2023-09-21 15:29:30 ET
The financial services industry has had several important themes this year. There are fears about the upcoming wall of maturities in the REIT industry, the liquidity crisis in the financial sector, and high-interest rates.
Another key theme has been on private credit, an industry that is seeing robust growth as banks pull back. On Wednesday, Goldman Sachs made headlines when it raised $15 billion to invest in private credit funds. This article will explain why Blue Owl Capital (NYSE: OWL) is slowly becoming the Amazon of the private credit industry.
The rise of private credit
Demand for private credit has been growing rapidly in the past few years as the so-called shadow banking industry grew. The sector is now accelerating following the collapse of banks like SVB, Credit Suisse, and Signature.
This collapse has led to most banks being more conservative in how they allocate their capital. Most of them are mostly focused on cash preservation as they work towards building a fortress balance sheet.
At the same time, we have seen money supply in the economy drop. In the past few months, the M2 money supply has dropped to $20.9 trillion from last year’s high of almost $22 trillion.
Therefore, many companies are turning to private credit companies, which are still loaded with cash. Blue Owl is a large company that manages over $150 billion for large institutions. It was formed after a long and contentious merger process between Owl Rock ( NYSE: ORCC ) and Dyal Capital.
The case for Blue Owl stock
Blue Owl operates in three key businesses: direct lending, GP capital, and real estate. The three have $73.3 billion, $50.9 billion, and $24.8 billion in assets, respectively. Most recently, the company received a $1 billion investment from Mubadala.
Blue Owl stock is a good investment for three main reasons. First, it has billions in permanent capital, which brings in about 93% of its earnings.
Second, the company has a leading market share in the private credit industry that is expected to grow as banks pull back. This is an important industry since Blue Owl is able to earn higher interest in its deals. The management believes that private credit could have similar success to private equity.
Watch here: https://www.youtube.com/embed/iB9askVlhj8?feature=oembedThird, the company is still seeing robust inflows despite the challenging market conditions. In its earnings call, Douglas Ostrover, the co-CEO said :
“For every dollar that left our system as a result of distributions or redemptions, we raised almost $6.50. By comparison, our peers on average raised just $2 for every dollar that left their platforms.
Finally, Blue Owl has a solid team of management, makes most of its money from fees, and is growing at a fast pace. Also, it is a leading lender in technology companies. Therefore, there is a likelihood that the Blue Owl stock price will continue rising from the current $13.52 to over $15 in the coming months.
The post Blue Owl Capital: A good play in the growing private credit appeared first on Invezz .