Blue Owl: Balancing Rees’s Pieces to Satisfy Both Egos and Investors

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Private equity groups are skilled at consolidating industries, creating synergies, and generating substantial profits. However, replicating the same success internally presents a greater challenge.

In 2020, the merger of Special Purpose Acquisition Companies (Spacs) resulted in the establishment of Blue Owl, a publicly listed alternatives asset manager. This merger involved Owl Rock, a corporate lender, and Dyal Capital, a pioneer in trading minority stakes of other buyout groups.

Although there seemed to be no clear connection between the two entities, their combined assets exceeded $50 billion, making a public listing viable.

Since then, Blue Owl has performed relatively well, despite adverse market conditions for asset managers involved in funding deals and highly leveraged transactions. However, news emerged earlier this year of a falling out between Dyal founder Michael Rees and the Owl Rock side, who allegedly sought to remove him from the company.

During the quarterly earnings call on Tuesday, Rees downplayed any tension, but his decision to receive all his pay for the next three years in the form of Blue Owl stock hinted at some dissonance. Nevertheless, he has chosen to remain with the company.

On the day of the earnings call, Blue Owl’s shares traded down by 2 percent. Although the company’s share price has increased by 20 percent in 2023, it lags behind competitors such as Ares, Apollo, and Blackstone.

Currently, Blue Owl manages assets worth $150 billion and has acquired Oak Street, a real estate manager, to lead its third division, ensuring that all parts of the company work together cohesively. The steady management fees generated from permanent capital provide a reliable source of revenue. In the most recent quarter, the per-share fee and cash earnings saw a year-over-year increase.

Investment firms aspire to achieve institutional status and outlast individual personalities. Balancing egos with the greater good of the company is a common challenge in high-powered Wall Street partnerships. Now, it is up to Blue Owl to tackle this puzzle. The key lies in extracting synergies within the company itself, not just from the businesses it acquires.