge funds, sharing in their management fee revenue.

Founded and led by billionaire Michael Rees, Dyal set new precedents on Wall Street by helping “general partners” cash out parts of their ownership stakes in their own investment funds, giving them payouts that they could keep for themselves or use to seed their investment funds with.

Pillar #3 — Oak Street (Real Estate): Specializes in triple-net-lease properties, where tenants cover property taxes, insurance, maintenance, and rent. In particular, this unit focuses on “lease-back financing” — they buy warehouses, data centers, offices, and other properties from companies who want to offload real estate assets from their balance sheet, and then Oak Street enters into triple-net-lease agreements to lease the properties right back to those companies.

In other words, companies transfer their commercial-property assets to Blue Owl in exchange for cash but continue to use those properties by leasing them instead.

Its crown jewel property is Calgary’s second-largest skyscraper, The Bow.

SPAC Origins

Like so many other SPACs exploiting the frothy markets at this time, Blue Owl debuted as a merged, publicly-traded company in late 2020.

Yet, this wasn’t your typical SPAC gamble. The merger combined two heavyweights— Owl Rock and Dyal Capital — and later incorporated Oak Street, spawning a rather robust alternative asset business.

Today, as outlined above, Blue Owl’s assets span private credit, infrastructure, commercial real estate, stakes in private equity firms, and even minority ownership of pro sports teams, and the company continues to expand aggressively, recently acquiring smaller asset managers like Kuvare Asset Management and Atalaya Capital to bolster its AUM.

With $21.7 billion in undeployed cash set to generate $260 million in incremental annual management fees and more acquisitions likely looming, Blue Owl’s trajectory looks promising.

But rapid growth begets questions: Are they overpaying for acquisitions? Will the structural tailwinds of more and more money flowing into private assets reverse? Will alternative asset managers eventually have to aggressively trim fees as mutual funds in public markets have had to in response to Vanguard’s passive-investing revolution?

Don’t Trust a Gold Rush

The private credit and alternative asset industry at large is booming. Like, seriously booming. It is, arguably, one of the biggest trends in finance following the ‘08 crisis.

Private equity strategies, closely tied to private credit, have more than tripled their AUM since 2010 and are expected to double again by 2029.

That influx of capital into private assets, chasing the so-called “illiquidity premium” (a financial theory suggesting less liquid assets should offer higher returns to induce investment), has surely caused that same premium to diminish as the illiquid become liquid, resulting in returns that increasingly resemble public market counterparts on average yet with higher fees that consume any residual outperformance.

At least, that’s what the skeptics say, and I’m probably closer to skeptic than optimist when it comes to the infatuation with private assets.

A recent Ohio State study found just this, highlighting that private credit’s supposed “excess returns” are largely neutralized by higher fees. If investors grow disillusioned, Blue Owl could find itself competing for new assets by cutting fees in a race to the bottom amongst alternative asset managers broadly.

On the flip side, Blue Owl’s permanent capital base offers stability. Much of its AUM is tied up in business development companies (similar to private-market versions of closed-end funds) and other vehicles with long-term lock-ups on capital, which is an ideal position for any asset manager to be in.

And with some true industry veterans leading Blue Owl, including Doug Ostrover, Michael Rees, and Marc Zahr, there’s no lack of talent and experience at the company.

The thesis for Blue Owl, though, boils down to your outlook on alternative assets.

Grossly generalizing here, but you might either see alternatives’ popularity as a bonanza in laundering volatility (simply hiding fluctuations in private assets’ value by not marking them to market daily) and using...