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Filed Pursuant to Rule 424(b)(3)

Registration No. 333-260314

BLUE OWL CAPITAL INC.

SUPPLEMENT NO. 1 TO

PROSPECTUS DATED OCTOBER 29, 2021

THE DATE OF THIS SUPPLEMENT IS NOVEMBER 9, 2021

This prospectus supplement (this “Supplement No. 1”) is part of the prospectus of Blue Owl Capital Inc. (the “Company”), dated October 29, 2021 (as amended from time to time, the “Prospectus”). This Supplement No. 1 is being filed to update and supplement the information contained in the Prospectus with the information contained in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed with the Securities and Exchange Commission on November 9, 2021 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This Supplement No. 1 should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this Supplement No. 1, you should rely on the information in this Supplement No. 1.

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 22 of the Prospectus and in Section 1A. Risk Factors of our Quarterly Report before buying our common stock and warrants.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission File Number: 001-39653

 

 

 

LOGO

BLUE OWL CAPITAL INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   86-3906032

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

399 Park Avenue, New York, NY 10022

(address of principal executive offices)

(212) 419-3000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Class A common stock   OWL   New York Stock Exchange
Warrants to purchase Class A common stock   OWL.WS   New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

   Outstanding at November 5, 2021  

Class A common stock, par value $0.0001

     364,697,135

Class C common stock, par value $0.0001

     688,914,013

Class D common stock, par value $0.0001

     319,132,127

 

 

 


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TABLE OF CONTENTS

 

          Page  

PART I

   FINANCIAL INFORMATION      1  

Item 1.

   Financial Statements—Unaudited      1  
   Consolidated and Combined Statements of Financial Condition as of September 30, 2021 and December 31, 2020      1  
   Consolidated and Combined Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020      2  
   Consolidated and Combined Statements of Changes in Shareholders’ Equity (Deficit) for the Three and Nine months Ended September 30, 2021 and 2020      3  
   Consolidated and Combined Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020      6  
   Notes to Consolidated and Combined Financial Statements      7  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      36  

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      57  

Item 4.

   Controls and Procedures      57  

PART II

   OTHER INFORMATION      58  

Item 1.

   Legal Proceedings      58  

Item 1A.

   Risk Factors      58  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      59  

Item 3.

   Defaults Upon Senior Securities      59  

Item 4.

   Mine Safety Disclosures      59  

Item 5.

   Other Information      59  

Item 6.

   Exhibits      60  

SIGNATURES

     61  

 

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Defined Terms

 

Assets Under Management or AUM    Refers to the assets that we manage, and are generally equal to the sum of (i) net asset value (“NAV”); (ii) drawn and undrawn debt; and (iii) uncalled capital commitments.
our BDCs    Refers to our business development companies, as regulated under the Investment Company Act of 1940, as amended: Owl Rock Capital Corporation (NYSE: ORCC) (“ORCC”), Owl Rock Capital Corporation II (“ORCC II”), Owl Rock Capital Corporation III (“ORCC III”), Owl Rock Technology Finance Corp. (“ORTF”) and Owl Rock Core Income Corp. (“ORCIC”).
Part I Fees    Refers to quarterly performance income on the net investment income of our BDCs and similarly structured products, subject to a fixed hurdle rate. These fees are classified as management fees as they are predictable and recurring in nature, not subject to repayment, and cash-settled each quarter.
Part II Fees    Generally refers to fees from our BDCs and similarly structured products that are paid in arrears as of the end of each measurement period when the cumulative aggregate realized capital gains exceed the cumulative aggregate realized capital losses and aggregate unrealized capital depreciation, less the aggregate amount of Part II Fees paid in all prior years since inception.
Registrant    Refers to Blue Owl Capital Inc.
Blue Owl, the Company, we, us, and our    Refers to the Registrant and its consolidated subsidiaries.
Blue Owl Operating Group    Refers collectively to the Blue Owl Operating Partnerships and their consolidated subsidiaries.
Blue Owl Operating Group Units    Refers collectively to a unit in each of the Blue Owl Operating Partnerships.
Blue Owl Operating Partnerships    Refers to Blue Owl Carry and Blue Owl Capital Holdings, collectively.
Blue Owl Carry    Refers to Blue Owl Capital Carry LP.
Blue Owl Capital Holdings    Refers to Blue Owl Capital Holdings LP.
Business Combination    Refers to the transactions contemplated by the Business Combination Agreement, which were completed on May 19, 2021.
Business Combination Agreement or BCA    Refers to the agreement dated as of December 23, 2020 (as the same has been or may be amended, modified, supplemented or waived from time to time), by and among Altimar Acquisition Corporation, Owl Rock Capital Group LLC, Owl Rock Capital Feeder LLC, Owl Rock Capital Partners LP and Neuberger Berman Group LLC.
Business Combination Date    Refers to May 19, 2021.
Class A Shares    Refers to the Class A common stock, par value $0.0001 per share, of the Registrant.
Class B Shares    Refers to the Class B common stock, par value $0.0001 per share, of the Registrant.
Class C Shares    Refers to the Class C common stock, par value $0.0001 per share, of the Registrant.
Class D Shares    Refers to the Class D common stock, par value $0.0001 per share, of the Registrant.
Class E Shares    Refers to the Class E common stock, par value $0.0001 per share, of the Registrant.
Direct Lending    Refers to our Direct Lending products, which offer private credit solutions to middle-market companies through four investment strategies: diversified lending, technology lending, first lien lending and opportunistic lending. Direct Lending products comprise the pre-Business combination Owl Rock business.
Dyal Capital    Refers to the Dyal Capital Partners business, which was acquired from Neuberger Berman Group LLC in connection with the Business Combination.

 

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Fee-Paying AUM or FPAUM    Refers to the AUM on which management fees are earned. For our BDCs, FPAUM is generally equal to total assets (including assets acquired with debt, but excluding cash). For our other Direct Lending products, FPAUM is generally equal to NAV or investment cost. FPAUM also includes uncalled committed capital for products where we earn management fees on such uncalled committed capital. For our GP Capital Solutions products, FPAUM for the GP minority equity investments strategy is generally equal to capital commitments during the investment period and the cost of unrealized investments after the investment period. For GP Capital Solutions’ other strategies, FPAUM is generally equal to investment cost.
GP Capital Solutions    Refers to our GP Capital Solutions products, which primarily focus on acquiring equity stakes in, or providing debt financing to, large, multi-product private equity and private credit platforms through three existing and one emerging investment strategies: GP minority equity investments, GP debt financing, professional sports minority investments and co-investments and structured equity. GP Capital Solutions products comprise the pre-Business Combination Dyal Capital business.
NYSE    Refers to the New York Stock Exchange.
Owl Rock    Refers collectively to the combined businesses of Owl Rock Capital Group LLC (excluding certain assets) and Blue Owl Securities LLC (formerly, Owl Rock Capital Securities LLC), which was the predecessor of Blue Owl for accounting and financial reporting purposes.
SEC    Refers to the U.S. Securities and Exchange Commission.
Tax Receivable Agreement or TRA    Refers to the Tax Receivable Agreement, dated as of May 19, 2021, as may be amended from time to time by and among the Registrant, Blue Owl Capital GP LLC, the Blue Owl Operating Partnerships and each of the Partners (as defined therein) party thereto.

 

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AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the SEC. We make available free of charge on our website (www.blueowl.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We also use our website to distribute company information, including assets under management and performance information, and such information may be deemed material. Accordingly, investors should monitor our website, in addition to our press releases, SEC filings and public conference calls and webcasts.

Also posted on our website in the “Investor Relations—Governance” section is the charter for our Audit Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Blue Owl Capital Inc., 399 Park Avenue, 38th Floor, New York, New York 10022, Attention: Office of the Secretary. Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov).

No statements herein, available on our website or in any of the materials we file with the SEC constitute, or should be viewed as constituting, an offer of any fund.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act, which reflect our current views with respect to, among other things, future events, operations and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “projects,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words, other comparable words or other statements that do not relate to historical or factual matters. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward-looking statements are subject to various risks, uncertainties (some of which are beyond our control) or other assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Some of these factors are described in this report and in the Current Report on Form 8-K filed on May 21, 2021 under the headings “Owl Rock’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Exhibit 99.5, and “Dyal’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Exhibit 99.6, and “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the risk factors and other cautionary statements that are included in this report and in our other periodic filings. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Therefore, you should not place undue reliance on these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Consolidated and Combined Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Per Share Data)

 

     September 30,
2021
    December 31,
2020
 

Assets

    

Cash and cash equivalents

   $ 138,875   $ 11,630

Investments (includes $292,602 and $— at fair value)

     300,649     2,678

Due from related parties

     184,349     92,698

Operating lease assets

     66,605     —    

Strategic Revenue-Share Purchase consideration, net

     504,244     —    

Deferred tax assets

     514,098     800

Intangible assets, net

     2,150,473     —    

Goodwill

     3,563,422     —    

Other assets, net

     27,434     13,791
  

 

 

   

 

 

 

Total Assets

   $ 7,450,149   $ 121,597
  

 

 

   

 

 

 

Liabilities

    

Debt obligations, net

   $ 683,557   $ 356,386

Accrued compensation

     173,493     207,957

Operating lease liabilities

     67,846     —    

Deferred tax liabilities

     50,386     —    

TRA liability (includes $123,122 and $— at fair value)

     482,510     —    

Warrant liability, at fair value

     67,891     —    

Earnout Securities liability, at fair value

     661,707     —    

Accounts payable, accrued expenses and other liabilities

     81,166     58,415
  

 

 

   

 

 

 

Total Liabilities

     2,268,556     622,758
  

 

 

   

 

 

 

Commitments and Contingencies (Note 11)

    

Shareholders’ Equity (Deficit)

    

Members’ deficit prior to the Business Combination

     —         (507,687
  

 

 

   

 

 

 

Class A Shares, par value $0.0001 per share, 2,500,000,000 and none authorized, 357,201,703 and none issued and outstanding

     36     —    

Class C Shares, par value $0.0001 per share, 1,500,000,000 and none authorized, 658,647,360 and none issued and outstanding

     66     —    

Class D Shares, par value $0.0001 per share, 350,000,000 and none authorized, 306,894,250 and none issued and outstanding

     31     —    

Class E Shares, par value $0.0001 per share, 100,000,000 and none authorized, 7,495,432 and none issued and outstanding

     1     —    

Additional paid-in capital

     1,879,040     —    

Accumulated deficit

     (463,612     —    
  

 

 

   

 

 

 

Total Shareholders’ Equity Attributable to Blue Owl Capital Inc.

     1,415,562     —    

Shareholders’ equity attributable to noncontrolling interests

     3,766,031     6,526
  

 

 

   

 

 

 

Total Shareholders’ Equity (Deficit)

     5,181,593     (501,161
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity (Deficit)

   $ 7,450,149   $ 121,597
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated and combined financial statements.

 

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Blue Owl Capital Inc.

Consolidated and Combined Statements of Operations (Unaudited)

(Prior to May 19, 2021, Owl Rock)

(Dollars in Thousands, Except Per Share Data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2021     2020     2021     2020  

Revenues

        

Management fees, net (includes Part I Fees of $43,659, $2,701, $108,646 and $9,052)

   $ 203,750   $ 39,146   $ 440,598   $ 112,830

Administrative, transaction and other fees

     44,125     14,897     94,761     30,979
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues, Net

     247,875     54,043     535,359     143,809
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Compensation and benefits

     96,910     44,214     1,366,459     108,658

Amortization of intangible assets

     46,191     —         67,527     —    

General, administrative and other expenses

     28,438     13,642     94,818     48,457
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

     171,539     57,856     1,528,804     157,115
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Loss

        

Net losses on investments

     (145     —         (145     —    

Net losses on retirement of debt

     —         —         (16,145     —    

Interest expense

     (6,112     (6,127     (17,787     (18,007

Change in TRA liability

     (4,733     —         (5,879     —    

Change in warrant liability

     (27,462     —         (42,762     —    

Change in Earnout Securities liability

     (293,122     —         (756,092     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Loss

     (331,574     (6,127     (838,810     (18,007
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss Before Income Taxes

     (255,238     (9,940     (1,832,255     (31,313

Income tax benefit

     (14,391     (26     (43,402     (119
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated and Combined Net Loss

     (240,847     (9,914     (1,788,853     (31,194

Net loss attributable to noncontrolling interests

     187,524     1,292     1,412,600     3,069
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss Attributable to Blue Owl Capital Inc. (After May 19, 2021) / Owl Rock (Prior to May 19, 2021)

   $ (53,323   $ (8,622   $ (376,253   $ (28,125
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months
Ended
September 30,
2021
          May 19, 2021
through

September 30,
2021
       

Net Loss Attributable to Class A Shares

   $ (53,323     $ (450,512  
  

 

 

     

 

 

   

Net Loss per Class A Share

        

Basic

   $ (0.16     $ (1.34  
  

 

 

     

 

 

   

Diluted

   $ (0.16     $ (1.36  
  

 

 

     

 

 

   

Weighted-Average Class A Shares

        

Basic(1)

     338,472,456         335,472,904    
  

 

 

     

 

 

   

Diluted

     338,472,456         1,281,179,067    
  

 

 

     

 

 

   

 

(1)

Includes 9,050,000 fully vested RSUs that do not participate in dividends until settled. See Note 13.

The accompanying notes are an integral part of these consolidated and combined financial statements.

 

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Blue Owl Capital Inc.

Consolidated and Combined Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)

(Prior to May 19, 2021, Owl Rock)

(Dollars in Thousands, Except Per Share Data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2021      2020     2021     2020  

Members’ Deficit Prior to the Business Combination

         

Beginning balance

   $ —        $ (396,584   $ (507,687   $ (352,756

Distributions

     —          (500     (103,143     (24,825

Comprehensive income (loss) prior to the Business Combination Date

     —          (8,622     74,259     (28,125

Transfer of predecessor members’ deficit to additional paid-in capital and noncontrolling interests

     —          —         536,571     —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending Balance

   $ —        $ (405,706   $ —       $ (405,706
  

 

 

    

 

 

   

 

 

   

 

 

 

Class A Shares Par Value

         

Beginning balance

   $ 32    $ —       $ —       $ —    

Impact of the Business Combination

     —          —         32     —    

Share issuance in connection with Strategic Revenue-Share Purchase

     3      —         3     —    

Settlement of E-1 Earnout Securities

     1      —         1     —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 36    $ —       $ 36   $ —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Class C Shares Par Value

         

Beginning balance

   $ 63    $ —       $ —       $ —    

Impact of the Business Combination

     —          —         63     —    

Settlement of E-1 Earnout Securities

     3      —         3     —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 66    $ —       $ 66   $ —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Class D Shares Par Value

         

Beginning balance

   $ 29    $ —       $ —       $ —    

Impact of the Business Combination

     —          —         29     —    

Settlement of E-1 Earnout Securities

     2      —         2     —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 31    $ —       $ 31   $ —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Class E Shares Par Value

         

Beginning balance

   $ 1    $ —       $ —       $ —    

Impact of the Business Combination

     —          —         1     —    

Settlement of E-1 Earnout Securities

     —          —         —         —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 1    $ —       $ 1   $ —    
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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Blue Owl Capital Inc.

Consolidated and Combined Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)

(Prior to May 19, 2021, Owl Rock)

(Dollars in Thousands, Except Per Share Data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2021     2020     2021     2020  

Additional Paid-in Capital

 

Beginning balance

   $ 1,496,826   $  —       $  —       $  —    

Transfer of predecessor Owl Rock members’ deficit to additional paid-in capital and noncontrolling interests

     —         —         (138,133     —    

Cash proceeds from the Business Combination

     —         —         1,738,478     —    

Offering costs related to the Business Combination

     (114     —         (126,423     —    

Allocation of cash proceeds to warrant liability

     —         —         (25,128     —    

Allocation to earnout liability for Class E Shares issued in connection with the Business Combination

     —         —         (83,949     —    

Deferred taxes and TRA liability recognized in the Business Combination (excluding Dyal Acquisition)

     —         —         145,163     —    

Reallocation between additional paid-in capital and noncontrolling interests related to the Business Combination

     —         —         (325,222     —    

Reallocation between additional paid-in capital and noncontrolling interests due to changes in Blue Owl Operating Group ownership and related tax impacts

     67,582     —         67,582     —    

Equity-based compensation

     —         —         311,926     —    

Share issuance in connection with Strategic Revenue-Share Purchase and related tax impacts

     200,434     —         200,434     —    

Settlement of Earnout Securities liability and related tax and TRA impacts

     114,312     —         114,312     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 1,879,040   $  —       $ 1,879,040   $  —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated Deficit

        

Beginning balance

   $ (397,189   $  —       $  —       $  —    

Cash dividends declared on Class A Shares

     (13,100     —         (13,100     —    

Comprehensive loss following the Business Combination Date

     (53,323     —         (450,512     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ (463,612   $  —       $ (463,612   $  —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity Attributable to Blue Owl Capital Inc.

   $ 1,415,562   $  —       $ 1,415,562   $  —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ Equity Attributable to Noncontrolling Interests

        

Beginning balance

   $ 3,283,985   $ 4,908   $ 6,526   $ 2,259

Transfer of predecessor Owl Rock member’ deficit to additional paid-in capital and noncontrolling interests

     —         —         (398,438     —    

Common Units issued as consideration related to the Dyal Acquisition

     —         —         4,285,359     —    

Acquisition of noncontrolling interests in the Blue Owl Operating Group in connection with the Business Combination

     —         —         (491,956     —    

Allocation to earnout liability for Seller Earnout Units issued in connection with the Business Combination

     —         —         (160,540     —    

Reallocation between additional paid-in capital and noncontrolling interests related to the Business Combination

     —         —         325,222     —    

Reallocation between additional paid-in capital and noncontrolling interests due to changes in Blue Owl Operating Group ownership

     (71,257     —         (71,257     —    

Contributions

     3,566     2,483     10,737     7,085

Distributions

     (47,688     (319     (49,167     (495

Equity-based compensation

     15,722     —         952,918     —    

Share issuance in connection with Strategic Revenue-Share Purchase

     331,903     —         331,903     —    

Settlement of Earnout Securities liability

     437,324     —         437,324     —    

Comprehensive loss

     (187,524     (1,292     (1,412,600     (3,069
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 3,766,031   $ 5,780   $ 3,766,031   $ 5,780
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity

   $ 5,181,593   $ 5,780   $ 5,181,593   $ 5,780
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Dividends Paid per Class A Share

   $ 0.04   $  —       $ 0.04   $  —    

 

4


Table of Contents

Blue Owl Capital Inc.

Consolidated and Combined Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)

(Prior to May 19, 2021, Owl Rock)

(Dollars in Thousands, Except Per Share Data)

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2021     2020      2021     2020  

Number of Class A Shares

         

Beginning balance

     320,005,258     —          —         —    

Impact of the Business Combination

     —         —          320,005,258     —    

Share issuance in connection with Strategic Revenue-Share Purchase

     29,701,013     —          29,701,013     —    

Settlement of E-1 Earnout Securities

     7,495,432     —          7,495,432     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

     357,201,703     —          357,201,703     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Number of Class C Shares

         

Beginning balance

     628,380,707     —          —         —    

Impact of the Business Combination

     —         —          628,380,707     —    

Settlement of E-1 Earnout Securities

     30,266,653     —          30,266,653     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

     658,647,360     —          658,647,360     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Number of Class D Shares

         

Beginning balance

     294,656,373     —          —         —    

Impact of the Business Combination

     —         —          294,656,373     —    

Settlement of E-1 Earnout Securities

     12,237,877     —          12,237,877     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

     306,894,250     —          306,894,250     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Number of Class E Shares

         

Beginning balance

     14,990,864     —          —         —    

Impact of the Business Combination

     —         —          14,990,864     —    

Settlement of E-1 Earnout Securities

     (7,495,432        (7,495,432     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

     7,495,432     —          7,495,432     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated and combined financial statements.

 

5


Table of Contents

Blue Owl Capital Inc.

Consolidated and Combined Statements of Cash Flows (Unaudited)

(Prior to May 19, 2021, Owl Rock)

(Dollars in Thousands)

 

     Nine Months Ended September 30,  
     2021     2020  

Cash Flows from Operating Activities

    

Consolidated and combined net loss

   $ (1,788,853   $ (31,194

Adjustments to reconcile consolidated and combined net loss to net cash from operating activities:

    

Amortization of intangible assets

     67,527     —    

Equity-based compensation

     1,174,319     12,300

Depreciation and amortization of fixed assets

     456     689

Amortization of debt discounts and deferred financing costs

     1,125     556

Amortization of investment discounts and premiums

     451     —    

Non-cash lease expense

     625     —    

Net losses on retirement of debt

     16,145     —    

Net (gains) losses on investments, net of dividends

     185     —    

Change in TRA liability

     5,879     —    

Change in warrant liability

     42,762     —    

Change in Earnout Securities liability

     756,092     —    

Deferred income taxes

     (43,793     —    

Changes in operating assets and liabilities:

    

Due from related parties

     (78,209     (4,292

Strategic Revenue-Share Purchase consideration

     (49,563     —    

Other assets, net

     (8,480     (2,831

Accrued compensation

     48,685     17,612

Accounts payable, accrued expenses and other liabilities

     (17,983     (10,393
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

     127,370     (17,553
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Purchase of fixed assets

     (2,043     (328

Purchase of investments

     (304,221     —    

Proceeds from investment sales and maturities

     5,613     —    

Cash consideration paid for Dyal Capital, net of cash consideration received

     (973,457     —    
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (1,274,108     (328
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Cash proceeds from the Business Combination

     1,738,603     —    

Offering costs related to the Business Combination

     (126,423     —    

Acquisition of noncontrolling interests in the Blue Owl Operating Group in connection with the Business Combination

     (491,956     —    

Proceeds from debt obligations

     896,008     125,313

Debt issuance costs

     (9,862     (405

Repayments of debt obligations, including prepayment costs

     (577,713     (88,846

Contributions from members prior to the Business Combination

     —         7,072

Dividends paid on Class A Shares

     (13,100     —    

Distributions to members prior to the Business Combination

     (103,144     (25,320

Contributions from noncontrolling interests

     10,737     —    

Distributions to noncontrolling interests

     (49,167     —    
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     1,273,983     17,814
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash-equivalents

     127,245     (67
  

 

 

   

 

 

 

Cash and cash-equivalents, beginning of period

     11,630     7,343
  

 

 

   

 

 

 

Cash and Cash-equivalents, End of Period

   $ 138,875   $ 7,276
  

 

 

   

 

 

 

Supplemental Information

    

Cash paid for interest

   $ 13,822   $ 13,638

Cash paid for income taxes

   $ 4,355   $ —  

The accompanying notes are an integral part of these consolidated and combined financial statements.

 

6


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

1.

ORGANIZATION

Blue Owl Capital Inc. (the “Registrant”), a Delaware corporation, together with its consolidated subsidiaries (collectively, the “Company” or “Blue Owl”), is a leading alternative asset management firm that provides investors access to asset management capital solutions through its Direct Lending and GP Capital Solutions products. The Company’s breadth of offerings and permanent capital base enables it to offer a differentiated, holistic platform of capital solutions to both middle market companies and large alternative asset managers. The Company provides these solutions through permanent capital vehicles, and long-dated private funds, which underly a high degree of earnings stability and predictability of the Company’s business.

The Registrant was initially incorporated in the Cayman Islands as Altimar Acquisition Corporation (“ALT”), a special purpose acquisition company. Pursuant to the Business Combination Agreement dated December 23, 2020, as amended, modified, supplemented or waived from time to time, (the “Business Combination Agreement”), on May 19, 2021 (“Business Combination Date”) (i) ALT was redomiciled as a Delaware corporation and changed its name to Blue Owl Capital Inc., (ii) ALT merged with Owl Rock (as defined below) and (iii) the Company acquired Dyal Capital Partners (“Dyal Capital”), a former division of Neuberger Berman Group LLC (the “Dyal Acquisition”) (collectively, the “Business Combination”). As further discussed in Note 2, for both the ALT merger and the Dyal Acquisition, Owl Rock was deemed to be the acquirer for accounting purposes. Therefore, the predecessor to Blue Owl is “Owl Rock,” a combined carve-out of Owl Rock Capital Group LLC and Blue Owl Securities LLC (formerly, Owl Rock Capital Securities LLC) (“Securities”).

The Company’s primary sources of revenues are management fees, which are generally based on the amount of the Company’s fee-paying assets under management. The Company generates substantially all of its revenues in the United States. The Company operates through one operating and reportable segment. This single reportable segment reflects how the chief operating decision makers allocate resources and assess performance under the Company’s “one-firm approach,” which includes operating collaboratively across product lines, with predominantly a single expense pool.

The Company conducts its operations through Blue Owl Capital Holdings LP (“Blue Owl Capital Holdings”) and Blue Owl Capital Carry LP (“Blue Owl Carry”). Blue Owl Holdings and Blue Owl Carry are referred to, collectively, as the “Blue Owl Operating Partnerships,” and collectively with their consolidated subsidiaries, as the “Blue Owl Operating Group.” The Registrant holds its controlling financial interests in the Blue Owl Operating Group indirectly through Blue Owl Capital GP LLC (“Blue Owl GP”), a wholly owned subsidiary of the Registrant.

Capital Structure

The Registrant has the following share classes and other instruments outstanding:

 

   

Class A Shares—Shares of Class A common stock that are publicly traded and entitle the holders to one vote per share on all matters submitted to a vote of shareholders. The Class A Shareholders are entitled to distributions declared on the Class A Shares by the Registrant’s board of directors (the “Board”).

 

   

Class B Shares—Shares of Class B common stock that are not publicly traded. Class B Shareholders are entitled to a number of votes per share that when combined with Class D Shares, equal 90% of the total voting power of all shares. The Class B Shareholders are entitled to distributions declared on the Class B Shares by the Board. No Class B Shares have been issued as of September 30, 2021. Common Units (as defined below) held by certain senior members of management (“Principals”) are exchangeable on a one-for-one basis for Class B Shares.

 

   

Class C Shares—Shares of Class C common stock that are not publicly traded. Class C Shareholders are entitled to one vote per share on matters submitted to a vote of shareholders. The Class C Shareholders do not participate in the earnings of the Registrant, as the holders of such shares participate directly in the economics of the Blue Owl Operating Group through their Common Units holdings. For every Common Unit held by non-Principals, one Class C Share is issued to such holder to grant them a corresponding voting interest in the Registrant.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

   

Class D Shares—Shares of Class D common stock that are not publicly traded. Class D Shareholders are entitled to a number of votes per share that when combined with Class B Shares, equal 90% of the total voting power of all shares. The Class D Shareholders do not participate in the earnings of the Registrant, as the holders of such shares participate directly in the economics of the Blue Owl Operating Group through their Common Units holdings. For every Common Unit held by Principals, one Class D Share is issued to such holder to grant them a corresponding voting interest in the Registrant.

 

   

Class E Shares—Shares of Class E common stock that are not publicly traded. Class E Shareholders are not entitled to a vote. Class E Shares accrue distributions equal to amounts declared per Class A Share; however, such distributions are paid if and when Triggering Events (defined below) have been met. Class E Shares and Seller Earnout Units (defined below) are collectively referred to as “Earnout Securities.”

In connection with the Business Combination, the Company issued two series of Class E Shares: Series E-1 and Series E-2. Series E-1 and E-2 vest upon a “Triggering Event,” which occurs upon the earlier of (i) the volume weighted-average price of Class A Share exceeds $12.50 or $15.00 per share, respectively, for any 20 consecutive trading days; or (ii) the consideration payable per share of Class A Shares or per Blue Owl Operating Group Units (as defined below) in connection with a merger, consolidation, tender offer, exchange offer or business combination or sale of all or substantially all of the Company’s assets exceeds $12.50 or $15.00 per share, respectively. Any Class E Shares that have not vested by the fifth anniversary of the completion of the Business Combination Date will automatically be cancelled.

The Series E-1 Class E Shares had a Triggering Event on July 21, 2021, as the volume weighted average Class A Share price exceeded $12.50 per share for 20 consecutive trading days. As a result, 7,495,432 Class E Shares were converted into an equal number of Class A Shares.

The Series E-2 Class E Shares had a Triggering Event on November 3, 2021. Please see Note 14 for additional details.

 

   

RSUs—The Company grants Class A restricted share units (“RSUs”) to its employees and independent Board members. An RSU entitles the holder to receive a Class A Share, or cash equal to the fair value of a Class A Share at the election of the Board, upon completion of a requisite service period. All of the RSUs granted as of the date of this report do not accrue dividend equivalents. No RSUs were issued prior to the Business Combination. RSU grants are accounted for as equity-based compensation. See Note 8 for additional information.

 

   

Warrants—In connection with the Business Combination, the Company has issued and outstanding warrants to purchase Class A Shares at a price of $11.50 per share. The warrants expire five years from the completion of the Business Combination and are exercisable starting October 22, 2021. A portion of the outstanding warrants are held by the sponsor of ALT (“Private Placement Warrants”) and the remaining warrants are held by other third-party investors (“Public Warrants”).

Once the warrants become exercisable, the Company may redeem for $0.01 per warrant the outstanding Public Warrants if the Company’s Class A Share price equals or exceeds $18.00 per share, subject to certain conditions and adjustments.

If the Company’s Class A Share price is greater than $10.00 per share but less than $18.00 per share, then the Company may redeem the Public Warrants for $0.10 per warrant, subject to certain conditions and adjustments. Holders may elect to exercise their warrants on a cashless basis.

 

8


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The following table presents the number of shares of the Registrant, RSUs and warrants that were outstanding as of September 30, 2021:

 

     September 30, 2021  

Class A Shares

     357,201,703

Class C Shares

     658,647,360

Class D Shares

     306,894,250

Class E Shares - Series E-2

     7,495,432

RSUs

     9,050,000

Warrants

     14,159,381

The Blue Owl Operating Partnerships have the following equity interests outstanding as of September 30, 2021, which interests along with any future interests issued by the Blue Owl Operating Partnerships (unless context requires otherwise) are collectively referred to as “Blue Owl Operating Group Units”:

 

   

GP Units—The Registrant indirectly holds a general partner interest and all of the GP Units in each of the Blue Owl Operating Partnerships. The GP Units are equity interests in the Blue Owl Operating Partnerships that represent the Registrant’s economic ownership in the Blue Owl Operating Group. For each Class A Share and Class B Share outstanding, the Registrant indirectly holds an equal number of GP Units. References to GP Units refer collectively to a GP Unit in each of the Blue Owl Operating Partnerships as well as any Common Units (as defined below) held directly or indirectly by the Registrant.

 

   

Common Units—Common Units are limited partner interests held by certain members of management, employees and other third parties in the Blue Owl Operating Partnerships. Subject to certain restrictions, Common Units are exchangeable on a one-for-one basis for either Class A Shares if held by a non-Principal or Class B Shares if held by a Principal. Common Unit exchanges may be settled in cash only at the election of the Company’s Exchange Committee, which is comprised of independent members of the Board, and can only be funded from proceeds of a new permanent equity offering. Common Units held by non-Principals are exchangeable for shares of the Registrant after the six-month anniversary of the Business Combination Date. Common Units held by Principals are exchangeable after the two-year anniversary of the Business Combination Date. References to Common Units refer collectively to a Common Unit in each of the Blue Owl Operating Partnerships. Upon an exchange of Common Units for an equal number of Class A or B Shares, a corresponding number of Class C or D Shares, as applicable, will be cancelled.

 

   

Seller Earnout Units—Seller Earnout Units are interests held in the Blue Owl Operating Partnerships that have the same Triggering Events, forfeiture provisions and distribution restrictions as the Class E Shares. In connection with the Business Combination, recipients of Earnout Securities had the option of selecting either Class E Shares or Seller Earnout Units. For recipients that elected to receive Class E Shares, a corresponding number of Seller Earnout Units are indirectly held by the Registrant. Upon meeting the respective Triggering Events, Seller Earnout Units not held directly or indirectly by the Registrant automatically become Common Units, whereas the Seller Earnout Units held directly or indirectly by the Registrant automatically become GP Units.

The Series E-1 Seller Earnout Units had a Triggering Event on July 21, 2021. As a result, (i) 7,495,432 Seller Earnout Units underlying an equal number of Series E-1 Class E Shares were converted into an equal number of GP Units, (ii) 42,504,530 Seller Earnout Units were converted into an equal number of Common Units, and (iii) 42,504,530 non-economic, voting shares of the Registrant were issued to the holders of the converted Common Units (30,266,653 Class C Shares and 12,237,877 Class D Shares).

The Series E-2 Seller Earnout Units had a Triggering Event on November 3, 2021. Please see Note 14 for additional details.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The following table presents the number of Blue Owl Operating Group Units that were outstanding as of September 30, 2021:

 

Units

   September 30, 2021  

GP Units

     357,201,703

Common Units

     965,541,610

Seller Earnout Units - Series E-2(1)

     49,999,962

 

(1)

Includes 7,495,432 units held indirectly by the Registrant, representing the indirect pro rata economic interests of Series E-2 Class E Shares in the Blue Owl Operating Group.

Share Repurchase Program

On May 19, 2021, Blue Owl’s Board authorized the repurchase of up to $100.0 million of Class A Shares. Under the repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual numbers repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and will terminate upon the earlier of May 19, 2022 and the purchase of all shares available under the repurchase program. As of September 30, 2021, the Company had not repurchased any of its Class A Shares.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited, interim, consolidated and combined financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). All intercompany transactions and balances have been eliminated in consolidation and combination. The notes are an integral part of the Company’s consolidated and combined financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the Company’s unaudited, interim, consolidated and combined financial statements have been included and are of a normal and recurring nature. The Company’s comprehensive income (loss) is comprised solely of consolidated and combined net income (i.e., the Company has no other comprehensive income).

Prior to the Business Combination, Blue Owl’s financial statements were prepared on a consolidated and combined basis. As part of the Business Combination, Securities was contributed to the Blue Owl Operating Group. Following the Business Combination, the financial statements are prepared on a consolidated basis. The consolidated and combined financial statements of Blue Owl should be read in connection with the consolidated and combined financial statements of Owl Rock as of December 31, 2020 included in the Company’s Current Report on Form 8-K, relating to the Business Combination, filed with the SEC on May 21, 2021.

The merger between Owl Rock and ALT was accounted for as a reverse asset acquisition, with no step-up to fair value on any assets or liabilities, and therefore no goodwill or other intangible assets were recorded. The Dyal Acquisition was accounted for using the acquisition method of accounting. The Company recorded the fair value of the net assets acquired as of the Business Combination Date. Operating results for Dyal Capital are included starting from the Business Combination Date. See Note 3 for additional information regarding the Dyal Acquisition.

During the third quarter of 2021, the Company began presenting investments separately on its consolidated and combined statements of financial condition. Prior period amounts have been reclassified to conform to the current period presentation.

 

10


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make assumptions and estimates that affect the amounts reported in the consolidated and combined financial statements of the Company. The most critical of these estimates are related to (i) the fair value of the investments held by the products the Company manages, as for many products, this impacts the amount of revenues the Company recognizes each period; (ii) the fair values of the Company’s investments and liabilities with respect to the TRA (the portion considered contingent consideration), warrants and Earnout Securities, as changes in these fair values have a direct impact on the Company’s consolidated and combined net income (loss); (iii) the estimate of future taxable income, which impacts the realizability and carrying amount of the Company’s deferred income tax assets; (iv) the qualitative and quantitative assessments of whether impairments of acquired intangible assets and goodwill exist; and (v) the determination of whether to consolidate a variable interest entity (“VIE”). Inherent in such estimates and judgements relating to future cash flows, which include the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. While management believes that the estimates utilized in preparing the consolidated and combined financial statements are reasonable and prudent, actual results could differ materially from those estimates.

Principles of Consolidation

The Company consolidates those entities in which it has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. The Company determines whether an entity should be consolidated by first evaluating whether it holds a variable interest in the entity. Entities that are not VIEs are further evaluated for consolidation under the voting interest model (“VOE”).

An entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

Fees that are customary and commensurate with the level of services provided by the Company, and where the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. The Company factors in all economic interests, including proportionate interests through related parties, to determine if fees are considered a variable interest. Where the Company’s interests in funds are primarily management fees, incentive fees, and insignificant direct or indirect equity interests through related parties, the Company is not considered to have a variable interest in such entities.

The Company consolidates all VIEs for which it is the primary beneficiary. An entity is determined to be the primary beneficiary if it holds a controlling financial interest, which is defined as having (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The Company does not consolidate any of the products it manages as it does not hold any direct or indirect interests in such entities that could expose the Company to an obligation to absorb losses of an entity or the right to receive benefits from an entity that could potentially be significant to such entities.

 

11


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and continuously reconsiders that conclusion. In evaluating whether the Company is the primary beneficiary, the Company evaluates its direct and indirect economic interests in the entity. The consolidation analysis is generally performed qualitatively, however, if the primary beneficiary is not readily determinable, a quantitative analysis may also be performed. This analysis requires judgment, including: (1) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (2) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the success of the entity, (3) determining whether two or more parties’ equity interests should be aggregated, (4) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity and (5) evaluating the nature of relationships and activities of the parties involved in determining which party within a related-party group is most closely associated with a VIE and therefore would be deemed the primary beneficiary.

Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest. The Company will generally not consolidate those VOEs where a single investor or simple majority of third-party investors with equity have the ability to exercise substantive kick-out or participation rights.

Cash and Cash Equivalents

The Company considers highly-rated liquid investments that have an original maturity of three months or less from the date of purchase to be cash equivalents. As of September 30, 2021 and December 31, 2020, the Company holds the majority of its cash balances with a single financial institution and such balances are in excess of Federal Deposit Insurance Corporation insured limits, which exposes the Company to a certain degree of credit risk concentration.

Investments

Investments are primarily comprised of investments for which the Company has elected the fair value option in order to simplify the accounting for these instruments, and therefore changes in unrealized gains or losses are included in current-period earnings. Such elections are irrevocable and are applied on an investment-by-investment basis at initial recognition. Realized and changes in unrealized gains (losses) on these investments are included within net gains (losses) on investments in the consolidated and combined statements of operations. Investments for which the Company has not elected the fair value option are primarily comprised of equity-method in its products. See Note 9 for additional information.

Leases

Right-of-use assets and liabilities related to operating leases are included within operating lease assets and operating lease liabilities, respectively, in the Company’s consolidated and combined statements of financial condition.

The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended, on January 1, 2021 (“ASC 842”). The Company did not restate prior periods and there were no adjustments to retained earnings upon adoption of ASC 842. The Company applied the package of practical expedients permitted under the transition guidance within the new standard, including carrying forward the historical lease classification and not reassessing whether certain costs capitalized under the prior guidance are eligible for capitalization under ASC 842. The adoption of ASC 842 resulted in the recognition of $13.8 million of operating lease assets and $14.4 million of operating lease liabilities, with the net of these amounts offsetting the deferred rent credit liability in existence immediately prior to adoption.

The Company determines if an arrangement is a lease at inception. Right-of-use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Right-of-use lease assets represent the Company’s right to use a leased asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company does not recognize right-of-use lease assets and lease liabilities for leases with an initial term of one year or less.

 

12


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. The determination of an appropriate incremental borrowing rate requires judgment. The Company determines its incremental borrowing rate based on data for instruments with similar characteristics, including recently issued debt, as well as other factors.

The operating lease assets include any lease payments made and lease incentives. Lease terms include options to extend or terminate when it is reasonably certain that the Company will exercise that option. In addition, the Company separates lease and non-lease components embedded within lease agreements. Lease expense for operating lease payments is recognized on a straight-line basis, which consists of amortization of right-of-use assets and interest accretion on lease liabilities, over the lease term and included within general, administrative and other expenses in the consolidated and combined statements of operations. The Company does not have any material finance leases.

Strategic Revenue-Share Purchase Consideration

On September 20, 2021, the Company entered into three Agreements of Purchase and Sale (the “Strategic Revenue-Share Purchase”), whereby certain fund investors relinquished their rights to receive management fee shares with respect to certain existing and future GP Capital Solutions products. In exchange for the foregoing and additional commitments to certain products, the Registrant issued 29,701,013 Class A Shares with a fair value of $455.0 million and paid cash of $50.2 million (net of previously accrued management fee shares payable) to such fund investors. On October 18, 2021, the Company filed a resale registration statement on Form S-1 to register the 29,701,013 Class A Shares.

The Company determined that it was not receiving a distinct good or service from the customers as a result of the Strategic Revenue-Share Purchase, and as such, determined that the consideration paid to the customers represents a reduction of the transaction price and, therefore, a reduction to revenue. Accordingly, the total consideration paid was recorded as an asset in the Company’s consolidated statements of financial condition and is amortized as a reduction of management fees, net in the Company’s consolidated statements of operations. See Note 6 for additional information.

Intangible Assets, Net and Goodwill

The Company recognized certain finite-lived intangible assets and goodwill as a result of the Dyal Acquisition. The Company’s finite-lived intangible assets consist of contractual rights to earn future management fees from the acquired investment management agreements and value associated with the acquired institutional client relationships and trademarks. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.

The Company tests finite-lived intangible assets for impairment if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable. The Company evaluates impairment by comparing the estimated fair value attributable to the intangible asset with its carrying amount. If an impairment exists, the Company adjusts the carrying value to equal the fair value by taking a charge through earnings. No impairments have been recognized to-date on the Company’s acquired intangible assets.

Goodwill represents the excess of consideration over identifiable net assets of an acquired business. The Company tests goodwill annually for impairment. If, after assessing qualitative factors, the Company believes that it is more-likely-than-not that the fair value of the reporting unit inclusive of goodwill is less than its carrying amount, the Company will perform a quantitative assessment to determine whether an impairment exists. If an impairment exists, the Company adjusts the carrying value of goodwill so that the carrying value of the reporting unit is equal to its fair value by taking a charge through earnings. The Company also tests goodwill for impairment in other periods if an event occurs or circumstances change such that it is more-likely-than-not to reduce the fair value of the reporting unit below its carrying amount. No impairments have been recognized to-date on the Company’s goodwill.

See Note 3 for additional information.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Fixed Assets

Fixed assets are recorded at cost, less accumulated depreciation and amortization, and are included within other assets, net in the Company’s consolidated and combined statements of financial condition. Fixed assets are depreciated or amortized on a straight-line basis, with the corresponding depreciation and amortization expense included within general, administrative and other expenses in the Company’s consolidated and combined statements of operations. The estimated useful life for leasehold improvements is the lesser of the remaining lease term and the life of the asset, while other fixed assets are generally depreciated over a period of two to seven years. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Debt Obligations, Net

The Company’s debt obligations, other than revolving credit facilities, are recorded at amortized cost, net of any debt issuance costs, discounts and premiums. Debt issuance costs are deferred and along with discounts and premiums are amortized to interest expense in the consolidated and combined statements of operations over the life of the related debt instrument using the effective interest method. Unamortized debt issuance costs, discounts and premiums are written off to net losses on retirement of debt in the consolidated and combined statements of operations when the Company prepays borrowings prior to maturity. The Company defers debt issuance costs associated with revolving credit facilities and presents them within other assets, net in the consolidated and combined statements of financial condition, and such amounts are amortized to interest expense in the consolidated and combined statements of operations on a straight-line basis over the life of the related facility.

TRA Liability

The tax receivable agreement (“TRA”) liability represents amounts payable to certain pre-Business Combination equity holders of Owl Rock and Dyal Capital. A portion of the TRA liability related to the Dyal Acquisition is deemed contingent consideration payable to the previous owners of Dyal Capital, and therefore is carried at fair value, with changes in fair value reported within other loss in the consolidated and combined statements of operations. The remaining portion of the TRA is carried at a value equal to the expected future payments due under the TRA. The Company recorded its initial estimate of future payments under the TRA that is not related to the Dyal Acquisition as a decrease to additional paid-in capital and an increase in TRA liability in the consolidated and combined financial statements. Subsequent adjustments to the liability for future payments under the tax receivable agreement related to changes in estimated future tax rates or state income tax apportionment are recognized through current period earnings in the consolidated and combined statements of operations. See Note 11 for additional information.

Warrant Liability

The Company’s warrants are recorded as liabilities carried at fair value, with changes in fair value included within other loss in the Company’s consolidated and combined statements of operations.

The Private Placement Warrants contain exercise and settlement features that may change with a change in the holder, which precludes the Private Placement Warrants from being considered indexed to the Company’s own stock, and therefore the Private Placement Warrants are precluded from being classified within equity and are accounted for as derivative liabilities.

The Public Warrants include a provision that, in the event of a tender offer or exchange offer made to and accepted by holders of more than 50% of the outstanding Class A Shares, all holders of the warrants would be entitled to receive cash for their warrants. Such an event would not constitute a change in control because the Class A Shares do not represent a majority of the Registrant’s voting shares. Accordingly, the Public Warrants are also precluded from being classified within equity and are accounted for as derivative liabilities. This provision also applies to the Private Placement Warrants.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Earnout Securities Liability

Earnout Securities issued in connection with the Dyal Acquisition to the former owners of Dyal who are not part of the continuing management team are treated as contingent consideration and are not considered indexed to the Company’s equity. Similarly, Earnout Securities issued to certain former owners of Owl Rock are not considered indexed to the Company’s equity. These Earnout Securities are accounted for as a liability carried at fair value, with changes in fair value included within other loss in the Company’s consolidated and combined statements of operations. Once recognized, the contingent earnout liability is not derecognized until the contingency is resolved and the consideration is paid or becomes payable.

Earnout Securities issued to certain employees in connection with the Business Combination were treated as compensation for post-combination employment services and accounted for as equity-based compensation. See Note 8 for additional information on these Earnout Securities.

Noncontrolling Interests

Noncontrolling interests are primarily comprised of Common Units and Seller Earnout Units, which are interests in the Blue Owl Operating Group not held by the Company. Allocations to these interests in the consolidated and combined statements of operations are based on the substantive profit-sharing arrangements in the operating agreements of the Blue Owl Operating Partnerships, and to the extent that such allocations are not provisional in nature, as is the case for the Seller Earnout Units, as any allocations to these interests (other than certain minimum tax distributions) would be subject to reversal in the event the Seller Earnout Units do not achieve a Triggering Event and are canceled. Additionally, certain consolidated subsidiaries of the Blue Owl Operating Group are partially owned by third-party investors. Such interests are also presented as noncontrolling interests.

Revenue Recognition

Revenues consist of management fees and administrative, transaction and other fees. The Company recognizes revenues when such amounts are probable that a significant reversal would not occur. The Company recognizes revenue at the time of transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services (i.e., the transaction price). Under this method, revenue is based on a contract with a determinable transaction price and distinct performance obligations with probable collectability. Revenues cannot be recognized until the performance obligations are satisfied and control is transferred to the customer.

Management Fees, Net

Management fees are recognized over the period in which the investment management services are performed because customers simultaneously consume and receive benefits continuously over time. Payment terms and fee rates of management fees vary by product but are generally collected on a quarterly basis and are not subject to clawback.

Management fees for the Company’s business development company (“BDC”) products are typically based on a percentage of average fair value of gross assets excluding cash. For certain BDCs, the management fee base may also include uncalled capital commitments. For the Company’s other Direct Lending products, management fees are typically based on gross or net asset value or investment cost, and also may include uncalled capital.

Management fees also include a fee based on the net investment income of the Company’s BDCs and similarly structured products (“Part I Fees”), which are subject to performance hurdles. Such Part I Fees are classified as management fees in the consolidated and combined statements of operations as they are predictable and recurring in nature, not subject to repayment and cash-settled each quarter.

Management fees for the Company’s GP minority equity investments strategy are generally based on a percentage of capital committed during the investment period, and thereafter generally based on the cost of unrealized investments. For the other GP Capital Solutions strategies, management fees are generally determined based on a percentage of investment cost.

 

15


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Because management fees, including Part I Fees, are generally cash settled every quarter, the uncertainty underlying these fees are resolved each quarter. As such, on a quarterly basis, a subsequent significant reversal in relation to the cumulative revenue recognized is not probable for the quarter in arrears.

As discussed above, amortization of the Strategic Revenue-Share Purchase consideration is recorded as a reduction of management fees, net in the Company’s consolidated and combined statements of operations.

Administrative, Transaction and Other Fees

Administrative, transaction and other fees primarily include fee income, administrative fees and dealer manager revenue.

Fee income is earned for services provided to portfolio companies, which may include arrangement, syndication, origination, structuring analysis, capital structure and business plan advice and other services. The fees are generally recognized as income at the point in time when the services rendered are completed, as there is no ongoing performance requirement.

Administrative fees represent expenses incurred by certain professionals of the Company and reimbursed by products managed by the Company. The Company may incur certain costs in connection with satisfying its performance obligations under administrative agreements – including, but not limited to, employee compensation and travel costs – for which it receives reimbursements from the products it manages. The Company reports these expenses within compensation and benefits and general, administrative and other expenses and reports the related reimbursements as revenues within administrative, transaction and other fees (i.e., on a gross basis) in the consolidated and combined statements of operations.

Dealer manager revenue consists of commissions earned for providing distribution services to certain products. Dealer manager revenue is recorded on an accrual basis at the point in time when the services are completed, as there is no ongoing performance requirement.

The Company is also entitled to receive certain incentive income in the form of incentive fees and carried interest from the products that it manages. Incentive income is based on the investment performance generated over time, subject to the achievement of minimum return levels in certain products. Incentive fees from the Company’s BDCs and certain products within the GP debt financing strategy are realized at the end of a measurement period, typically quarterly or annually. Once realized, such incentive fees are no longer subject to reversal.

For certain non-BDC Direct Lending products and substantially all of the GP Capital Solutions products, incentive income is in the form of carried interest that is allocated to the Company based on cumulative fund performance over time, subject to the achievement of minimum return levels in certain products. The Company recognizes carried interest only to the extent that it is not probable that a significant reversal will occur for amounts recognized. Generally carried interest is earned after a return of all contributions and may be subject to a preferred return to investors; however, the Company is able to catch-up amounts subject to the preferred return in certain cases. Substantially all of the carried interest generated by the Company’s products is allocable to investors, including certain related parties, in vehicles in which the Company does not have a controlling financial interest, and therefore is not included in the Company’s consolidated and combined financial statements. The Company has not recognized any incentive income to-date.

Compensation and Benefits

Cash-Based Compensation

Compensation and benefits consist of salaries, bonuses, commissions, long-term deferral programs, benefits and payroll taxes. Compensation is accrued over the related service period.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Equity-Based Compensation

Equity-based compensation awards are reviewed to determine whether such awards are equity-classified or liability-classified. Compensation expense related to equity-classified awards is equal to their grant-date fair value and recognized on a straight-line basis over the service period. When certain settlement features require an award to be liability-classified, compensation expense is recognized over the service period, and such amount is adjusted at each balance sheet date through the settlement date to the then current fair value of such award.

The Company accounts for forfeitures on equity-based compensation arrangements as they occur. The Company recognizes deferred income tax benefits throughout the service period, based on the grant date fair value. Any tax deduction shortfall or windfall due to the difference between grant date fair value and the ultimate deduction taken for tax purposes is recognized at the time of vesting.

See Note 8 for additional information on the Company’s equity-based compensation plans.

Foreign Currency

The functional currency of the Company’s foreign consolidated subsidiaries is the U.S. dollar, as their operations are considered extensions of U.S. parent operations. Monetary assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars at the closing rates of exchange on the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars using the historical exchange rate. The profit or loss arising from foreign currency transactions are remeasured using the rate in effect on the date of any relevant transaction. Gains and losses on transactions denominated in foreign currencies due to changes in exchange rates are recorded within general, administrative and other expenses.

Income Taxes

Prior to the Business Combination, the Company’s earnings were subject to New York City unincorporated business tax (“UBT”), as well as certain U.S. Federal and foreign taxes. Subsequent to the Business Combination, substantially all of the earnings of the Blue Owl Operating Group remain subject to New York City UBT and additionally, the portion of earnings allocable to the Registrant is subject to corporate tax rates at the Federal and state and local levels. Therefore, the amount of income taxes recorded prior to the Business Combination is not representative of the expenses expected in the future.

The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income that is subject to tax, permanent differences between the Company’s GAAP earnings and taxable income, and the likelihood of recovering deferred tax assets existing as of the balance sheet date. The estimates used to compute the provision for income taxes may change throughout the year as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for future interim periods may vary materially.

Deferred income tax assets and liabilities resulting from temporary differences between the GAAP and tax bases of assets and liabilities are measured at the balance sheet date using enacted income tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. The Company offsets deferred income tax assets and liabilities for presentation in its consolidated and combined statements of financial condition when such assets and liabilities are within the same taxpayer and related to the same taxing jurisdiction.

The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the enacted tax law in the applicable tax jurisdiction. A valuation allowance is established when management determines, based on available information, that it is more-likely-than-not that deferred income tax assets will not be realized. Significant judgment is required in determining whether a valuation allowance should be established, as well as the amount of such valuation allowance.

 

17


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The Company recognizes uncertain income tax positions when it is not more-likely-than-not a tax position will be sustained upon examination. If the Company were to recognize an uncertain tax position, the Company would accrue interest and penalties related to uncertain tax positions as a component of the income tax provision in the consolidated and combined statements of operations.

New Accounting Pronouncements

The Company considers the applicability and impact of all ASUs issued by the FASB. None of the ASUs that have been issued but not yet adopted are expected to have a material impact on the Company’s consolidated and combined financial statements.

 

3.

DYAL ACQUISITION

The following table provides the consideration calculation in connection with the Dyal Acquisition (dollars in thousands):

 

Consideration

      

Equity consideration(1)

   $ 4,285,359

Cash consideration(2)

     973,457

Tax receivable agreement(3)

     101,645

Earnout Securities(3)

     246,788
  

 

 

 

Total Consideration

   $ 5,607,249
  

 

 

 

 

Net Identifiable Assets Acquired and Goodwill

      

Assets acquired:

  

Due from related parties

   $ 13,442

Intangible assets

     2,218,000

Deferred tax asset

     29,770

Other assets, net

     2,096
  

 

 

 

Total assets acquired

     2,263,308

Liabilities assumed:

  

Accrued compensation

     7,376

Deferred tax liability

     170,753

Accounts payable, accrued expenses and other liabilities

     41,352
  

 

 

 

Total liabilities assumed

     219,481
  

 

 

 

Net Identifiable Assets Acquired

   $ 2,043,827
  

 

 

 

Goodwill(4)

   $ 3,563,422
  

 

 

 

 

(1)

Represents share consideration issued to the Dyal Capital selling shareholders based on the fair value of the acquired business, reflecting a discount for lack of control.

(2)

Includes cash consideration paid to reimburse seller for certain pre-acquisition expenses, net of cash received in the Business Combination.

(3)

The TRA and Earnout Securities represent contingent consideration. See Note 9 for additional information on the valuation of these instruments.

(4)

Goodwill represents the amount of total consideration in excess of net identifiable assets acquired. None of the goodwill balance is expected to be deductible by the Blue Owl Operating Partnerships for tax purposes.

During the third quarter of 2021, goodwill was adjusted due to a corresponding change in the institutional investor relationship intangible assets. The acquired investment management agreements, institutional investor relationships and trademarks had a weighted-average amortization period from the date of acquisition of 14.3 years, 10.0 years and 7.0 years, respectively.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Finite Lived Intangible Assets, Net

The following table summarizes the Company’s intangible assets, net (dollars in thousands):

 

     September 30, 2021      Useful Life
(in years)
     Remaining Weighted-Average
Amortization Period as of September

30, 2021
 

Investment management agreements

   $ 1,859,900      1.4  -  20.0        14.0 years  

Institutional investor relationships

     291,400      10.0        9.6 years  

Trademarks

     66,700      7.0        6.6 years  
  

 

 

       

Total Intangible Assets

     2,218,000      

Less: accumulated amortization

     (67,527      
  

 

 

       

Total Intangible Assets, Net

   $ 2,150,473      
  

 

 

       

As of September 30, 2021, future amortization of finite-lived intangible assets is estimated to be (dollars in thousands):

 

Period

   Amortization  

October 1, 2021 to December 31, 2021

   $ 46,362

2022

     183,180

2023

     180,937

2024

     181,433

2025

     178,587

Thereafter

     1,379,974
  

 

 

 

Total

   $ 2,150,473
  

 

 

 

Dyal Capital’s results are included in the Company’s consolidated results starting from the Closing Date. For the three and nine months ended September 30, 2021, the Company’s consolidated results included $97.5 million and $137.3 million of GAAP revenues related to the acquired business, respectively. Given the Company operates through one operating and reportable segment, the impact of the Dyal Acquisition to GAAP consolidated net income is not tracked on a standalone basis.

Pro Forma Financial Information

Unaudited pro forma revenues were $659.0 million and $374.6 million for the nine months ended September 30, 2021 and 2020, respectively. Unaudited pro forma net income (loss) allocated to Class A Shareholders was $(657.6) million and $(14.3) million for the nine months ended September 30, 2021 and 2020, respectively. This pro forma financial information was computed by combining the historical financial information of the predecessor Owl Rock and acquired Dyal Capital businesses as though the Business Combination was consummated on January 1, 2020, assuming a consistent ownership structure, effective tax rate and amortization of the fair value of acquired assets as of the Business Combination Date. The pro forma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual revenues and net income would have been had the businesses actually been combined as of this date.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

4.

DEBT OBLIGATIONS, NET

The table below summarizes outstanding debt obligations of the Company (dollars in thousands):

 

     September 30, 2021  
     Current
Maturity
Date
     Aggregate
Facility
Size
     Outstanding
Debt
     Amount
Available(1)
     Net Carrying
Value
     Average
Interest

Rate(2)
 

2031 Notes

     6/10/2031      $ 700,000    $ 700,000    $ —      $ 683,557      3.13

Revolving Credit Facility

     4/15/2024        150,000      —          149,842      —          N/A  
     

 

 

    

 

 

    

 

 

    

 

 

    

Total

      $ 850,000    $ 700,000    $ 149,842    $ 683,557   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

Amount available is reduced by outstanding letters of credit related to certain leases.

(2)

Average interest rates exclude the impact of deferred financing costs and discounts.

 

     December 31, 2020  
     Current
Maturity
Date
     Aggregate
Facility
Size
     Outstanding
Debt
     Amount
Available(1)
     Net Carrying
Value
     Average
Interest

Rate(2)
 

Revolving Credit Facility #1

     2/28/2022      $ 105,000    $ 92,895    $ 10,377    $ 92,522      4.75

Revolving Credit Facility #2

     8/20/2021        22,000      17,365      4,635      17,303      4.49

Term Loan

     10/25/2029        250,000      250,000      —          246,561      7.86
     

 

 

    

 

 

    

 

 

    

 

 

    

Total

      $ 377,000    $ 360,260    $ 15,012    $ 356,386   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

Amount available is reduced by outstanding letters of credit related to certain leases.

(2)

Average interest rates exclude the impact of deferred financing costs.

2031 Notes

On June 10, 2021, the Company, through its indirect subsidiary, Blue Owl Finance LLC, issued $700.0 million aggregate principal amount of 3.125% Senior Notes due 2031 (the “2031 Notes”). The 2031 Notes bear interest at a rate of 3.125% per annum and mature on June 10, 2031. Interest on the 2031 Notes will be payable semi-annually in arrears on June 10 and December 10 of each year, commencing December 10, 2021.

The 2031 Notes are fully and unconditionally guaranteed, jointly and severally, by the Blue Owl Operating Partnerships and certain of their respective subsidiaries. The guarantees are unsecured and unsubordinated obligations of the guarantors. All or a portion of the 2031 Notes may be redeemed at the Company’s option in whole, at any time, or in part, from time to time, prior to their stated maturity, subject to a make-whole redemption price; provided, however, that if the Company redeems any amounts on or after March 10, 2031, the redemption price for the 2031 Notes will be equal to 100% of the principal amount of the amounts redeemed, in each case, plus any accrued and unpaid interest. If a change of control repurchase event occurs, the 2031 Notes are subject to repurchase by the Company at a repurchase price in cash equal to 101% of the aggregate principal amount repurchased plus any accrued and unpaid interest. The 2031 Notes also provide for customary events of default and acceleration.

Revolving Credit Facility

On April 15, 2021, the Company entered into a $150.0 million credit facility (“Revolving Credit Facility”). The maximum capacity under the Revolving Credit Facility may be increased to $200 million through our exercise of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Revolving Credit Facility matures on April 15, 2024.

 

20


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Borrowings under the credit facility bear interest at a rate per annum equal to: (i) LIBOR + 2.50% or (ii) an alternate base rate (“ABR”) + 1.50% (subject to an ABR floor of 1.00%). The ABR is the greater of: (a) Prime Rate, (b) NY Fed Bank Rate + 0.50%, and (c) LIBOR + 1.00%. The Company also pays a fee on the unused portion of the credit facility in the amount of (i) 0.25% per annum to the extent utilization is greater than 50% and (ii) 0.375% per annum to the extent utilization is less than 50%. Borrowings under the credit facility are secured by a continuing interest in certain management fees, incentive fees and other fees or distributions.

Revolving Credit Facility #1 and #2

In April 2021, the Company repaid all amounts outstanding under and terminated Revolving Credit Facility #1 and #2 in connection with closing the Revolving Credit Facility.

Term Loan

In June 2021, the Company prepaid the $250.0 million term loan agreement (the “Term Loan”) owed to a product managed by the Company with proceeds from the 2031 Notes. This prepayment resulted in a net loss on the retirement of debt of $15.8 million, which is inclusive of call protection premium and write-off of deferred financing costs.

 

5.

LEASES

The Company primarily has non-cancelable operating leases for its headquarters in New York and various other offices. The operating lease for the Company’s headquarters does not include any renewal options (dollars in thousands).

 

Lease Cost

   Three Months Ended
September 30, 2021
     Nine Months Ended
September 30, 2021
 

Operating lease cost

   $ 2,181    $ 4,809

Short term lease cost

     117      166
  

 

 

    

 

 

 

Net Lease Cost

   $ 2,298    $ 4,975
  

 

 

    

 

 

 

 

Supplement Lease Cash Flow Information

   Three Months Ended
September 30, 2021
     Nine Months Ended
September 30, 2021
 

Cash paid for amounts included in the measurement of lease liabilities:

     

Operating cash flows for operating leases

   $ 1,390    $ 4,184

Right-of-use assets obtained in exchange for lease obligations:

     

Operating leases

   $ 10,841    $ 56,909

 

Lease Term and Discount Rate

   September 30, 2021  

Weighted-average remaining lease term:

  

Operating leases

     10.2 years  

Weighted-average discount rate:

  

Operating leases

     3.08

 

21


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Future Maturity of Operating Lease Payments

   Operating Leases  

October 1, 2021 to December 31, 2021

   $ 1,198

2022

     4,151

2023

     9,688

2024

     7,074

2025

     7,010

Thereafter

     51,630
  

 

 

 

Total Lease Payments

     80,751

Imputed interest

     (12,905
  

 

 

 

Total Lease Liabilities

   $ 67,846
  

 

 

 

The Company has future operating lease payments of $24.7 million related to a lease that has not commenced that was entered into as of September 30, 2021. Such lease payments are not included in the table above or the Company’s consolidated statements of financial condition as operating lease assets and operating lease liabilities. These operating lease payments are anticipated to commence in the second half of 2022 and continue for 10.0 years.

 

22


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

6.

REVENUES

The following table presents a disaggregated view of the Company’s revenues:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Direct Lending Products

           

Diversified lending

   $ 90,885    $ 25,108    $ 251,136    $ 73,583

Technology lending

     16,820      10,848      47,404      30,228

First lien lending

     4,098      3,177      11,730      9,006

Opportunistic lending

     1,166      13      2,470      13
  

 

 

    

 

 

    

 

 

    

 

 

 

Management Fees, Net

     112,969      39,146      312,740      112,830

Administrative, transaction and other fees

     37,434      14,897      85,280      30,979
  

 

 

    

 

 

    

 

 

    

 

 

 

Total GAAP Revenues - Direct Lending Products

     150,403      54,043      398,020      143,809
  

 

 

    

 

 

    

 

 

    

 

 

 

GP Capital Solutions Products

           

GP minority equity investments

     85,426      —          121,767      —    

GP debt financing

     6,165      —          6,901      —    

Professional sports minority investments

     160      —          160      —    

Strategic Revenue-Share Purchase consideration amortization

     (970      —          (970      —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Management Fees, Net

     90,781      —          127,858      —    

Administrative, transaction and other fees

     6,691      —          9,481      —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total GAAP Revenues - GP Capital Solutions Products

     97,472      —          137,339      —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total GAAP Revenues

   $ 247,875    $ 54,043    $ 535,359    $ 143,809
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents the beginning and ending balances of the Company’s management fees and administrative, transaction and other fees receivable and unearned management fees. Substantially all of these amounts receivable are generally collected during the following quarter. A liability for unearned management fees is generally recognized when management fees are paid to the Company in advance. The entire change in unearned management fees shown below relates to amounts recognized as revenues in the current year period. Management fees receivable and administrative, transaction and other fees receivable are included within due from related parties and unearned management fees are included within accounts payable, accrued expenses and other liabilities in the Company’s consolidated and combined statements of financial condition.

 

     Nine Months Ended September 30,  
(dollars in thousands)    2021      2020  

Management Fees Receivable

     

Beginning balance

   $ 78,586    $ 32,473

Ending balance

   $ 132,867    $ 36,075

Administrative, Transaction and Other Fees Receivable

     

Beginning balance

   $ 9,876    $ 8,667

Ending balance

   $ 16,376    $ 7,400

Unearned Management Fees

     

Beginning balance

   $ 11,846    $ —  

Ending balance

   $ 10,702    $ —  

 

23


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The table below presents the changes in the Company’s Strategic Revenue-Share Purchase consideration. This asset is amortized as a reduction of management fees, net in the Company’s consolidated statements of operations over a weighted-average period of 12 years, which represents the average period over which the related customer revenues are expected to be recognized.

 

     Strategic Revenue-Share Purchase Consideration  
(dollars in thousands)    Cash      Class A Shares      Total  

December 31, 2020

   $ —      $ —      $ —  

Consideration paid

     50,194      455,020      505,214

Amortization

     (96      (874      (970
  

 

 

    

 

 

    

 

 

 

September 30, 2021

   $ 50,098    $ 454,146    $ 504,244
  

 

 

    

 

 

    

 

 

 

 

7.

OTHER ASSETS, NET

 

(dollars in thousands)

   September 30, 2021      December 31, 2020  

Fixed assets, net:

     

Leasehold improvements

   $ 2,133    $ 2,133

Furniture and fixtures

     1,603      1,612

Computer hardware and software

     1,686      1,286

Accumulated depreciation and amortization

     (2,131      (1,675
  

 

 

    

 

 

 

Fixed assets, net

     3,291      3,356

Prepaid expenses

     8,946      874

Deferred transaction costs

     418      8,255

Other assets

     14,779      1,306
  

 

 

    

 

 

 

Total

   $ 27,434    $ 13,791
  

 

 

    

 

 

 

 

8.

EQUITY-BASED COMPENSATION

The Company may from time-to-time grant equity-based compensation awards in the form of RSUs and Blue Owl Operating Group Units, to its management, employees and the independent members of the Board under the terms of the 2021 Omnibus Equity Incentive Plan (“2021 Equity Incentive Plan”). The total number of Class A Shares and Blue Owl Operating Group Units, collectively, that may be issued under the 2021 Equity Incentive Plan is 101,230,522, of which 92,180,522 remain available as of September 30, 2021. To the extent that an award expires or is canceled, forfeited, terminated, surrendered or exchanged, the unissued awards will again be available for grant under the 2021 Equity Incentive Plan.

In addition, the Company granted Common Units and Seller Earnout Units in connection with the Business Combination, which grants were not made under the 2021 Equity Incentive Plan. A portion of these Common Units and Seller Earnout Units were considered equity-based compensation grants and a portion were considered consideration related to the Dyal Acquisition. The portion considered equity-based compensation is included in the disclosures below. On July 21, 2021, a Triggering Event occurred with respect to one-half of the Earnout Securities, as the volume weighted average Class A Share price equaled or exceeded $12.50 per share for 20 consecutive trading days ending July 21, 2021. In connection with the Triggering Event, the Company recognized $15.0 million of non-cash equity-based compensation expense in the third quarter of 2021.

 

24


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The table below presents information regarding equity-based compensation expense included within compensation and benefits in the Company’s consolidated and combined statements of operations. As of September 30, 2021, no RSUs have been settled in cash or Class A Shares.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Common Units

   $ —      $ —      $ 1,121,139    $ —  

Seller Earnout Units

     15,722      —          53,180      —    

Equity-classified RSUs

     —        $ 12,300    $ —      $ 12,300
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity-Based Compensation Expense

   $ 15,722    $ 12,300    $ 1,174,319    $ 12,300
  

 

 

    

 

 

    

 

 

    

 

 

 

Corresponding tax benefit

   $ —      $ —      $ —      $ —  
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents activity related to the Company’s unvested equity-based compensation awards for the nine months ended September 30, 2021. Common Units and Seller Earnout Units recorded as consideration related to the Dyal Acquisition are not included in these tables, as such units are not accounted for as equity-based compensation expense.

 

     Common Units      Seller Earnout Units      Equity-Classified RSUs  
     Unvested     Weighted-Average
Grant Date Fair
Value Per Unit
     Unvested     Weighted-Average
Grant Date Fair
Value Per Unit
     Unvested     Weighted-Average
Grant Date Fair
Value Per Unit
 

December 31, 2020

     —       $ —        —       $ —        —       $ —  

Granted

     132,808,673     9.00      11,608,004     5.43      9,050,000     10.00

Vested

     (132,808,673     9.00      (5,804,002     6.39      (9,050,000     10.00
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

September 30, 2021

     —       $ —        5,804,002   $ 4.47      —       $ —  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Common Units

Prior to the Business Combination, certain members of Dyal Capital were entitled to receive rights to distributions of certain future profits (the “Profit Interest Units”) that were subject to certain forfeiture conditions that would have lapsed in four equal annual installments beginning on November 3, 2027. In connection with the Business Combination, the forfeiture conditions of the Profit Interest Units were modified to eliminate any future service requirements. The Profit Interest Units were replaced with Common Units on the Business Combination Date. The Company recognized a one-time non-cash equity-based compensation expense of $1.1 billion related to the replacement award, which represents the fair value under GAAP of the replacement awards (excluding the portion attributable to the Profit Interest Units prior to the Business Combination, which was included as equity consideration in Note 3). The fair value of the Common Units replacement award for GAAP purposes was determined based on the share price of the Company on the transaction date with the application of a 10% discount for lack of marketability calculated using an option pricing model with the following assumptions: volatility of 20% and a risk-free rate of 0.9%.

 

25


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Seller Earnout Units

In connection with the Business Combination, the Company granted Seller Earnout Units to certain pre-Business Combination owners that are also ongoing members of management, which grants were accounted for as equity-based compensation. A portion of the Seller Earnout Units were immediately vested upon grant on the Business Combination Date because they were not subject to a service condition. As of September 30, 2021, there was $9.9 million remaining of unrecognized compensation expense related to the Seller Earnout Units, with a remaining weighted average amortization period of 3.4 years. As of September 30, 2021, the Triggering Events had not yet been met with respect to the Series E-2 Earnout Securities, and therefore all of such units are presented as unvested in the table above. In July 2021, a Triggering Event occurred with respect to the Series E-1 Seller Earnout Units, and such units were settled as Common Units. In connection with the Triggering Event, the Company recognized $15.0 million of non-cash equity-based compensation expense in the third quarter of 2021. See Note 1 for additional information. The fair value of the Seller Earnout Units was determined using the Monte Carlo simulation valuation model, with the following assumptions: volatility of 24%, risk-free rate of 0.9%, discount for lack of marketability of 12% and expected holding period of approximately 3 years.

RSUs

On September 15, 2020, the Company issued an award that was based on the fair value of Owl Rock and that was fully vested upon issuance. The original terms of the award required cash settlement at a future date and was, therefore, classified as a liability that was remeasured to its settlement value at each reporting period. The Company recorded compensation expense of $90.5 million in 2020 related to the award. Prior to and contingent on the close of the Business Combination, the Company modified this award to be settled in 9,050,000 RSUs that were immediately vested but would be settled in Class A Shares in future years. The modification did not result in any incremental compensation expense, as the value immediately prior to modification was greater than the value immediately following the modification. Accordingly, the Company reclassified the existing liability of $90.5 million to equity on the Business Combination Date.

 

9.

FAIR VALUE DISCLOSURES

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). The Company and the products it manages hold a variety of assets and liabilities, certain of which are not publicly traded or that are otherwise illiquid. Significant judgement and estimation go into the assumptions that drive the fair value of these assets and liabilities. The fair value of these assets and liabilities may be estimated using a combination of observed transaction prices, prices from third parties (including independent pricing services and relevant broker quotes), models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable. Due to the inherent uncertainty of valuations of assets and liabilities that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.

GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the financial assets and liabilities. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.

Financial assets and liabilities measured at fair value are classified and disclosed into one of the following categories based on the observability of inputs used in the determination of fair values:

 

   

Level I – Quoted prices that are available in active markets for identical financial assets or liabilities as of the    reporting date.

 

   

Level II – Valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. These financial assets and liabilities exhibit higher levels of liquid market observability as compared to Level III financial assets and liabilities.

 

26


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

   

Level III – Pricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the financial asset or liability. The inputs into the determination of fair value of financial assets and liabilities in this category may require significant management judgment or estimation. The fair value of these financial assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, models or other valuation methodologies based on pricing inputs that are neither directly nor indirectly market observable (e.g., cash flows, implied yields).

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial asset or liability when the fair value is based on unobservable inputs.

Fair Value Measurements Categorized within the Fair Value Hierarchy

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis:

 

     September 30, 2021  
(dollars in thousands)    Level I      Level II      Level III      Total  

Investments, at Fair Value

           

Corporate bonds

   $ —      $ 239,463    $ —      $ 239,463

Agency securities

     —          53,139      —          53,139
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —      $ 292,602    $ —      $ 292,602
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities, at Fair Value

           

TRA liability

   $ —      $ —      $ 123,122    $ 123,122

Warrant liability

     43,141      —          24,750      67,891

Earnout Securities liability

     —          —          661,707      661,707
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities, at Fair Value

   $ 43,141    $ —      $ 809,579    $ 852,720
  

 

 

    

 

 

    

 

 

    

 

 

 

Reconciliation of Fair Value Measurements Categorized within Level III

Unrealized gains and losses on the Company’s liabilities carried at fair value on a recurring basis are included within other loss in the consolidated and combined statements of operations. There were no transfers in or out of Level III during the periods presented. The following table sets for a summary of changes in the fair value of the Level III measurements for the three months ended September 30, 2021:

 

     Level III Liabilities  
(dollars in thousands)    TRA Liability      Warrant Liability      Earnout Securities
Liability
     Total  

Beginning balance

   $ 102,791    $ 14,600    $ 954,247    $ 1,071,638

Additional TRA resulting from settlement of Earnout Securities liability

     15,598      —          —          15,598

Settlement of Earnout Securities liability

     —          —          (585,662      (585,662

Net (gains) losses

     4,733      10,150      293,122      308,005
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 123,122    $ 24,750    $ 661,707    $ 809,579
  

 

 

    

 

 

    

 

 

    

 

 

 

Change in net unrealized (gains) on liabilities still recognized at the reporting date

   $ 4,733    $ 10,150    $ 242,132    $ 257,015
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The following table sets forth a summary of changes in the fair value of the Level III measurements for the nine months ended September 30, 2021:

 

     Level III Liabilities  
(dollars in thousands)    TRA Liability      Warrant Liability      Earnout Securities
Liability
     Total  

Beginning balance

   $ —      $ —      $ —      $ —  

Impact of the Business Combination

     101,645      9,131      491,277      602,053

Additional TRA resulting from settlement of Earnout Securities liability

     15,598      —          —          15,598

Settlement of Earnout Securities liability

     —          —          (585,662      (585,662

Net (gains) losses

     5,879      15,619      756,092      777,590
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 123,122    $ 24,750    $ 661,707    $ 809,579
  

 

 

    

 

 

    

 

 

    

 

 

 

Change in net unrealized (gains) on liabilities still recognized at the reporting date

   $ 5,879    $ 15,619    $ 461,490    $ 482,988
  

 

 

    

 

 

    

 

 

    

 

 

 

The settlement of Earnout Securities liability and related additional TRA resulting from the settlement of such liability are non-cash transactions, and as such have not been reflected in the consolidated and combined statements of cash flows.

Valuation Methodologies for Fair Value Measurements Categorized within Levels II and III

Corporate Bonds and Agency Securities

The fair value of corporate bonds and agency securities are estimated based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs. These investments are generally classified as Level II. The Company obtains prices from independent pricing services that generally utilize broker quotes and may use various other pricing techniques, which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data.

TRA Liability

The TRA related to the Dyal Acquisition is considered contingent consideration and is measured at fair value based on discounted future cash flows. The remaining TRA liability is not measured at fair value, as it was not part of the Dyal Acquisition, and therefore was not contingent consideration.

Warrant Liability

The Public Warrants are traded on the NYSE and are stated at the last reported sales price as of each balance sheet date. These warrants are actively traded, and valuation adjustments are not applied, and therefore are classified as Level I.

The Company uses a Monte Carlo simulation model to value the Private Placement Warrants. The Company estimates the volatility of its Class A Shares based on the volatility implied by the Public Warrants. The risk-free interest rate is based on U.S. Treasuries for a maturity similar to the expected remaining life of the warrants. The expected term of the warrants is assumed to be equivalent to their remaining contractual term.

 

28


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Earnout Securities Liability

In connection with the Business Combination, the Company recognized a liability for a certain portion of the Earnout Securities issued (the remaining Earnout Securities were accounted for as equity-classified equity-based compensation). The fair value of the Earnout Securities liability is determined by using a Monte Carlo simulation model to forecast the future price of Class A Shares. The Company estimates the volatility of its Class A Shares based on the volatility implied by the Public Warrants and a review of historical volatility for similar publicly traded companies over a horizon that matches the expected remaining life of the Earnout Securities. The risk-free interest rate is based on U.S. Treasuries for a maturity similar to the expected remaining life of the Earnout Securities. The expected remaining life of the Earnout Securities is assumed to be the equivalent to their remaining contractual term.

Quantitative Inputs and Assumptions for Fair Value Measurements Categorized within Level III

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of September 30, 2021:

 

(dollars in thousands)    Fair Value      Valuation Technique      Significant Unobservable Inputs      Input     Impact to
Valuation from an
Increase in Input
 

TRA liability

   $ 123,122      Discounted cash flow        Discount rate        10     Decrease  

Warrant liability

     24,750      Monte Carlo simulation        Volatility        17     Increase  
           Risk-free rate        1     Increase  

Earnout Securities liability

     661,707      Monte Carlo simulation        Volatility        24     Increase  
           Risk-free rate        1     Increase  
           Discount for lack of marketability        12     Decrease  
  

 

 

            

Total Liabilities, at Fair Value

   $ 809,579           
  

 

 

            

Fair Value of Other Financial Instruments

Management estimates that the carrying value of the Company’s other investments and debt obligations, which are not carried at fair value, approximated their fair values as of September 30, 2021. The fair value measurements for the Company’s other investments are categorized as Level III and its debt obligations are categorized as Level I within the fair value hierarchy.

 

10.

INCOME TAXES

The Company’s income tax provision and related income tax assets and liabilities are based on, among other things, an estimate of the impact of the Business Combination, inclusive of an analysis of tax basis and state tax implications of the Blue Owl Operating Group and their underlying assets and liabilities. The Company’s estimate is based on the most recent information available; however, the impact of the Business Combination cannot be finally determined until the Company’s 2021 tax returns have been filed. The tax basis and state impact of the Blue Owl Operating Group and their underlying assets and liabilities are based on estimates subject to finalization of the Company’s tax returns, and the impact of the Business Combination may differ, possibly materially, from the current estimates described herein.

The Blue Owl Operating Partnerships, and prior to the Business Combination, Owl Rock, are partnerships for U.S. Federal income tax purposes subject to the New York City UBT. Effective upon the consummation of the Business Combination, generally all of the income the Registrant earns will be subject to corporate-level income taxes in the United States. Further, the amount of income taxes recorded prior to the Business Combination are not representative of the expenses expected in the future.

 

29


Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

The Company had an effective tax rate of 5.6% and 0.3% for the three months ended September 30, 2021 and 2020, respectively, and 2.4% and 0.4% for the nine months ended September 30, 2021 and 2020, respectively. The three and nine months ended September 30, 2021 effective tax rates differed from the statutory rate primarily due to the portion of income allocated to noncontrolling interests, nondeductible compensation and state and local taxes. Prior to the Business Combination, the Company was not subject to corporate-level income taxes.

The Company evaluates the realizability of its deferred tax asset on a quarterly basis and may recognize or adjust any valuation allowance when it is more-likely-than-not that all or a portion of the deferred tax asset may not be realized. As of September 30, 2021, the Company has not recorded any valuation allowances. As of and prior to September 30, 2021, the Company has not recognized any liability for uncertain tax positions.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the tax years that remain open under the statute of limitations will be subject to examinations by the appropriate tax authorities. The Company is generally no longer subject to state or local examinations by tax authorities for tax years prior to 2017.

As a result of the Business Combination, the Registrant recognized a deferred tax asset in the amount of $363.6 million to account primarily for the difference between the Company’s book and tax basis in its investment in the Blue Owl Operating Partnerships, as well as a portion related to the TRA liability that will eventually lead to additional tax basis in the Blue Owl Operating Partnerships upon future TRA payments. Net deferred tax assets of $504.6 million related to the purchase of partnership interests from and future TRA payments to the pre-Business Combination owners of Owl Rock and was recorded through additional paid-in capital. Net deferred tax liabilities of $141.0 million related to the purchase of partnership interests from and future TRA payments to the pre-Business Combination owners of Dyal Capital, and therefore were recorded as part of the net identifiable assets recognized as part of the Dyal Acquisition. The deferred tax assets will be recovered as the basis is amortized. Concurrent with the Business Combination and recording of these deferred tax assets, the Company recorded a TRA liability, net of fair value adjustments, of $461.0 million, of which $359.4 million and $101.6 million related to pre-Business Combination owners of Owl Rock (additional paid-in capital) and Dyal Capital (contingent consideration related to the Dyal Acquisition), respectively.

As a result of the Triggering Event for the Series E-1 Class E Shares, the Company recorded a deferred tax asset of $18.5 million to account primarily for the difference between the Company’s book and tax basis in its investment in the Blue Owl Operating Partnerships, as well as a portion related to the TRA liability that will eventually lead to additional tax basis in the Blue Owl Operating Partnerships upon future TRA payments. The $18.5 million deferred tax asset was recorded through additional paid-in capital. Concurrent with recording these deferred tax assets, the Company recorded a TRA liability of $15.6 million. Additionally, as a result of the Strategic Revenue-Share Purchase, the Company recorded a deferred tax asset of $77.6 million to account for the book and tax basis difference in its investment in the Blue Owl Operating Partnerships due to Class A Shares issued in connection with the transaction. The $77.6 million deferred tax asset was recorded through additional paid-in capital.

All of these adjustments to the TRA liability and deferred tax assets and liabilities recorded through additional paid-in capital are non-cash transactions, and as such have not been reflected in the consolidated and combined statements of cash flows.

11. COMMITMENTS AND CONTINGENCIES

Tax Receivable Agreement

Pursuant to the TRA, the Company will pay 85% of certain tax benefits, if any, that it realizes (or in certain cases is deemed to realize) as a result of any increases in tax basis of the assets of the Blue Owl Operating Group related to the Business Combination and any subsequent exchanges of Blue Owl Operating Group Units for shares of the Registrant or cash.

 

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Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Payments under the TRA will continue until all such tax benefits have been utilized or expired unless (i) the Company exercises its right to terminate the TRA and paying recipients an amount representing the present value of the remaining payments, (ii) there is a change of control or (iii) the Company breaches any of the material obligations of the TRA, in which case all obligations will generally be accelerated and due as if the Company had exercised its right to terminate the TRA. In each case, if payments are accelerated, such payments will be based on certain assumptions, including that the Company will have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions.

The estimate of the timing and the amount of future payments under the TRA involves several assumptions that do not account for the significant uncertainties associated with these potential payments, including an assumption that the Company will have sufficient taxable income in the relevant tax years to utilize the tax benefits that would give rise to an obligation to make payments.

The table below presents management’s estimate as of September 30, 2021, of the maximum amounts that would be payable under the TRA assuming that the Company will have sufficient taxable income each year to fully realize the expected tax savings. In light of the numerous factors affecting the Company’s obligation to make such payments, the timing and amounts of any such actual payments may differ materially from those presented in the table.

 

(dollars in thousands)

   Potential Payments Under
the Tax Receivable
Agreement
 

October 1, 2021 to December 31, 2021

   $ —  

2022

     —    

2023

     41,371

2024

     39,183

2025

     39,816

Thereafter

     483,146
  

 

 

 

Total Payments

     603,516

Less adjustment to fair value for contingent consideration

     (121,006
  

 

 

 

Total TRA Liability

   $ 482,510
  

 

 

 

Unfunded Product Commitments

As of September 30, 2021, the Company had unfunded investment commitments to its products of $4.6 million, which is exclusive of commitments that employees and other related parties have to the products.

Indemnification Arrangements

In the normal course of business, the Company enters into contracts that contain indemnities for related parties of the Company, persons acting on behalf of the Company or such related parties and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the consolidated statements of financial condition. As of September 30, 2021, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of material loss to be remote.

Litigation

From time to time, the Company is involved in legal actions in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, the Company does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial condition or cash flows.

 

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Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

12.

RELATED PARTY TRANSACTIONS

The majority of the Company’s revenues, including all management fees and administrative fees, are earned from the products it manages, which are considered related parties.

Reimbursements from the Company’s Products

Administrative fees represent allocable compensation and other expenses incurred by the Company, pursuant to administrative and other agreements, that are reimbursed by products it manages. These administrative fees are included within administrative, transaction and other fees on the consolidated and combined statements of operations and totaled $11.4 million and $21.7 million during the three and nine months ended September 30, 2021, respectively, and $3.4 million and $9.2 million during the three and nine months ended September 30, 2020, respectively.

The Company also has arrangements in place with products that it manages, whereby certain costs are initially paid by the Company and subsequently are reimbursed by the products. These amounts are included within due from related parties in the Company’s consolidated and combined statements of financial condition.

 

(dollars in thousands)    September 30, 2021      December 31, 2020  

Management fees

   $ 132,867    $ 78,586

Administrative fees and other expenses paid on behalf of the Company’s products and other related parties

     51,482      14,112
  

 

 

    

 

 

 

Due from Related Parties

   $ 184,349    $ 92,698
  

 

 

    

 

 

 

Employee Capital Invested in the Company’s Products

The Company’s assets under management include amounts from executives and other employees of approximately $2.5 billion and $480.0 million as of September 30, 2021 and December 31, 2020, respectively, and a portion of these investments are not charged fees. The increase from the prior year is a result of the Business Combination due to the addition of related party investments and commitments in the GP Capital Solutions products.

Expense Support and Caps Arrangements

The Company is party to expense support and cap arrangements with certain of the products it manages. Pursuant to these arrangements, the Company may absorb certain expenses of these products when in excess of stated expense caps or until such products reach certain profitability and cash flow thresholds. In certain cases, the Company is able to recover these expenses once certain profitability and cash flow thresholds are met. The Company recorded expenses (recoveries) related to these arrangements of $(4.1) million and $3.1 million for the three months ended September 30, 2021 and 2020, respectively, and $(1.1) million and $15.5 million for the nine months ended September 30, 2021 and 2020, respectively. These expenses, net of recoveries, are included in general, administrative and other expenses within the consolidated and combined statements of operations.

Aircraft and Other Services

In the normal course of business, the Company reimburses certain related parties for business use of their aircraft based on current market rates. Personal use of the aircraft is not charged to the Company. The Company recorded an expense for aircraft reimbursements of $121 thousand and $290 thousand for the three and nine months ended September 30, 2021, respectively and $82 thousand and $901 thousand for the three and nine months ended September 30, 2020, respectively.

 

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Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

13.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share attributable to Class A Shareholders is computed by dividing the earnings or loss attributable to Class A Shares by the weighted-average number of shares of Class A Shares outstanding during the period. Class E Shares do not participate in the earnings or losses of the Company until a Triggering Event has occurred, and therefore no earnings per share has been presented for these shares. The Company’s Class C and D Shares represent voting interests and do not participate in the earnings of the Company. Accordingly, earnings per share is not presented for Class C and D Shares.

As of September 30, 2021, the Company had 9,050,000 RSUs that have vested but have not been settled in Class A Shares. These contingently issuable shares have been included in the calculation of basic earnings (loss) per Class A Share, but do not participate in earnings until they are settled in Class A Shares.

Diluted earnings (loss) per Class A Share attributable to common shareholders adjusts basic earnings (loss) per Class A Share for the potentially dilutive impact of RSUs, Seller Earnout Units, Common Units, and warrants. Unvested RSUs and all outstanding warrants are included in dilutive earnings per Class A Share using the treasury stock method. Common Units are included using the if-converted method, which takes into account any incremental income tax expense that would have arisen had the Common Units converted into Class A Shares as of the beginning of the period. Seller Earnout Units are included in the denominator in computing dilutive earnings (loss) per Class A Share only when a Triggering Event has occurred, and therefore the contingency has been met. As of September 30, 2021, the Triggering Events on the E-2 Seller Earnout Units had not yet occurred.

 

Three Months Ended
September 30, 2021
   Net Income Attributable
to Class A Shareholders
     Weighted-Average Class A
Shares Outstanding
     Loss Per Class A Share      Number Units Excluded
from Diluted
Calculation
 
     (dollars in thousands, except per share amounts)         

Basic

   $ (53,323      338,472,456    $ (0.16   
  

 

 

    

 

 

    

 

 

    

Effect of dilutive securities:

           

Common Units

     —          —             956,301,495

Warrants

     —          —             14,159,381

Earnout Securities

     —          —             49,999,962
  

 

 

    

 

 

       

Diluted

   $ (53,323      338,472,456    $ (0.16   
  

 

 

    

 

 

    

 

 

    

 

For the Period from
May 19, 2021 to
September 30, 2021
   Net Loss Attributable to
Class A Shareholders
     Weighted-Average Class A
Shares Outstanding
     Loss Per Class A Share      Number Units Excluded
from Diluted
Calculation
 
     (dollars in thousands, except per share amounts)         

Basic

   $ (450,512      335,472,904    $ (1.34   
  

 

 

    

 

 

    

 

 

    

Effect of dilutive securities:

           

Common Units

     (1,292,764      945,706,163         —    

Warrants

     —          —             14,159,381

Earnout Securities

     —          —             49,999,962
  

 

 

    

 

 

       

Diluted

   $ (1,743,276      1,281,179,067    $ (1.36   
  

 

 

    

 

 

    

 

 

    

The Company analyzed the calculation of earnings (loss) per share for periods prior to the Business Combination, and determined that it resulted in values that would not be meaningful to the users of the consolidated and combined financial statements, as the Company’s capital structure completely changed as a result of the Business Combination. Therefore, earnings (loss) per share information has not been presented for periods prior to the Business Combination.

 

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Table of Contents

Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

14.

SUBSEQUENT EVENTS

Dividend

On November 9, 2021, the Company announced a cash dividend of $0.09 per Class A Share. The dividend is payable on November 30, 2021, to holders of record as of the close of business on November 22, 2021.

2051 Notes

On October 7, 2021, the Company, through its indirect subsidiary, Blue Owl Finance LLC, issued $350.0 million aggregate principal amount of 4.125% Senior Notes due 2051 (the “2051 Notes”). The 2051 Notes bear interest at a rate of 4.125% per annum and mature on October 7, 2051. Interest on the 2051 Notes will be payable semi-annually in arrears on April 7 and October 7 of each year, commencing April 7, 2022.

The 2051 Notes are fully and unconditionally guaranteed, jointly and severally, by the Blue Owl Operating Partnerships and certain of their subsidiaries. The guarantees are unsecured and unsubordinated obligations of the guarantors. All or a portion of the 2051 Notes may be redeemed at the Company’s option in whole, at any time, or in part, from time to time, prior to their stated maturity, subject to a make-whole redemption price; provided, however, that if the Company redeems any amounts on or after April 7, 2051, the redemption price for the 2051 Notes will be equal to 100% of the principal amount of the amounts redeemed, in each case, plus any accrued and unpaid interest. If a change of control repurchase event occurs, the 2051 Notes are subject to repurchase by the Company at a repurchase price in cash equal to 101% of the aggregate principal amount repurchased plus any accrued and unpaid interest. The 2051 Notes also provide for customary events of default and acceleration.

Dividend Reinvestment Plan

On October 4, 2021, the Registrant adopted a Dividend Reinvestment Plan (the “DRIP”). Under the DRIP, eligible stockholders have the opportunity to reinvest the cash dividends paid on some or all of their Class A Shares in additional Class A Shares. Class A Shares will be purchased under the DRIP from newly issued shares, shares held in the treasury of the Registrant or shares purchased in the open market or by negotiated transactions. To the extent that Class A Shares issued under the DRIP are authorized but previously unissued shares or treasury shares rather than shares acquired in the open market, the DRIP will raise additional capital for the Company. The registration statement for the DRIP was declared effective on October 18, 2021.

Oak Street Acquisition

On October 18, 2021, the Company announced its entry into an agreement to acquire Oak Street Real Estate Capital, LLC and its investment advisory business (“Oak Street”). The Company will acquire 100% of Oak Street’s management company earnings and 100% of the right to allocate Oak Street’s carried interest earnings on future funds for an aggregate closing purchase price of $950 million. Oak Street’s equity holders will be entitled to receive their respective portions of the consideration in cash and may elect to receive up to approximately 75% of their respective portions of the consideration in the form of Common Units. Up to an aggregate of approximately 39 million Common Units are issuable in satisfaction of the closing purchase price. In addition, upon the achievement of certain performance thresholds, at future dates Oak Street equity holders will be entitled to earnout payments in cash or, at their election, up to an aggregate of approximately 39 million Common Units. The transaction is expected to close in the fourth quarter of 2021, subject to customary closing conditions.

Equity-Based Compensation Grants

Subsequent to September 30, 2021, the Company granted approximately 24.7 million RSUs and Blue Owl Operating Group Units to certain officers, employees and independent members of its Board in connection with the closing of the Business Combination. These grants made to certain officers and employees generally vest in three equal installments on August 15, 2024, 2025 and 2026, and grants made to the independent members of the Company’s Board vest in full on May 19, 2022.

 

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Blue Owl Capital Inc.

(Prior to May 19, 2021, Owl Rock)

Notes to Consolidated and Combined Financial Statements (Unaudited)

 

Earnout Securities Triggering Event

On November 3, 2021, a Triggering Event occurred with respect to the remaining one-half of the Earnout Securities, as the volume weighted average Class A Share price exceeded $15.00 per share for 20 consecutive trading days ending November 3, 2021. As a result, (i) 7,495,432 Class E Shares were converted into an equal number of Class A Shares, (ii) 7,495,432 Seller Earnout Units were converted into an equal number of GP Units, (iii) 42,504,530 Seller Earnout Units were converted into an equal number of Common Units, and (iv) 42,504,530 non-economic, voting shares of the Registrant were issued to the holders of the converted Common Units (30,266,653 Class C Shares and 12,237,877 Class D Shares). In connection with the Triggering Event, the Company will recognize $9.9 million of unrecognized non-cash equity-based compensation expense in the fourth quarter of 2021.

Repurchase of Noncontrolling Interests

In November 2021, the Company repurchased the noncontrolling interests outstanding for a consolidated holding company of one of its BDC advisors. Total cash consideration of $297.1 million was paid using cash on hand.

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), should be read in conjunction with the unaudited consolidated and combined financial statements and the related notes included in this Quarterly Report. For a description of our business, please see “Business of Blue Owl” in the Current Report on Form 8-K filed on May 21, 2021.

2021 Third Quarter Overview

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Net Loss Attributable to Blue Owl Capital Inc. (After May 19, 2021) / Owl Rock (Prior to May 19, 2021)

   $ (53,323    $ (8,622    $ (376,253    $ (28,125

Fee-Related Earnings(1)

   $ 141,858    $ 9,779    $ 286,339    $ 2,063

Distributable Earnings(1)

   $ 142,750    $ 3,595    $ 268,140    $ (16,008

 

(1)

For the specific components and calculations of these Non-GAAP measures, as well as a reconciliation of these measures to the most comparable measure in accordance with GAAP, see “—Non-GAAP Analysis” and “—Non-GAAP Reconciliations.”

Net Loss Attributable to Blue Owl Capital Inc. (“Net Loss”) during the nine months ended September 30, 2021 was impacted by significant non-cash equity-based compensation expenses recognized in connection with the Business Combination. This unfavorable change year-over-year was partially offset by higher management fees from our Direct Lending products due to management fee waivers that were in place in the prior-year period, which impact was also favorable to our Fee-Related Earnings and Distributable Earnings results. Our Net Loss, Fee-Related Earnings and Distributable Earnings were all favorably impacted by the accretive impact from the GP Capital Solutions products that were acquired in connection with the Business Combination. Please see “—GAAP Results of Operations Analysis” and “—Non-GAAP Analysis” for a detailed discussion of the underlying drivers of our results.

Assets Under Management

During the third quarter of 2021, we continued to raise additional capital across both our Direct Lending and GP Capital Solutions products. We finished the quarter with $70.5 billion of AUM, which included $47.0 billion of FPAUM and $9.0 billion of AUM not yet paying fees. During the third quarter of 2021, approximately 97% of our management fees were earned on AUM that we refer to as permanent capital. See “—Assets Under Management” for additional information, including important information on how we define these metrics.

2051 Notes

On October 7, 2021, we completed the offering of $350.0 million of 2051 Notes. We intend to use the net proceeds of the notes for general corporate purposes. Please see Note 14 to our unaudited consolidated and combined financial statements included in this report for additional information.

Oak Street Acquisition

On October 18, 2021, we announced an entry into an agreement to acquire Oak Street using a combination of cash and Common Units. Please see Note 14 to our unaudited consolidated and combined financial statements included in this report for additional information.

Equity-Based Compensation Grants

Subsequent to September 30, 2021, we granted approximately 24.7 million RSUs and Blue Owl Operating Group Units to employees and independent members of our Board of Directors in connection with the closing of the Business Combination. These grants generally vest in three equal installments on August 15, 2024, 2025 and 2026.

 

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Table of Contents

Repurchase of Noncontrolling Interests

In November 2021, we repurchased the noncontrolling interests outstanding for a consolidated holding company of one of our BDC advisors. Total cash consideration of $297.1 million was paid using cash on hand.

Business Environment

Our business is impacted by conditions in the financial markets and economic conditions in the U.S., and to a lesser extent, elsewhere in the world.

Capital markets largely maintained a “pro-risk” stance in the third quarter of 2021, but the overall tone was decidedly more mixed compared to the second quarter of 2021 given both rising volatility and higher rates. In the U.S., credit performance remained resilient, outperforming both traditional fixed income and equities. Despite the market’s moderation in momentum, the prevailing backdrop of stable economic conditions, supportive policy and improved operating performance for business remained constructive for credit investing and capital deployment.

We believe the sustained low interest rate environment has resulted in increasing demand for yield, and significant tailwinds for direct lending. The search for yield has resulted in growing allocations to alternative assets, as investors seek to meet their return objectives. This rotation into alternatives has helped give rise to and sustain continued growth of the direct lending market. Our Direct Lending products continue to attract investor capital given its position as a higher-yielding product with defensive characteristics that provides an attractive income alternative to traditional liquid fixed income and a lower-risk alternative to private equity.

Similarly, in our GP Capital Solutions products, the rising needs of alternative asset managers, which we refer to as “GPs,” for liquidity and stable capital resulted in the strong growth of GP minority stake investing market. While previously GP minority stake investing was relatively infrequent and driven by opportunistic acquisitions by financial institutions and institutional investors, the years after the global financial crisis of 2007 and 2008 were marked by strong growth in the sector. Over the last several years, GP minority stake investing has rapidly evolved. We believe this growth in activity increased awareness of the strategic benefits that alternative asset managers can derive from partnering with long-term, stable capital providers and highlighted to the investor community the merits of investing in portfolios of GP minority investments. Notably, as of the date of this filing, Dyal Fund V has already committed approximately 65% of the capital we expect to raise for this product through four investments, and we just held our first close last November.

We believe that our disciplined investment philosophy across our distinct but complementary products contributes to the stability of our performance throughout market cycles. Our products have a stable base of permanent or long-term capital enabling us to invest in assets with a long-term focus over different points in a market cycle.

 

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Table of Contents

Assets Under Management

We present information regarding our AUM, FPAUM and various other related metrics throughout this MD&A to provide context around our fee generating revenues results, as well as indicators of the potential for future earnings from existing and new products. Our calculations of AUM and FPAUM may differ from the calculation methodologies of other asset managers, and as a result these measures may not be comparable to similar measures presented by other asset managers. In addition, our calculation of AUM includes amounts that are not subject to fees, as further discussed below. AUM amounts presented below are as of September 30, 2021.

 

Blue Owl

AUM: $70.5 billion

Direct Lending Products
AUM: $34.6 billion

  

GP Capital Solutions Products
AUM: $35.9 billion

Diversified Lending

Commenced 2016

AUM: $22.2 billion

  

GP Minority Equity

Commenced 2010

AUM: $34.7 billion

Technology Lending

Commenced 2018

AUM: $6.7 billion

  

GP Debt Financing

Commenced 2019

AUM: $1.0 billion

First Lien Lending

Commenced 2018

AUM: $3.7 billion

  

Professional Sports Minority Investments

Commenced 2021

AUM: $0.2 billion

Opportunistic Lending

Commenced 2020

AUM: $2.0 billion

  

Co-Investments and Structured Equity

Not Yet Launched

Composition of Assets Under Management

Our AUM consists of FPAUM, AUM not yet paying fees, fee exempt AUM and net appreciation in products on which fees are based on commitments or investment cost. AUM not yet paying fees generally relates to unfunded capital commitments (to the extent such commitments are not already subject to fees) and undeployed debt (to the extent we earn fees based on total asset values, inclusive of assets purchased using debt) that will generally begin earning fees once these amounts are invested in the underlying products. Fee exempt AUM represents certain investments by us, our employees, other related parties and third parties, as well as certain co-investment vehicles on which we do not earn fees.

 

LOGO

 

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Table of Contents

Permanency and Duration of Assets Under Management

Our capital base is heavily weighted toward permanent capital. We use the term “permanent capital” to refer to AUM in our products that do not have ordinary redemption provisions or a requirement to exit investments and return the proceeds to investors after a prescribed period of time. Some of these products, however, may be required, or elect, to return all or a portion of capital gains and investment income. Permanent capital includes certain products that are subject to management fee step downs and/or roll-offs over time. Substantially all of our remaining AUM is in what we refer to as “long-dated funds.” These are funds in which the contractual remaining life is five years or more.

We view the permanency and duration of the products that we manage as a differentiator in our industry and as a means of measuring the stability of our future revenues stream. The chart below presents the composition of our management fees by remaining product duration:

 

LOGO

Direct Lending Products—AUM

The tables below present roll forwards of the AUM in our Direct Lending products:

 

     Three Months Ended September 30, 2021     Three Months Ended September 30, 2020  
(dollars in millions)    Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
     Direct
Lending
AUM
    Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
    Direct
Lending
AUM
 

Beginning Balance

   $ 19,792   $ 6,233   $ 3,217   $ 1,914    $ 31,156   $ 13,892   $ 3,929   $ 2,688   $ —     $ 20,509

New capital raised

     501     —         150     73      724     734     127     —         1,039     1,900

Change in debt

     1,907     199     316     —          2,422     445     449     193     1     1,088

Distributions

     (158     (26     (55     —          (239     (139     (14     (11     —         (164

Change in value

     197     247     32     38      514     259     50     30     (2     337
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 22,239   $ 6,653   $ 3,660   $ 2,025    $ 34,577   $ 15,191   $ 4,541   $ 2,900   $ 1,038   $ 23,670
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2021     Nine Months Ended September 30, 2020  
(dollars in millions)    Diversified
Lending
    Technology
Lending
    First
Lien

Lending
    Opportunistic
Lending
    Direct
Lending
AUM
    Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
    Direct
Lending
AUM
 

Beginning Balance

   $ 17,234   $ 5,387   $ 3,014   $ 1,466   $ 27,101   $ 12,490   $ 3,491   $ 2,655   $ —     $ 18,636

New capital raised

     945     8     150     605     1,708     1,486     444     —         1,039     2,969

Change in debt

     3,915     861     510     (133     5,153     1,524     563     246     1     2,334

Distributions

     (451     (62     (103     —         (616     (547     (33     (27     —         (607

Change in value

     596     459     89     87     1,231     238     76     26     (2     338
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 22,239   $ 6,653   $ 3,660   $ 2,025   $ 34,577   $ 15,191   $ 4,541   $ 2,900   $ 1,038   $ 23,670
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

For the three and nine months ended September 30, 2021, our Direct Lending products experienced AUM growth of $3.4 billion and $7.5 billion, or 11% and 28%, respectively, as we continued to grow assets through a combination of fundraising and new debt facilities, as well as portfolio appreciation.

Direct Lending Products—FPAUM

 

     Three Months Ended September 30, 2021     Three Months Ended September 30, 2020  
(dollars in millions)    Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
     Direct
Lending
FPAUM
    Diversified
Lending
    Technology
Lending
    First Lien
Lending
     Opportunistic
Lending
    Direct
Lending
FPAUM
 

Beginning Balance

   $ 15,714   $ 5,366   $ 2,528   $ 554    $ 24,162   $ 11,001   $ 3,596   $ 1,963    $ —     $ 16,560

New capital raised / deployed

     2,527     363     (305     223      2,808     882     395     71      47     1,395

Distributions

     (153     (22     (37     —          (212     (132     (16     —          —         (148

Change in value

     198     245     9     30      482     259     52     18      (2     327
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance

   $ 18,286   $ 5,952   $ 2,195   $ 807    $ 27,240   $ 12,010   $ 4,027   $ 2,052    $ 45   $ 18,134
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2021     Nine Months Ended September 30, 2020  

(dollars in millions)

   Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
     Direct
Lending
FPAUM
    Diversified
Lending
    Technology
Lending
    First Lien
Lending
    Opportunistic
Lending
    Direct
Lending
FPAUM
 

Beginning Balance

   $ 13,536   $ 4,772   $ 2,392   $ 162    $ 20,862   $ 10,337   $ 3,228   $ 1,713   $ —     $ 15,278

New capital raised / deployed

     4,600     792     (172     576      5,796     1,990     763     344     47     3,144

Distributions

     (443     (71     (57     —          (571     (556     (43     —         —         (599

Change in value

     593     459     32     69      1,153     239     79     (5     (2     311
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 18,286   $ 5,952   $ 2,195   $ 807    $ 27,240   $ 12,010   $ 4,027   $ 2,052   $ 45   $ 18,134
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the three and nine months ended September 30, 2021, we experienced FPAUM growth of $3.1 billion and $6.4 billion, or 13% and 31%, respectively, as we continued to deploy capital, both from equity raises and from debt facilities. Each of these drivers contributed to our overall growth in management fees, as we earn management fees on the total amount of gross assets for the majority of the FPAUM in our Direct Lending products.

Direct Lending Products—Additional Details

The charts below present as of September 30, 2021 our available capital, which we may also refer to as “dry powder,” and AUM not yet paying fees for our Direct Lending products (dollars in billions).

 

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Table of Contents

GP Capital Solutions Products—AUM

 

     Three Months Ended September 30, 2021     Three Months Ended September 30, 2020  
(dollars in millions)    GP Minority
Equity
    GP Debt
Financing
    Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
AUM
    GP Minority
Equity
    GP Debt
Financing
    Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
AUM
 

Beginning Balance

   $ 30,035   $ 1,021   $ 155    $ —      $ 31,211   $ 22,050   $ 1,010   $ —      $ —      $ 23,060

New capital raised

     1,556     —         42      —          1,598     (1     —         —          —          (1

Distributions

     (249     —         —          —          (249     (91     —         —          —          (91

Change in value

     3,392     (12     —          —          3,380     522     (1     —          —          521
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 34,734   $ 1,009   $ 197    $ —      $ 35,940   $ 22,480   $ 1,009   $ —      $ —      $ 23,489
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2021     Nine Months Ended September 30, 2020  
(dollars in millions)    GP Minority
Equity
    GP Debt
Financing
     Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
AUM
    GP Minority
Equity
    GP Debt
Financing
    Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
AUM
 

Beginning Balance

   $ 25,211   $ 1,009    $ —      $ —      $ 26,220   $ 21,990   $ 1,011   $ —      $ —      $ 23,001

New capital raised

     2,793     —          197      —          2,990     218     —         —          —          218

Distributions

     (453     —          —          —          (453     (698     —         —          —          (698

Change in value

     7,183     —          —          —          7,183     970     (2     —          —          968
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 34,734   $ 1,009    $ 197    $ —      $ 35,940   $ 22,480   $ 1,009   $ —      $ —      $ 23,489
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

For the three and nine months ended September 30, 2021, AUM in our GP Capital Solutions products increased by $4.7 billion and $9.7 billion, or 15% and 37%, respectively, which was primarily driven by portfolio appreciation, as well as new capital raises in Dyal Fund V.

GP Capital Solutions Products—FPAUM

 

     Three Months Ended September 30, 2021     Three Months Ended September 30, 2020  
(dollars in millions)    GP Minority
Equity
    GP Debt
Financing
    Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
FPAUM
    GP Minority
Equity
    GP Debt
Financing
     Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
FPAUM
 

Beginning Balance

   $ 18,134   $ 523   $ —      $ —      $ 18,657   $ 17,096   $ 345    $ —      $ —      $ 17,441

New capital raised / deployed

     1,084     1     92      —          1,177     —         —          —          —          —    

Distributions

     (114     (1     —          —          (115     (11     —          —          —          (11
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 19,104   $ 523   $ 92    $ —        $ 19,719   $ 17,085   $ 345    $ —      $ —      $ 17,430
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2021     Nine Months Ended September 30, 2020  
(dollars in millions)    GP Minority
Equity
    GP Debt
Financing
    Professional
Sports
Minority
Investments
     Co-
Investments
and
Structured
Equity
     GP Capital
Solutions
FPAUM
    GP Minority
Equity
    GP Debt
Financing
     Professional
Sports
Minority
Investments
     Co-Investments
and Structured
Equity
     GP Capital
Solutions
FPAUM
 

Beginning Balance

   $ 17,050   $ 558   $ —      $ —      $ 17,608   $ 17,251   $ 295    $ —      $ —      $ 17,546

New capital raised / deployed

     2,158     210     92      —          2,460     18     50      —          —          68

Distributions

     (104     (245     —          —          (349     (184     —          —          —          (184
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Ending Balance

   $ 19,104   $ 523   $ 92    $ —      $ 19,719   $ 17,085   $ 345    $ —      $ —      $ 17,430
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

For the three and nine months ended September 30, 2021, FPAUM in our GP Capital Solutions products increased by $1,062.0 million and $2.1 billion, or 6% and 12%, respectively. The growth in the year-to-date period was primarily driven by additional commitments in Dyal Fund V.

 

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Table of Contents

GP Capital Solutions Products—Additional Details

The charts below present as of September 30, 2021 our available capital and AUM not yet paying fees for our GP Capital Solutions products (dollars in billions):

 

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Product Performance

Product performance for certain of our products is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. The performance information of our products reflected is not indicative of our performance. An investment in Blue Owl is not an investment in any of our products. Past performance is not indicative of future results. As with any investment, there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these products or our other existing and future products will achieve similar returns.

Direct Lending Products

 

                                                      MoIC      IRR  
(dollars in millions)    Year of
Inception
     AUM      Capital
Raised
(1)
     Invested
Capital
(2)
     Realized
Proceeds
(3)
     Unrealized
Value
(4)
     Total
Value
     Gross (5)      Net (6)      Gross (7)     Net (8)  
Diversified Lending                                

Owl Rock Capital Corp. (ORCC)

     2016      $ 14,637    $ 5,997    $ 6,009    $ 1,779    $ 5,877    $ 7,656      1.35x        1.27x        11.7     9.1

Owl Rock Capital Corp. II (ORCC II) (9)

     2017      $ 2,633    $ 1,389    $ 1,362    $ 223    $ 1,359    $ 1,582      N/A        1.16x        N/A       7.3
Technology Lending                                
Owl Rock Technology Finance Corp. (ORTF)      2018      $ 6,652    $ 3,180    $ 2,651    $ 198    $ 3,059    $ 3,257      1.29x        1.23x        23.2     18.1
First Lien Lending (10)                                

Owl Rock First Lien Fund Levered

     2018      $ 3,112    $ 986    $ 813    $ 75    $ 864    $ 939      1.20x        1.16x        11.9     9.5

Owl Rock First Lien Fund Unlevered

     2019         $ 175    $ 137    $ 5    $ 141    $ 146      1.10x        1.07x        5.9     3.9

 

(1)

Includes reinvested dividends, if applicable.

(2)

Invested capital includes capital calls, reinvested dividends and periodic investor closes, as applicable.

(3)

Realized proceeds represent the sum of all cash distributions to investors.

(4)

Unrealized value represents the product’s NAV. There can be no assurance that unrealized values will be realized at the valuations indicated.

 

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Table of Contents
(5)

Gross multiple of invested capital (“MoIC”) is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Gross MoIC is before giving effect to management fees (including Part I Fees) and Part II Fees.

(6)

Net MoIC measures the aggregate value generated by a product’s investments in absolute terms. Net MoIC is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Net MoIC is calculated after giving effect to fees, as applicable, and all other expenses.

(7)

Gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Gross IRRs are calculated before giving effect to management fees (including Part I Fees) and Part II Fees, as applicable.

(8)

Net IRRs are calculated consistent with gross IRRs, but after giving effect to management fees (including Part I Fees) and Part II Fees, as applicable, and all other expenses. An individual investor’s IRR may be different to the reported IRR based on the timing of capital transactions.

(9)

For the purposes of calculating Gross IRR, the expense support provided to the fund would be impacted when assuming a performance excluding management fees (including Part I Fees) and Part II Fees, and therefore is not applicable to ORCC II.

(10)

Owl Rock First Lien Fund is comprised of three feeder funds: Onshore Levered, Offshore Levered and Insurance Unlevered. The gross and net MoIC and IRR presented in the chart are for Onshore Levered and Insurance Unlevered as those are the largest of the levered and unlevered feeder funds. The gross and net MoIC for the Offshore Levered feeder fund is 1.18x and 1.13x, respectively. The gross and net IRR for the Offshore Levered feeder is 11.0% and 7.4%, respectively. All other values for Owl Rock First Lien Fund Levered are for Onshore Levered and Offshore Levered combined. AUM is presented as the aggregate of the three Owl Rock First Lien Fund feeders. Owl Rock First Lien Fund Unlevered Investor equity and note commitments are both treated as capital for all values.

GP Capital Solutions Products

 

                                                      MoIC      IRR  
(dollars in millions)    Year of
Inception
     AUM      Capital
Raised
     Invested
Capital
(2)
     Realized
Proceeds
(3)
     Unrealized
Value
(4)
     Total
Value
     Gross(5)      Net(6)      Gross(7)     Net(8)  

GP Minority Equity(1)

                               

Dyal I

     2011      $ 916    $ 1,284    $ 1,248    $ 583    $ 683    $ 1,266      1.16x        1.01x        3.4     0.3

Dyal II

     2014      $ 2,373    $ 2,153    $ 1,846    $ 396    $ 1,807    $ 2,203      1.31x        1.19x        9.3     5.5

Dyal III

     2015      $ 8,300    $ 5,318    $ 3,241    $ 2,424    $ 4,193    $ 6,617      2.43x        2.04x        33.1     24.8

Dyal IV

     2018      $ 12,480    $ 9,041    $ 3,765    $ 1,825    $ 4,780    $ 6,605      2.08x        1.75x        139.5     86.1

Dyal V

     2020      $ 4,966    $ 4,368    $ 144    $ —      $ 631    $ 631      NM        NM        NM       NM  

 

(1)

Valuation-related amounts and performance metrics, as well as invested capital and realized proceeds, are presented on a quarter lag and are exclusive of investments made by the related carried interest vehicles of the respective products.

(2)

Invested capital includes capital calls.

(3)

Realized proceeds represent the sum of all cash distributions to investors.

(4)

Unrealized value represents the product’s NAV. There can be no assurance that unrealized values will be realized at the valuations indicated.

(5)

Gross multiple of invested capital (“MoIC”) is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Gross MoIC is before giving effect to management fees and carried interest, as applicable.

(6)

Net MoIC measures the aggregate value generated by a product’s investments in absolute terms. Net MoIC is calculated by adding total realized proceeds and unrealized values of a product’s investments and dividing by the total amount of invested capital. Net MoIC is calculated after giving effect to fees, as applicable, and all other expenses.

(7)

Gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Gross IRRs are calculated before giving effect to management fees and carried interest, as applicable.

(8)

Net IRR is an annualized since inception net internal rate of return of cash flows to and from the product and the product’s residual value at the end of the measurement period. Net IRRs are calculated after giving effect to fees, as applicable, and all other expenses. An individual investor’s IRR may be different to the reported IRR based on the timing of capital transactions.

 

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Table of Contents

GAAP Results of Operations Analysis

As a result of the Dyal Acquisition, prior year amounts are not comparable to current year amounts or expected future trends. Dyal Capital’s results of operations are included from the Business Combination Date.

Three Months Ended September 30, 2021, Compared to the Three Months Ended September 30, 2020

 

     Three Months Ended September 30,         
(dollars in thousands)    2021      2020      $ Change  

Revenues

        

Management fees, net (includes Part I Fees of $43,659 and $2,701)

   $ 203,750    $ 39,146    $ 164,604

Administrative, transaction and other fees

     44,125      14,897      29,228
  

 

 

    

 

 

    

 

 

 

Total Revenues, Net

     247,875      54,043      193,832
  

 

 

    

 

 

    

 

 

 

Expenses

        

Compensation and benefits

     96,910      44,214      52,696

Amortization of intangible assets

     46,191             46,191

General, administrative and other expenses

     28,438      13,642      14,796
  

 

 

    

 

 

    

 

 

 

Total Expenses

     171,539      57,856      113,683
  

 

 

    

 

 

    

 

 

 

Other Loss

        

Net losses on investments

     (145      —          (145

Interest expense

     (6,112      (6,127      15

Change in TRA liability

     (4,733      —          (4,733

Change in warrant liability

     (27,462      —          (27,462

Change in Earnout Securities liability

     (293,122      —          (293,122
  

 

 

    

 

 

    

 

 

 

Total Other Loss

     (331,574      (6,127      (325,447
  

 

 

    

 

 

    

 

 

 

Loss Before Income Taxes

     (255,238      (9,940      (245,298
Income tax benefit      (14,391      (26      (14,365
  

 

 

    

 

 

    

 

 

 

Consolidated and Combined Net Loss

     (240,847      (9,914      (230,933

Net loss attributable to noncontrolling interests

     187,524      1,292      186,232
  

 

 

    

 

 

    

 

 

 

Net Loss Attributable to Blue Owl Capital Inc. (After May 19, 2021) / Owl Rock (Prior to May 19, 2021)

   $ (53,323    $ (8,622    $ (44,701
  

 

 

    

 

 

    

 

 

 

Revenues, Net

Management Fees. The increase in our management fees compared to the same period for the prior year was primarily driven by the $90.8 million accretive impact of our GP Capital Solutions’ management fees as a result of the Business Combination and the fee waivers in ORCC that expired in October 2020. These waivers totaled $40.5 million (inclusive of $22.3 million of Part I Fees) for the three months ended September 30, 2020. The remaining increase was driven primarily by the overall growth in FPAUM across all of our Diversified Lending product strategies. See Note 6 to our consolidated and combined financial statements for additional details on our GAAP management fees by product and strategy.

Administrative, Transaction and Other Fees. The increase in administrative, transaction and other fees was driven primarily by a $16.7 million increase in fee income earned for services provided to portfolio companies.

Expenses

Compensation and Benefits. Compensation and benefits increased due to a 72% increase in headcount from September 30, 2020 to September 30, 2021, which is inclusive of the increase in headcount related to the Dyal Acquisition.

 

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Table of Contents

Amortization of Intangible Assets. These expenses relate to the amortization of intangible assets acquired in connection with the Dyal Acquisition. See Note 3 to our unaudited consolidated and combined financial statements included in this report for additional information.

General, Administrative and Other Expenses. General, administrative and other expenses increased primarily driven by Transaction expenses of $4.1 million that were not eligible to be netted against proceeds for GAAP, a $4.0 million increase in placement fees primarily due to closes in Dyal Fund V, and a $2.7 million increase in other professional services driven by higher legal and accounting expenses associated with being a public company. The remaining net increase was primarily due to increased travel and office-related expenses as we transition from working remotely back to the office. Partially offsetting these increases in expense was a $7.1 million decrease in expense support to certain products.

Other Loss

Interest Expense. Interest expense remained relatively flat as higher interest rate borrowings previously outstanding under the $250.0 million Term Loan and our current and former revolving credit facilities were replaced by the lower interest rate borrowing under the $700.0 million 2031 Notes during the second quarter of 2021.

Change in TRA liability. The change in TRA liability was due to the impact of the time value of money on the portion of the TRA that is carried at fair value (i.e., Dyal Acquisition contingent consideration).

Change in warrant liability. The change in warrant liability was driven by the increase in the price of our publicly traded warrants, as such price directly impacts the Public Warrants and is also a significant input to the valuation of our Private Placement Warrants.

Change in Earnout Securities liability. The change in Earnout Securities liability was primarily due to the increase in our Class A Share price, as such input is a material driver of the valuation of the Earnout Securities carried at fair value.

Income Tax Benefit

Prior to the Business Combination, our income was generally subject to New York City unincorporated business tax (“UBT”), as the operating entities are partnerships for U.S. Federal income tax purposes. In connection with the Business Combination, the portion of income allocable to the Registrant is also generally subject to corporate tax rates at the Federal and state and local levels. This resulted in an increase in income tax benefit in the current year period. Please see Note 10 to our unaudited consolidated and combined financial statements included in this report for a discussion of the significant tax differences that impacted our effective tax rate.

Net Loss Attributable to Noncontrolling Interests

Net 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 loss due to the drivers discussed above. The Common Units represent an approximately 73% interest in the Blue Owl Operating Group. Prior to the Business Combination, amounts attributable to noncontrolling interests were not significant.

 

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Table of Contents

Nine Months Ended September 30, 2021, Compared to the Nine Months Ended September 30, 2020

 

     Nine Months Ended September 30,         
(dollars in thousands)    2021      2020      $ Change  

Revenues

        

Management fees, net (includes Part I Fees of $108,646 and $9,052)

   $ 440,598    $ 112,830    $ 327,768

Administrative, transaction and other fees

     94,761      30,979      63,782
  

 

 

    

 

 

    

 

 

 

Total Revenues, Net

     535,359      143,809      391,550
  

 

 

    

 

 

    

 

 

 

Expenses

        

Compensation and benefits

     1,366,459      108,658      1,257,801

Amortization of intangible assets

     67,527      —          67,527

General, administrative and other expenses

     94,818      48,457      46,361
  

 

 

    

 

 

    

 

 

 

Total Expenses

     1,528,804      157,115      1,371,689
  

 

 

    

 

 

    

 

 

 

Other Loss

        

Net losses on investments

     (145      —          (145

Net losses on retirement of debt

     (16,145      —          (16,145

Interest expense

     (17,787      (18,007      220

Change in TRA liability

     (5,879      —          (5,879

Change in warrant liability

     (42,762      —          (42,762

Change in Earnout Securities liability

     (756,092      —          (756,092
  

 

 

    

 

 

    

 

 

 

Total Other Loss

     (838,810      (18,007      (820,803
  

 

 

    

 

 

    

 

 

 

Loss Before Income Taxes

     (1,832,255      (31,313      (1,800,942

Income tax benefit

     (43,402      (119      (43,283
  

 

 

    

 

 

    

 

 

 

Consolidated and Combined Net Loss

     (1,788,853      (31,194      (1,757,659

Net loss attributable to noncontrolling interests

     1,412,600      3,069      1,409,531
  

 

 

    

 

 

    

 

 

 

Net Loss Attributable to Blue Owl Capital Inc.

   $ (376,253    $ (28,125    $ (348,128
  

 

 

    

 

 

    

 

 

 

Revenues, Net

Management Fees. In addition to the increase in management fees resulting from the $127.9 million accretive impact of GP Capital Solution’s management fees from the Business Combination Date, management fees increased primarily due to the fee waivers in ORCC that expired in October 2020. These waivers totaled $123.5 million (inclusive of $70.5 million of Part I Fees) for the nine months ended September 30, 2020. The remaining increase was driven primarily by the overall growth in FPAUM across all of our Diversified Lending product strategies. See Note 6 to our consolidated and combined financial statements for additional details on our GAAP management fees by product and strategy.

Administrative, Transaction and Other Fees. The increase in administrative, transaction and other fees was driven primarily by a $41.7 million increase in fee income earned for services provided to portfolio companies. Also contributing to the year-over-year increase was $9.5 million of fees related to our GP Capital Solutions products, which are included from the Business Combination Date.

Expenses

Compensation and Benefits. Compensation and benefits expenses increased due to non-cash equity-based compensation charges totaling $1.2 billion in connection with Blue Owl Operating Group Units issued in connection with the Business Combination, as discussed further in Note 8 to our unaudited consolidated and combined financial statements included in this report. Excluding these Business Combination-related charges, compensation and benefits increased $99.2 million, driven primarily by a 72% growth in headcount from September 30, 2020 to September 30, 2021, which is inclusive of the increase in headcount related to the Dyal Acquisition.

Amortization of Intangible Assets. These expenses relate to the amortization of intangible assets acquired in connection with the Dyal Acquisition. See Note 3 to our unaudited consolidated and combined financial statements included in this report for additional information.

 

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General, Administrative and Other Expenses. The increase in general, administrative and other expenses was primarily due to Business Combination-related expenses of $40.2 million that were not eligible to be netted against proceeds for GAAP, a $4.8 million increase in other professional services driven by higher legal and accounting expenses associated with being a public company and a $4.7 million increase in placement fees primarily due to closes in Dyal Fund V. The remaining net increase was primarily due to increased travel and office-related expenses as we transition from working remotely back to the office. Partially offsetting these increases in expense was a $16.4 million decrease in expense support to certain products.

Other Loss

Net losses on retirement of debt. The net loss on retirement of debt in the current year period was primarily due to a $12.5 million call protection premium paid in connection with the early repayment of our Term Loan. The remaining amount relates to the write-off of unamortized deferred financing costs related to the Term Loan and former revolving credit facilities. See Note 4 to our unaudited consolidated and combined financial statements included in this report for additional information.

Interest Expense. Interest expense remained relatively flat as higher interest rate borrowings previously outstanding under the $250.0 million Term Loan and our current and former revolving credit facilities, were replaced by the lower interest rate borrowing under the $700.0 million 2031 Notes during the second quarter of 2021.

Change in TRA liability. The change in TRA liability was due to the impact of the time value of money on the portion of the TRA that is carried at fair value (i.e., Dyal Acquisition contingent consideration).

Change in warrant liability. The change in warrant liability was driven by the increase in the price of our publicly traded warrants, as such price directly impacts the Public Warrants and is also a significant input to the valuation of our Private Placement Warrants.

Change in Earnout Securities liability. The change in Earnout Securities liability was primarily due to the increase in our Class A Share price, as such input is a material driver of the valuation of the Earnout Securities carried at fair value.

Income Tax Benefit

Prior to the Business Combination, our income was generally subject to New York City UBT, as the operating entities are partnerships for U.S. Federal income tax purposes. In connection with the Business Combination, the portion of income allocable to the Registrant is also generally subject to corporate tax rates at the Federal and state and local levels. This resulted in an increase in income tax benefit in the current year period. Please see Note 10 to our unaudited consolidated and combined financial statements included in this report for a discussion of the significant tax differences that impacted our effective tax rate.

Net Loss Attributable to Noncontrolling Interest

Net 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 loss due to the drivers discussed above. The Common Units represent an approximately 73% interest in the Blue Owl Operating Group. Prior to the Business Combination, amounts attributable to noncontrolling interests were not significant.

Non-GAAP Analysis

In addition to presenting our consolidated and combined results in accordance with GAAP, we present certain other financial measures that are not presented in accordance with GAAP. Management uses these measures to assess the performance of our business, and we believe that this information enhances the ability of shareholders to analyze our performance from period to period. These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of our GAAP results, and such measures should not be considered as indicative of our liquidity. Our non-GAAP measures may not be comparable to other similarly titled measured used by other companies. Please see “—Non-GAAP Reconciliations” for reconciliations of these measures to the most comparable measures prepared in accordance with GAAP.

 

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Fee-Related Earnings and Related Components

Fee-Related Earnings is a supplemental non-GAAP measure of operating performance used to make operating decisions and assess our operating performance. Fee-Related Earnings excludes certain items that are required for the presentation of our results on a GAAP basis. Management also reviews the components that comprise Fee-Related Earnings (i.e., Adjusted Revenues and Adjusted Expenses) on the same basis used to calculate Fee-Related Earnings, and such components are also non-GAAP measures and have been identified as “Adjusted” in the tables and discussion below. Management believes that by excluding these items, which are described below, Fee-Related Earnings and its components can be useful as supplemental measures to our GAAP results in assessing our operating performance and focusing on whether our recurring revenues, primarily consisting of management fees, are sufficient to cover our recurring operating expenses.

Fee-Related Earnings exclude various items that are required for the presentation of our results under GAAP, including the following: noncontrolling interests in the Blue Owl Operating Partnerships; equity-based compensation expense; amortization of intangible assets; Business Combination and other strategic transaction-related expenses (“Transaction Expenses”); net gains (losses) on investments, changes in TRA, Earnout Securities and warrant liabilities; net losses on retirement of debt; interest and taxes. In addition, management reviews Adjusted Revenues by reducing GAAP revenues for certain general, administrative and other expenses that primarily relate to expense reimbursements from our products, which are presented gross for GAAP but net for Adjusted non-GAAP measures.

Distributable Earnings

Distributable Earnings is a supplemental non-GAAP measure of operating performance that equals Fee-Related Earnings less interest and amounts payable for taxes and TRA payments related to the respective period’s earnings. Amounts payable for taxes and the TRA presents the total estimated GAAP provision for current income taxes payable and the current payable under the TRA, assuming that all Distributable Earnings were allocated to the Registrant, which would occur following the exchange of all Blue Owl Operating Group Units for Class A Shares. The GAAP provision for current income taxes payable and the current payable under the TRA reflect the benefit of tax deductions that are excluded when calculating Distributable Earnings (e.g., equity-based compensation expenses, net losses on retirement of debt, Transaction Expenses, tax goodwill, etc.). Management believes that Distributable Earnings can be useful as a supplemental measure to our GAAP results in assessing the amount of earnings available for distribution.

Fee-Related Earnings and Distributable Earnings Summary

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Adjusted Revenues

   $ 235,732    $ 50,140    $ 511,042    $ 131,741

Adjusted Expenses

     (92,405      (41,653      (221,460      (132,747

Less: Noncontrolling interests included in Fee-Related Earnings

     (1,469      1,292      (3,243      3,069
  

 

 

    

 

 

    

 

 

    

 

 

 

Fee-Related Earnings

   $ 141,858    $ 9,779    $ 286,339    $ 2,063
  

 

 

    

 

 

    

 

 

    

 

 

 

Distributable Earnings

   $ 142,750    $ 3,595    $ 268,140    $ (16,008
  

 

 

    

 

 

    

 

 

    

 

 

 

Fee-Related Earnings and Distributable Earnings for both the three and nine months ended September 30, 2021 increased year-over-year as a result of the accretive impact of the Dyal Acquisition, as well as higher revenues from our Direct Lending products as certain fee waivers in ORCC, our largest BDC, expired in the fourth quarter of 2020. There was also an increase in expenses primarily due to increased professional fees, placement fees and travel and office-related expenses as we transition from working remotely back to the office.

 

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Adjusted Revenues

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Direct Lending Products

           

Diversified lending

   $ 90,885    $ 25,107    $ 251,136    $ 73,583

Technology lending

     16,820      10,849      47,404      30,228

First lien lending

     4,098      3,177      11,730      9,006

Opportunistic lending

     1,166      13      2,470      13
  

 

 

    

 

 

    

 

 

    

 

 

 

Management Fees, Net

     112,969      39,146      312,740      112,830

Administrative, transaction and other fees

     31,012      10,994      69,474      18,911
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Revenues - Direct Lending Products

     143,981      50,140      382,214      131,741
  

 

 

    

 

 

    

 

 

    

 

 

 

GP Capital Solutions Products

           

GP minority equity investments

     85,426      —          121,767      —    

GP debt financing

     6,165      —          6,901      —    

Professional sports minority investments

     160      —          160      —    

Co-investments and structured equity

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Management Fees, Net

     91,751      —          128,828      —    

Administrative, transaction and other fees

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Revenues - GP Capital Solutions Products

     91,751      —          128,828      —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted Revenues

   $ 235,732    $ 50,140    $ 511,042    $ 131,741
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Revenues increased primarily due to higher management fees due to the fee waivers in ORCC, our largest BDC, that expired in October 2020. These waivers totaled $40.5 million (inclusive of $22.3 million of Part I Fees) for the three months ended September 30, 2020, and $123.5 million (inclusive of $70.5 million of Part I Fees) for the nine months ended September 30, 2020. Also contributing to the increase were higher administrative, transaction and other fees due to higher fee income earned for services provided to portfolio companies. Adjusted Revenues also increased due to $91.8 million and $128.8 million accretive impact of Dyal Capital’s management fees from the Business Combination Date for the three and nine months ended September 30, 2021, respectively. The remaining increase was driven primarily by the overall growth in FPAUM across all of our Diversified Lending product strategies.

Adjusted Expenses

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

Adjusted Compensation and Benefits

   $ (70,664    $ (28,491    $ (171,345    $ (87,136

Adjusted General, Administrative and Other Expenses

     (21,741      (13,162      (50,115      (45,611
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted Expenses

   $ (92,405    $ (41,653    $ (221,460    $ (132,747
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Expenses increased primarily due to higher Adjusted Compensation and Benefits as a result of increased headcount, both in the legacy Owl Rock business, as well as due to an increase related to the Dyal Acquisition. Adjusted General, Administrative and Other Expenses were up primarily due to placement fees related to Dyal Fund V, expenses related to being a public company and increased travel and office-related expenses as we transition from working remotely back to the office. These increases were partially offset by lower expense support to certain products. See “—GAAP Results of Operations Analysis” for additional information on these drivers.

 

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Non-GAAP Reconciliations

The table below presents the reconciliation of the non-GAAP measures presented throughout this MD&A. Please see “—Non-GAAP Analysis” for important information regarding these measures.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(dollars in thousands)    2021      2020      2021      2020  

GAAP Loss Before Income Taxes

   $ (255,238    $ (9,940    $ (1,832,255    $ (31,313

Less: Net (income) loss allocated to noncontrolling interests included in Fee-Related Earnings

     (1,469      1,292      (3,243      3,069

Plus: Strategic Revenue-Share Purchase consideration amortization

     970      —          970      —    

Plus: Equity-based compensation

     15,722      12,300      1,174,319      12,300

Plus: Amortization of intangible assets

     46,191      —          67,527      —    

Plus: Transaction Expenses

     4,108      —          40,211      —    

Plus: Interest expense

     6,112      6,127      17,787      18,007

Less: Net losses on investments

     145      —          145      —    

Less: Net losses on early retirement of debt

     —          —          16,145      —    

Less: Change in TRA liability

     4,733      —          5,879      —    

Less: Change in warrant liability

     27,462      —          42,762      —    

Less: Change in Earnout Securities liability

     293,122      —          756,092      —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Fee-Related Earnings

     141,858      9,779      286,339      2,063

Less: Interest expense

     (6,112      (6,127      (17,787      (18,007

Less: Taxes and TRA payable

     7,004      (57      (412      (64
  

 

 

    

 

 

    

 

 

    

 

 

 

Distributable Earnings

     142,750      3,595      268,140      (16,008

Plus: Interest expense

     6,112      6,127      17,787      18,007

Plus: Taxes and TRA payable

     (7,004      57      412      64

Plus: Fixed assets depreciation and amortization

     191      230      456      689
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 142,049    $ 10,009    $ 286,795    $ 2,752