Private-Asset Star Blue Owl Has Been Flying High. Is It Too Close to the Sun?

Marc Lipschultz, co-CEO of Blue Owl Capital: “There might be a lot more cockroaches at JPMorgan.” (Michael Nagle/Bloomberg)

Key Points

• Blue Owl Capital, an alternative investment firm, recently announced a financing deal for Meta Platforms’ $27 billion artificial-intelligence data center.
• The firm’s private-credit business, specifically direct lending, is its primary growth driver, with $145 billion in assets under management.
• Blue Owl’s stock has fallen 26% year to date, more than its peers, despite a Goldman Sachs assessment that it is undervalued.

Suddenly, Blue Owl Capital is everywhere.

This past Tuesday, the upstart alternative investment firm with an aptitude for private credit announced a financing deal for Meta Platforms’ $27 billion artificial-intelligence data center in Louisiana. The week before, at the packed CAIS Alternative Asset Summit in Los Angeles, Blue Owl’s co-CEO Marc Lipschultz called JPMorgan Chase CEO Jamie Dimon’s “cockroach” warning about risks in private credit “an odd kind of fearmongering.” And earlier this month, Blue Owl signaled it was barreling into the $13 trillion retirement market.

It’s heady stuff for a firm that didn’t even exist a decade ago. If the big alt firms— Carlyle Group , Blackstone, KKR, and even Apollo Global Management and Ares Management —are now as familiar as JPMorgan, then where did this strangely-named bird Blue Owl come from?

As Paul Newman asked Robert Redford in Butch Cassidy and the Sundance Kid: “Who are those guys?”

“It’s extraordinary what they’ve done,” says George Walker, CEO of the old-line money-management firm Neuberger Berman (and a cousin of the Presidents Bush), whose employees own a piece of Blue Owl via a trust. “It was just a start-up, and now their $26.6 billion market cap compares to a number of large, century-old financial institutions.”

Blue Owl’s back story entails some rich behind-the-scenes machinations, but more significantly it reflects the stunning trajectory of private markets, which have tripled to $26 trillion in assets over the past decade, according to a University of Massachusetts study. The company is also central to what is au courant: the credit cycle and the AI boom, and also as an investment opportunity itself—or not.

“Blue Owl is the pretty girl at the dance right now,” says Wall Street trader David Williams. “We’re talking many billions in private credit.”

Ah yes, private credit. Though Blue Owl has three lines of business, private credit—specifically direct lending in private-equity deals—is the firm’s calling card and growth engine, and the straw that’s stirring Wall Street’s punch bowl lately. Its core direct-lending business ($145 billion in assets under management out of $284 billion total), was conceived in 2016 as Owl Rock at the Putnam Restaurant in Greenwich, Conn. (“Comfort food at its best”) by principals Doug Ostrover, formerly the ‘O’ of GSO Capital Partners (now Blackstone Credit); Craig Packer, a former Goldman Sachs partner; and Lipschultz, a former KKR partner. The name came from “the wisdom of an owl and stability of a rock,” says Lipschultz. “And the website was available.”

Instead of relying on the typical general-/limited-partner private-markets fund structure, Owl Rock used what are called business-development companies, or BDCs, which issue stock and lend money to businesses, usually those with junk credit ratings. (Other major alt firms have also turned to BDCs, which sport high yields.) BDCs send some 90% of the interest collected on those loans to shareholders through dividends, similar to real estate investment trusts.

Two of Blue Owls’ BDCs are publicly traded, others are private. Blue Owl Capital Corp. (which yields 11.4%) and Blue Owl Technology Finance (9.9%) are both down about 14% this year, the former from Jan. 1 and the latter from when it began trading on June 12. Blue Owl stock, at $16.31, has fallen 26% year to date, more than any of its alt firm peers, which signals either the risk of falling rates and weakening credit or a buying opportunity. Goldman Sachs recently called the fears overblown and cited Blue Owl as undervalued, noting it has a stock-price-to-fee-related earnings multiple (a common metric in the business) of 21.7, which is 5% below its two-year low.

“Blue Owl has generated a stable, highly predictable stream of earnings,” says Ostrover, its other co-CEO. “It makes no sense that we’re down more than our peers. If anything, we should be down less.” Wall Street may be particularly wary of direct lending, as shares of both Blue Owl and Ares, which specialize in that business, have fallen hard. It’s also true that both stocks had previously outpaced their peers.

The second leg of the Blue Owl stool was created years earlier, when a Lehman Brothers executive, Michael Rees, started a fund at Neuburger Berman (then owned by Lehman) that bought stakes in asset managers like D.E. Shaw. After Lehman collapsed in September 2008 and Neuberger emerged from the ruins, Rees, with others, restarted the business. Rees’s endeavor—named Dyal after his children Dylan and Alexia—raised its own capital (from Koch Industries, among others) and invested in the likes of Silver Lake and Vista Equity Partners.

In 2020 Dyal merged with Owl Rock through a special purpose acquisition company engineered by HPS Investment Partners (the private-credit business BlackRock recently bought), with the resulting company named Blue Owl. (A bank working on the deal had called it Project Blue. So “blue” was added and “rock” was dropped.) Neuberger employees retained a stake, which today amounts to some 25%.

The hatching of Blue Owl was problematic to some companies in which Dyal had invested, particularly Sixth Street Partners (formerly the private-credit arm of TPG) and Golub Capital, both of which sued, claiming the new company created a competitor with sensitive information about their operations. The defendant begged to differ and won in court.

The direct-lending and strategic-capital businesses were once close in size, but soon the former outstripped the latter. Friction ensued between Rees and private-credit honchos Ostrover and Lipschultz. Peace in the valley prevailed, though, and Rees remains co-president of the firm. Dyal, renamed GP (for general partner) Strategic Capital, today has AUM of $67 billion, which besides investments in asset managers has stakes in NBA teams including the Atlanta Hawks and the Sacramento Kings.

In 2021 Blue Owl bought Oak Street Real Estate Capital, a Chicago-based firm specializing in sale-leasebacks and triple-net lease deals as its third business. This wing of Blue Owl has AUM of $71 billion and is home to the Meta infrastructure deal and others, such as its Stargate data centers investment in Texas and New Mexico. Next Blue Owl is working on deals with AI cloud company Nscale and investment firm Valor Equity to finance purchases from Nvidia, for example, whose chips go for $30,000 and up, according to a person familiar with the matter.

Blue Owl built its direct-lending business by borrowing from the Silicon Valley playbook of “Scale first, monetize later,” or by underpricing established private-credit firms to gain deal flow, and raising fees later. Most of the firm’s direct-lending business is done as part of private-equity buyouts by PE firms like Thoma Bravo, Blackstone, and Warburg Pincus. These investments generally entail floating junk bonds, a business pioneered by Drexel Burnham in the 1980s.

The private-credit market has grown from $2 trillion in 2020 to $3 trillion at the start of 2025—some of which has come at the expense of big banks, which have been constrained by regulations promulgated in the wake of the 2008-09 financial crisis. Was it sour grapes, then, when Jamie Dimon called out private-credit firms over the recent spate of bankruptcies hitting banks? The money quote: “When you see one cockroach, there’s probably more.” Lipschultz fired right back at the CAIS conference: “I guess [Dimon is] saying there might be a lot more cockroaches at JPMorgan.”

He played down the back and forth this past week, calling it “colorful language that distracts from the core question—which is, are these isolated incidents somehow indicative of a broader issue in credit writ large? If they were, where would the problems live? I can tell you these isolated recent incidents bear no relation to private credit, and certainly no relation to Blue Owl.”

If he’s right, Blue Owl could become the Big Bird of Wall Street. If not, its wings will be clipped.

Write to Andy Serwer at andy.serwer@barrons.com