Bloomberg Invest: Blue Owl Co-CEO Marc Lipschultz on the Growing Dominance of Private Credit

Bloomberg

05-03-2025

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00:00Alix Steel Paul Sweeney. We are live here at the Bloomberg Invest 2025 Conference down here at Brookfield Place, formerly known as World Financial Center. I used to hang a shingle down here Merrill Lynch back in the day. So good memories here. I tell you, if I were to come back on the street, Alex again. Yeah, I'm telling you, private credit might be the place I go. I mean, I went. I went to the Chase Manhattan Bank Credit trading program. The best on the street. I could go run circles around these guys. I should have done that. Marc Lipschultz joins us, hitting CEO Blue Owl Capital, speaking here at our conference here today. We appreciate getting a few minutes of your time, Mark. Talk to us about Blue out, how you guys fit into the private credit business because Alex are just amazed at the the funds that are flowing into that market. Well, first I have to find out how to recruit you to join can for the best of the best of blue collar, open ended training all about the people it is. And I also want to say it's great to be back down here. I my first apartment in New York when I moved here in 1991 to work at Goldman Sachs, when it was at 85 Broad Street, right down that street. Me too. That's where Salomon Brothers put us up back in the day. So I could say I lived down here on a water view and all that kind of stuff. Lovely to some private credit. You guys are just a part of it. Just an amazing asset class. Well, we've been very fortunate to be part of an asset class. And, you know, I play our role in helping of all. But look, private credit to set the stage right, is about taking long term capital from investors. And we've tried to broaden the range of people that have access to it and to be able to provide that capital to corporate users to support their growth with a view to the long term and to be here on a day when, you know, the public market is so volatile, you know, in some ways is very much a reminder of why private credit works for investors, but also why it's important because, look, we're all doing business today. We're making loans today just like we were yesterday, just like we will tomorrow. You know, screen router, screen, blue screen green, prefer green. Yeah, I should disclose that to my money manager. I do own shares in Blue Owl Private credit. I do have some of that. I feel like I need to say that. Thank you, but not through me to my money guy. So help me understand the competitive landscape though, because it feels like banks now want to get a slice of the private credit market that they had to give up. And now we're seeing some partnerships with private credit shops. How do you look at it? Yeah, the evolving landscape with the banks is pretty interesting. Let's make a couple observations that the word like reference in the bank market I think is worth unpacking a little bit because as as obviously we'll know when we go back to 30 years ago, I started in the private markets. The alternative market wasn't called that at the time and we actually borrowed money from the banks when we were doing an LPL, as it was called. Then literally from their balance sheets that over the last 30 years has been on a long trajectory changing from being a lender to now. Banks don't lend to these companies at all, and that's been true for a while. They intermediate right? They'll go in and they'll underwrite a loan and then sell it into the market, cut it into pieces and sell it. And so in that regard, of course, that's an alternative way to finance a business. And we could talk about the pluses and minuses of both. It's great to have both markets. You want to have a good, vibrant bank intermediated market. But remember, what the bank here is about is can I underwrite the loan and sell it in the next 60 days? So the red screen today is traumatic for a decision for a bank to underwrite alone. On the other hand, word of the exact opposite. It doesn't really matter. Tell us what's happening in the market today. What matters to us is do we get paid back five, six, seven years ago? That's our decision. That's what we're focused on. So in that sense, we really live in kind of with different incentives and serve a different function. However, to the good point, the banks are saying, okay, but it turns out private credit really does work, right? They spent a lot of time criticizing the market and trying different ways to maybe scare up the boogeyman. But now they, in fact, are actually launching funds to do private credit. So I'd start with look of capital join them. And we that's great. Well, we'll take the endorsement of the market. It's a big world credit. It's a multitrillion dollar asset class, multi-trillion dollar marketplace. We need vibrant available capital. And having your bank launch a fund, you know, great. There's a lot of funds in the world and some of those will be done in partnerships, as you noted, and some of those be standalone efforts and some will just continue to stay the course, do their traditional underwriting. What's a typical deal for Blue Owl these days? So a typical deal for us, and this has been true for us from the beginning. Obviously the attributes of the size have changed, but over the last roughly ten years that we've built Blue Owl, our reason to be was to come in and say, Look, we want private credit to become the lender of first choice as opposed to the lender of last resort and private credit. If you go back before that time was really a lender of last resort. It's where you went. If you could get money from a mainstream source. As I said, I was at KKR. For 21 years. And during that time, I don't recall ever working with a private laundry. That just wasn't what you did if you were a mainstream borrower. But the idea for Blue Collar and today, so to answer this question has been to create actually a real value proposition in having a partner to really work with a long dated capital pool for someone who has long dated needs and long dated ambitions with their business. So our typical company today, often backed by a private equity firm, a sponsor. Sometimes it's just private family owned businesses or other corporate enterprises, but typically a private equity backed business. And they're buying a very large company and they're looking for a long term partner to buy it. So typically when we do a transaction, we're lending maybe 40% of the purchase price and the buyer is putting up 60% of the capital. So that's a very, very low leverage structure compared to what people are used to. If you go back again ten years, 20 years, and the company today, our average company in our portfolio has over $200 million of EBIT. These are big companies today and that's been a dramatic shift from ten years ago when it was really a market for smaller businesses. So let's get to that 5 to 7 year time horizon, because ten years ago, about the exact same conversation I'd be having with private equity. Right. And then we see where things get tough and things get stickier when vintages don't work out or come under at different times of market stress, how does that apply to the credit space? So I think it applies for sure in the sense that every market evolves and every market will have its maybe slightly higher and lower moments. But there's an important distinction. At the end of the day, private equity, if I can use this metaphor, private equity, which is a business I personally participated in for decades, is about mining for gold, right? It's about going out. And maybe in our simplified parlance you might call them the get rich strategy. Just how do you go out there and shoot the moon on great returns? So they're mining for gold. Our business in private credit is to be the picks and shovels provider to those miners. So we're not trying to find a big gold vein. We're not betting on the price of gold. What we're saying is if the miners are active and miners in this case would be any corporate user of capital. So they are always active. We want to supply them and we take a less risky position and we expect a corollary attractive return. So on the one hand, of course, every market evolves and I want to suggest any busy lives in a vacuum. But the purpose of our strategies and the purpose of private credit from private credit from an investors point of view, is to have something that's much more about downside protection, stability and income generation through times of uncertainty, which is a bit why I say this sort of red environment today is actually a good time to have the conversation because we're trying to build our portfolios and successfully have done over $100 Billion of loans and are running lost rates have been 11 basis points. And I think it speaks to the idea that this is about durability and predictability when times are uncertain. And I think it's probably safe to say today everyone is looking around saying, gosh, it feels uncertain out there. Mark, we got about a minute left. What do you say to those folks who say as the business evolves, the dollars get bigger, regulation is needed? What do you say to those folks? Well, we're a highly regulated business as is. So your today. Look, we're we're regulated by the FCC. We're a public company asset manager. We have public vehicles. We have a we have a lot of regulators we work with constructively. Happy to do it. I don't think if what we mean by more regulation is more direction from sort of a central source as to what you should or shouldn't lend money to. Remember, when we look back where the sources of problems have been, they actually tend to be in the regulated institutions, not outside even recently. Of course, everyone remembers the financial crisis. But don't forget, over the last few years, as private credit has thrived, one of the moments we worked through was the run on the bank at Silicon Valley Bank. Yeah. So you know what's old is new. If you have one day capital and you do long term things with it, that's challenging. We have long term capital to do long term things. So I think at the end of the day, look, we don't touch depositors. We're not systemic. So what's a nice complement to a traditional banking market and a public marketplace? Great stuff, Mark, Thank you so much for your time. Mark Lipschultz, Blue Owl Capital Co CEO, talking about the private credit business and what a growth business it has been for sure.
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