Blue Owl Capital at the New York Stock Exchange, May 20, 2021.
Source: NYSE
Shares of Blue Owl, the private credit firm at the center of recent jitters over exposure to software companies, jumped 10% in trading Thursday after executives disclosed sizable gains tied to SpaceX.
“We made about 10 times our money on that investment,” an executive said on the firm’s first-quarter earnings call.
Blue Owl has already sold roughly half its position at a $1.25 trillion valuation and continues to hold the remainder, he said.
The call was hosted by Marc Lipschultz, co-chief executive officer, and Alan Kirshenbaum, chief financial officer. It wasn’t immediately clear which executive spoke specifically about the SpaceX investment.
The gains on SpaceX, which is headed toward what may be the largest IPO in history later this year, could offset potential losses elsewhere in Blue Owl’s portfolio if software companies default, the executive said. That helps allay concerns around the fact that the latest artificial intelligence models may force some software companies out of business.
While private credit funds are composed mostly of loans, they can also hold preferred and common shares of companies. That gives them potential equity upside and effectively makes them hybrid credit-equity vehicles.
“We made a loan to the company, and had the privilege of getting to know them very well and then participating in ongoing conversations about other financing opportunities, and ultimately, in this case, an equity investment,” the Blue Owl executive said of SpaceX.
Another factor: Blue Owl said it expects to maintain a roughly 58.5% fee-related earnings margin this year, meaning it keeps more than half of its management fee revenue as profit, even under a continued “softer environment” for the industry.
On Thursday’s earnings call, Blue Owl management also noted that while loan-to-value rates have deteriorated amid the software slump, there is still a “tremendous amount of remaining cushion” before losses are seen.
Blue Owl reported solid first-quarter results on Thursday, with fee-related earnings and assets under management rising as the firm continued to attract inflows.
While the firm’s shares reacted positively after that report, they jumped sharply at around 9:49 a.m. ET, during the conference call with analysts.
