Blue Owl’s Rees: Dyal-Owl Rock hook-up to create ‘multi-product’ giant

Blue Owl's co-president speaks to Buyouts about the new firm's growth plans, the upshot of legal efforts to stop the Dyal-Owl Rock merger and Fund V's progress.

Blue Owl Capital, born this week with the merger of Dyal Capital Partners and Owl Rock Capital Partners, is already eyeing growth opportunities and “white spaces,” co-president Michael Rees told Buyouts.

The New York alternative asset manager will explore prospects complementary to Dyal’s GP stakes strategy and Owl Rock’s direct lending strategy. The goal, Rees said, is to create “a one-stop shop of customized solutions to meet the financing needs of general partners out there.”

While “the biggest part” of Blue Owl will be Dyal’s and Owl Rock’s existing business lines, “conversations at the top of the house” are likely to result in new funds and platforms, Rees said. The opportunities may include co-investments, growth capital and secondaries.

Over time, Rees said, fresh initiatives will make Blue Owl “a multi-product organization.”

In going this route, Dyal would, as a Blue Owl affiliate, become more like its top GP stakes rivals. Rees sees no apparent disadvantages, noting that Blackstone’s Strategic Capital and Goldman Sachs’ Petershill have for years operated as units of multi-strategy behemoths.

Blue Owl will also open other doors, Rees said. Along with institutions, which account for most commitments to Dyal funds, the new firm will tap into a smaller community of limited partners, such as high-net-worth investors.

Dyal and Owl Rock in December agreed to form Blue Owl by combining with Altimar Acquisition Corp, a blank check company. The deal spawned a listed entity with $52.5 billion of assets, six global offices and about 250 employees across its Dyal and Owl Rock divisions.

‘No conflict’

The Dyal-Owl Rock hook-up was something of a family affair. Owl Rock was a Dyal portfolio investment. HPS Investment Partners, Altimar’s sponsor, remains one. In addition, ex-holders of Dyal-Owl Rock equity – including Neuberger Berman, Dyal’s former parent organization – own most of Blue Owl.

Family ties also impeded the deal. Golub Capital and Sixth Street, Dyal portfolio investments and Owl Rock rivals, sued to block the merger on competitive grounds. While they failed to make headway in the courts, the suits raised lingering concerns about conflicts of interest in the GP stakes market.

Rees “categorically” rejects the idea that legal actions exposed complications in investor-investee relationships. “At its core, there is no conflict. We go to great lengths to protect the confidential information of our partners.”

“These [Golub’s and Sixth Street’s suits] were narrow contract disputes,” Rees said. “Every judge in spectacular fashion said that.” He noted Delaware court vice chancellor Morgan Sturn’s description of claims about “an unwanted marriage with a direct competitor” as “hollow.”

This is further evidenced in the fact that other Dyal-backed private debt managers did not object to the merger with Owl Rock, Rees said. Dyal’s next expected GP stakes investment, he added, involves “a firm with half of its assets in credit.”

Legal proceedings also had no impact on Dyal’s LPs, Rees said. The deal creating Blue Owl received “more than ninety-nine percent positive votes.”

LP support was perhaps facilitated by a large unrealized gain for investors in Dyal Capital Partners IV. The multiple on Owl Rock’s exit will be about 2x, generating $600 million to $700 million in distributions, Private Equity International reported.

On to Fund V

Dyal is a key player in a market that has revolutionized private equity. By selling a piece of themselves to a GP stakes fund, PE firms get a hands-off, value-adding partner with a long view and capital for priorities like fund commitments and growth initiatives.

Dyal has been a prodigious investor of minority capital in recent years, building a portfolio of more than 40 PE and hedge fund managers. They include familiar names, such as Cerberus, EnCap Investments, HIG Capital, Platinum Equity, Silver Lake and Vista Equity Partners.

Dyal’s strategy, and the nature of its day-to-day operations, will under Blue Owl continue as before, Rees said. “Our mission remains sacrosanct.”

Going forward, Rees and his team will focus on bringing Dyal Capital Partners V to a final close. Targeted to raise $5 billion, the flagship offering is roughly halfway to securing $9 billion to $10 billion, he said. Fund IV two years ago raised a record $9 billion-plus.

Fund V will follow the PE-oriented approach of its two predecessors, with an emphasis on “the biggest and most established firms” in North America and Europe, Rees said.

Fund V has already made three investments. Dyal in 2020 acquired a minority interest in Iconiq Capital, a multi-family office with starry clients like Facebook’s Mark Zuckerberg. It also backed buyout shop Veritas Capital and New Enterprise Associates, a Silicon Valley venture capital firm.

Rees sees ample GP stakes deal flow on the horizon, in part because of market anxiety about Democratic tax plans, which might include hikes in capital-gains rates and taxation of carried interest. “We couldn’t have a deeper pipeline of opportunities.”

Blue Owl is led by CEO Doug Ostrover, a founder of Owl Rock. Marc Lipschultz, another Owl Rock founder, is, like Rees, a co-president.