Blue Owl Capital on the New York Stock Exchange, May 20, 2021.
Source: NYSE
Actions of Blue owlthe private credit firm at the center of recent concerns over exposure to software companies, jumped 10% in trading Thursday after executives disclosed big gains tied to SpaceX.
“We made about 10 times our money on that investment,” one executive said during the company’s first-quarter earnings conference call.
Blue Owl has already sold about half of its position, valued at $1.25 trillion, and continues to hold the rest, he said.
The call was moderated by Marc Lipschultz, Co-Chief Executive Officer, and Alan Kirshenbaum, Chief Financial Officer. It was not immediately clear which executive spoke specifically about the SpaceX investment.
Gains at SpaceX, which is heading for what could be the biggest 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 ease concerns that the latest models of artificial intelligence could force some software companies out of business.
Although private credit funds are comprised primarily of loans, they may also hold preferred and common stock of companies. This gives them the potential to increase equity 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 fee profit margin of around 58.5% this year, meaning it will keep more than half of its fee revenue as profits even in a “softer environment” for the industry.
During Thursday’s earnings call, Blue Owl management also noted that even though borrowing rates have deteriorated amid the software crisis, there is still “a tremendous amount of cushion remaining” before losses are seen.
Blue Owl reported strong first-quarter results on Thursday, with fee profits and assets under management rising as the company continued to attract capital inflows.
Although the company’s shares reacted positively after this report, they jumped sharply around 9:49 a.m. ET, during the conference call with analysts.
