CAIS Live Conversations, Building With Alts

Michael Rees, Co-President of Blue Owl Capital, graduated as a chemical engineer, but after a stint in consulting, started his career in investment banking. He then embarked on an entrepreneurial journey with private markets manager Blue Owl. In this episode, Michael shares insights with host Brad Walker, CAIS Chief Client and Product Officer, on building Blue Owl’s GP stakes business, his vision for the future of alts in wealth management, and Blue Owl’s foray into sports investing with the NBA.  

Chapters
(00:00 - 03:30) Introduction & Guest Background
(03:31 - 08:30) Building Blue Owl & Industry Evolution
(08:31 - 12:45) GP Capital Solutions & Wealth Management
(12:46 - 16:30) Expanding into Sports & Acquisitions
(16:31 - End) Personal Insights & Closing Thoughts

Creators and Guests

Host
Alex Cavalieri
Head of Marketing, CAIS
Host
Brad Walker
Co-President
Guest
Michael Rees
Co-President, Blue Owl Capital Inc.

What is CAIS Live Conversations, Building With Alts ?

CAIS Live Conversations: Building With Alts, tackles the often untapped potential of alternative investments by sitting down with the various players in the alts ecosystem. Listen in as we dive into alternative investments from the perspective of industry experts, RIA executives, IBD executives, alts manager leaders, and alts experts. Hear what other advisors are doing, learn about new technology, and join us as we turn investment complexities into real-life concepts that could potentially help diversify and drive growth in the independent space.

Welcome to the CAIS Live Conversations Podcast. I'm your host, Alex Cavallari, Head of Marketing here at CAIS. We are the leading alternative investment platform for the independent wealth community.

In these conversations, I'll sit down with industry participants from asset management executives to RIA and IBD leaders to uncover their insights and stories that may be driving the growth in the world of alts. Each episode, we take a deep dive into the views of those who are breaking down the barriers and making alternative investments accessible to financial advisors. In this episode, Brad Walker, our Chief Client and Product Development Officer at CAIS sits down with Michael Rees, Co-President of Blue Owl.

During his career, Michael has experienced the evolution of the alt space and its increasing focus on the wealth management community. Listen in as Michael and Brad discuss his journey of Blue Owl and the cold call he got that led to Blue Owl investing in the NBA. Let's dive in.

The views and opinions expressed by the speakers herein are as of the date recorded and solely reflect the views and opinions of the speaker and not necessarily the views of CAIS or the broader financial industry. This podcast does not constitute an offer or solicitation to buy, sell or hold any securities, financial products or services on behalf of CAIS, its affiliates or any third party investment managers, their affiliates or strategies. This podcast is provided for informational purposes only and is intended for an audience of investment professionals.

Welcome. This is CAIS Live Conversations, Building With Alts. I'm Brad Walker, chief client and product development officer here at CAIS, and I'm very proud to be here today with Michael Rees, co-president of Blue Owl.

Michael, thanks for being here.

Brad, thanks. Real pleasure. And what an amazing conference.

This is truly exceptional and I'm pleasure and proud to be here as well.

All right. Fantastic. Michael, I want to get into, before we get into Blue Owl and what you're doing there, I kind of want to jump into your journey.

You know, you have one of the most impressive careers on the street and, you know, you're a founding member of New Burger Berman. You founded Dial Capital, which now has become the GP Capital Solution Arm of Blue Owl. What was your journey?

How did you get there?

Oh, wow. It's sort of a journey that I would say, you know, was delivered to me more than planned ahead of times. I mean, I don't really remember ever sitting down and saying, I'm going to, quote, invent a part of the industry.

I just had a great opportunity set. I came out of Pittsburgh. I went to the University of Pittsburgh, started working after graduating from MIT and consulting for a couple of years, and then got an opportunity to work at Lehman Brothers.

I was able to bring my brother Matthew over. I've worked with him now for literally 97% of my career.

And he's still with you now.

He is. He runs the non-U.S. part of our GP Capital business for Blue Owl.

And it's been a pleasure to work with him. I shipped him over to London. Mom's still not happy about that.

He's on a one-year stint. He's on year 13. So, you know, that's how that went.

But I came in to Lehman Brothers. Everybody at the time was in the strategy group, was jockeying for which of the business units to work for. And I was new man.

So I got stuck being in asset management. And if you knew Lehman Brothers back then, there was no asset management. So it really was a start from scratch.

And what that really put me on a course to do was evaluate M&A in the asset management space. So we started with a handful of M&A deals to build and grow a leg of the stool for Lehman that would be on par with the GSAMs and the Malims, et cetera. And ultimately, I've done probably more asset management M&A than anybody has ever done, all because of sort of putting one foot in front of the other.

We bought a fixed income business called Lincoln, we bought Newberger Berman, and then we did happen to stumble upon these things called GP Stakes. And ultimately, we invested a bunch of Lehman's money in GP Stakes and that's where the career arc started. It wasn't planned and maybe if I didn't get the shortest straw when we were drawing them for which sector to cover, I don't know what would have happened.

I'd be some sort of investment banker or something, but ultimately it was exciting to get into M&A and I've loved every aspect of it since then.

Yeah, well, I want to come back to the GP Stakes business here in a second, but look, you ended up building, like I said before, an amazing career. You're now at Blue Owl, $190 plus billion in assets. For folks that might not know much about Blue Owl, what does it mean to be at Blue Owl?

What's the ethos at Blue Owl?

Well, the ethos at Blue Owl was a combination of a set of different cultures where we came together, we brought the dial business out of Newberger Berman. We added to that the credit business called Al Rock, which was focused on direct lending. And shortly thereafter, added the Oak Street Triple Net Lease real estate business.

And so all of these came together pretty rapidly after the formation of Blue Owl in 2021. And ultimately, what we aim to do is be a service provider to the industry, the overall private markets, by having capital to meet any of their needs, whether it's at the GP level, at the portfolio company level, or to unlock some value in their real estate. So the ethos is being a partner with private markets and having the right capital to do so.

And that's what ultimately we built the business model off of. And the harmonious part of it is that all of these strategies deliver a consistent theme to our investors, which is a downside protected yield strategy. So it all has come together really nicely and we're proud.

It's been one of the real success stories in terms of entrepreneurial change in the industry. All of our businesses happened to be a spin on something new, where we had creative people and dedicated people that weren't going to stop until we got to the top of the mountain and knock on what it's gone pretty well so far.

That's pretty fantastic. Let's talk on capital solutions. You run GP Capital Solutions at Blue Owl.

You mentioned earlier, you sit back and you think about what are GP stakes. Great job explaining to us what that is. But maybe let's dig a little bit deeper.

If you're not familiar with it, it was very nascent when you started this strategy coming out of Lehman. Now where it is today, what is GP stakes? What are GP solutions?

Well, what happened over the course of the last maybe eight or nine years is that the industry became capital intensive. You needed capital to continue to grow your business. It was an industry that for 40 years could be self-funded.

The partner teams at the KKRs and the older firms were able to self-fund their commitments to each of their successive funds out of their own pocket. And then as the funds got bigger and the GP commitment percentages got larger, it became an industry where the better you were doing, the more likely you would need a capital partner. That's no different than if you're a tech company or a healthcare company, bring in a partner and in a lot of ways, you always, in any industry, need the capital, but you also oftentimes want to find someone who's going to be a really good partner.

So what we really tried to build, which was differentiated, was a business model where we could provide the capital that a growing private markets firm would need, but also be a truly strategic partner. And I'm proud that we have a now 60 person plus value creation team. And it's great to be here at this conference with you and see all of our partners here and hear that we are truly valued as a strategic partner as well as a capital partner.

So you mentioned private markets when you were at Dial and you built this business within Dial, which Dial was, right? More or less. Right, exactly.

Did you start in the hedge fund space first and then move into private markets?

We did. Our history was hedge funds dating back to our Lehman time. And we sort of kept with that in through funds one and the beginning of fund two.

But then we saw what I think a lot of people are seeing today, which is how important it is for investors to have an allocation to private markets, how the returns are differentiated, and how we thought this industry was really going to have a nice tailwind. And so we pivoted in about 2014 to focus most of our effort on private markets. And it's been up and to the right run since then.

It's an amazing industry. And we had the early adopters and the early growth. And now we have seen a whole host of interesting new entrants into the space from an investor perspective, sovereign wealth, insurance, and now most notably, the wealth channel.

So let's stick on that one for a second. So for all the advisors listening, they think GP Solutions, they see your background, your track record. Everything looks great.

What is the return profile of this? Number one. And number two, how should an advisor think about putting this into their client portfolio?

Investing in a GP Stakes Fund, and ours in particular, is an exposure to private markets. The vast majority of the exposure is private equity, but you get a little private credit, little infrastructure in there. And so that's the underlying exposure.

But what's unique about it is the way that the exposure is expressed. So what we do is we buy right into a GP, where we write ourselves into their partnership document, right alongside the founding partners. And so when a dollar comes out of that firm, we get our piece.

If we're a 15% owner, we get our 15 cents of that dollar. So we, from the day we do the deal, get our pro rata piece of cash flow. So unlike other types of funds in private markets or in the buyout area where the first five, six years are spent writing checks, hoping that years seven through 12 are receiving checks, our strategy generates a broad exposure to private markets, but one where the checks start coming literally the day after the deal closes.

So you get the exposure to the management fees, the carried interest and the underlying assets that are managed by that fund. When any of those things come out of the firm, and they can literally be the first week after close, we get to share in our pro rata piece. And it's a really unique way that particularly wealth investors get exposure to private markets.

It starts out early, and you can have an exposure of $100, but may never be out of your pocket more than 50 cents. Because as you're putting your dollar in over the first five or six years, you're getting returns right away. And by the time your dollar is out the door, you may have 50 cents in your pocket already.

Yeah, I mean, that's the beauty of what you've built. We started in the hedge fund world. We went into private markets.

There's a lot of conversation right now around sports and private equity money coming into the sports world, whether it be the MLB, the NBA, now the NFL is opening up. Does this include, do you foresee GP stakes, capital solutions, including sports investing?

Well, we do have a sports fund, and it was literally a cold call from the NBA. We knew very little, I mean, from a kid from Pittsburgh, we don't even have an NBA team in the city. So the fact that the NBA would call us and say, hey, 10 of our 30 owners also own big private equity firms.

And they keep telling me we need a dial fund for the NBA. And we don't know what dial is, so we just are going to cold call you. And so we went over there and talked to them about what it means to be a passive partner, but to be strategically helpful and to have the capital that they need.

And when you think about an NBA team, a lot of them have a control owner that might own 60, 70 percent, but have a lot of minority passive owners that picked up these little stakes along the way, and they would like liquidity. And so the NBA said, could you build something where you could come in and provide that liquidity by a 15 percent passive stake in this business, if this one happened to be a team, not a GP, be a little bit strategically helpful, and we'll pass along the returns that these owners of NBA teams get to your clients the same way that the control owner does. And as we're sitting there in that meeting, it became obvious what we're doing is exactly translatable to the league.

We have a handful of great partnerships, and that continues to grow. And it's been interesting to see how parallel these are and how our team has been able to adapt to both the sports and the GP stakes growth.

So Michael, you mentioned Pitt a couple of times. I'm a big PA fan. I like to think there's one football team in Pennsylvania.

It's the Birds. But tell me, there's gotta be something cooking for Pittsburgh for you.

Oh, gosh. You know, I absolutely love everything about the city of Pittsburgh and the Pittsburgh Steelers are the ethos of the city. And, you know, watching the game the other night, sadly, it ended with an L.

But ultimately, you know, when the announcers come to Pittsburgh and they show you the pictures of the city, and they talk about the type of citizens that live there, their dedication to their town, their blue collar roots. I sort of take offense sometimes. Not everybody in Pittsburgh is blue collar, but they like to play that up on Monday night football.

And ultimately, you know, what I love about it is that you sort of know what you're getting from Steelers football. You know, you're going to get a hard fought effort. There's going to be no quit.

And, you know, I love that. And I've brought a lot of that to what we are in the GP Capital Solutions business at Blue Owl. You know, a number of my teammates are from Pittsburgh.

And even those that aren't from Pittsburgh bring a blue collar Pittsburgh ethos to work. We are humbled by our jobs. We want to be great partners.

We're not going to hold ourselves out at the front of the line. We want to be the ones, you know, supporting and pushing from the back. So, you know, there are some articles not too long ago about some potential new owners of the Steelers.

You know, I certainly can't disclose anything, but I would be... That's a line that I would want to be in the front of. If they ever want somebody that loves the city and would want another passive owner in that club, I'd love to join the Rooney family and become part of what an amazing legacy Steelers football is.

And you look at the birds, you know, there's something to be said about them. But I think we can agree to disagree on which club in the state of the Keystone State is the better one.

Exactly. Okay, good. Hey, I want to come back to Blue Owl real quick.

This last, call it 12 to 18 months, you've been on an acquisition spree. IPI Partners, Adelaida, Kuvar, Prima Capital. Where do you go from here?

What's next? Is there something within that you can talk about, that something within Blue Owl, a strategy or a discipline that might be missing?

Look, when we started Blue Owl, we were a very, what we thought was high quality business, but we were three very narrow subsectors. We did triple net lease real estate, we did GP stakes and US sponsored back direct lending. So those are all interesting and important, and we thought we were leaders in all of those.

But if we were going to start filling in the white spaces to make Blue Owl a real one stop shop to the private markets, we were going to need capabilities in insurance, in real estate credit, certainly in the secondaries market, that one we did organically. And so Adelaya brings asset backed credit capabilities. So we filled in some of those white spaces.

They're super important to our growth strategy, and they're great people, and they really round out the business. They weren't done to be super accretive and move the needle in a giant way, from an earnings perspective. They were capability building.

So I think what our board and our CEOs will continue to do is build out the platform organically off of this base. And we do have M&A in our blood. So there's always a chance that something transformative is out there to add an extra leg of the stool.

But it doesn't need to happen. We'll always look, and we think we're very happy with the growth trajectory of Blue Owl off of what we have now and these last ingredients we've added. But we're not afraid to look around and see if there's something out there that could be additive.

Very good. Well, I will tell you, this conversation is fantastic. You're an amazing individual.

You're a business builder, founding member at New Burger, building out DIAL from scratch, now running Blue Owl GP Solutions. On a personal front, I love to end my podcast with this question, so I hope you can give us a goodie. What is Michael Rees like to do?

What's your bucket list? Something you have always wanted to do, but you haven't done yet.

Oh man. I always have wanted to, and I will get there at some point, I've wanted to teach. I love the educational environment.

I love being in a classroom. I ultimately see myself going back to school to teach something in the field of finance, private markets. I do, I'm privileged by the perch that our business sits on, that we get to see how a lot of different businesses work.

So I think I can add some value to the young students coming out of an undergrad or a business school that are thinking about investment banking, asset management, investing overall. And I'd like to find time. I think we're getting there, where there might be a few cracks in the schedule, where I can slot in something like this.

I'm helping my son do something similar at his high school. So I do have that passion for teaching. And I think that's what hopefully comes next, if we can get a breather here.

But it's been such a privilege and fun run building this team and being part of an organization where I literally think everybody on the desk loves to show up each day and considers it a privilege. So I'm certainly not running for the door. But if there was something on the bucket list, I'd love to be able to impact some students and spend some time in the classroom.

I love that. That's fantastic. That class would sell out.

So hopefully you get a chance to do that. Thank you so much for being on this podcast.

It's a real pleasure and I appreciate it. And kudos to the true entrepreneurship that you guys have and what you've done to the overall private markets landscape. It's been truly impressive and I'm proud to be your partner.

All right.

Fantastic. Thank you, Michael.

Thank you.

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