Jun 21, 2023 - Economy

Blue Owl Capital is howling on the inside

Illustration of a blue owl tilting its head inquisitively and looking at the viewer.

Illustration: Aïda Amer/Axios

Blue Owl Capital has begun raising up to $13 billion for its next Dyal Capital Partners flagship fund, which would make passive equity investments in other alternative asset managers. But it's unclear who'll be running Dyal once the final ink is dry.

Behind the scenes: An internal leadership fight has broken out within Blue Owl, a New York-based firm with $144 billion in assets under management and a $16 billion market cap on the New York Stock Exchange.

  • On one side are the co-founders of Owl Rock, Doug Ostrover and Marc Lipschultz, a private credit firm that in 2021 merged with Dyal Capital Partners, founded by the man on the other side, Michael Rees.
  • The Owl Rock/Dyal merger was a marriage of convenience, as neither group was large or diversified enough to go public on its own.

As with many such partnerships, deep cultural differences were papered over — odd bedfellows believing they had plenty of time to fall in love.

  • Instead, familiarity has bred contempt.
  • Owl Rock was a by-the-book Wall Street firm, formed by Blackstone and KKR vets. Dyal was a trailblazing upstart, with a Lehman Brothers pedigree.
  • Semafor reports that Ostrover and Lipschultz recently asked Rees to resign, but that he refused.
  • My understanding is that both sides have retained independent legal counsel, with both mediation and litigation on the table.
  • In the meantime, Rees was effectively demoted via a corporate reorg that was disclosed via SEC filing just a week after earnings. He also was reelected to Blue Owl's board of directors, albeit with slightly fewer votes than was Lipschultz.

"This is ugly," says a source familiar with the situation, adding that it also remains fluid.

  • Rees has economic disincentives to leave, including a strict noncompete clause. He also has many internal loyalists, such as his brother Matthew, a longtime Dyal managing director in London.
  • One possibility is that Blue Owl could spin Dyal back out into an independent entity, while retaining an ownership stake.
  • Blue Owl declined to comment via a spokesperson, and neither Lipschultz nor Rees returned interview requests.

As for Dyal's fundraise, the leadership questions are more likely to cause indigestion than a heart attack.

  • Rees is a masterful marketer, but also has built a strong investment team that LPs are likely to support with or without their legacy leader.
  • A bigger issue could be strategy. When Dyal launched, it was a greenfield opportunity, as few private equity firms had ever sold ownership stakes to third parties. Today, that untapped universe has shrunk — thanks to Dyal and the rivals it helped spawn — which perhaps means Dyal will broaden its sights.

The bottom line: It makes too much economic sense for Blue Owl not to figure out a way to stick together. But, sometimes, big feelings trump big money.

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