Private credit firm Blue Owl Capital Inc. is weighing an entry into European direct lending that may include building a team or buying an existing fund manager, according to people with knowledge of the matter, a further sign of the asset class’s growth prospects in the region.
(Bloomberg) — Private credit firm Blue Owl Capital Inc. is weighing an entry into European direct lending that may include building a team or buying an existing fund manager, according to people with knowledge of the matter, a further sign of the asset class’s growth prospects in the region.
The alternative asset manager is one of the largest private lenders in North America and has held informal talks about the possible expansion, said the three people, who weren’t authorized to speak publicly as the deliberations are private.
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A spokesperson for New York-based Blue Owl, which manages about $144 billion, declined to comment.
The $1.5 trillion private credit market has been increasing its share of debt financing over the past year, taking advantage of the best risk-adjusted returns in the market’s history after the jump in interest rates. Blue Owl has played a key role in transforming private credit into a competitor to top-tier investment banks for debt deals in the billions of dollars used to fund buyouts of companies such as Avalara and Zendesk.
“It’s the best opportunity set in private credit in history,” Robert F. Smith, founder and CEO of Vista Equity Partners, said in an interview this month.
Other firms are gearing up to take advantage of private credit’s growth in Europe. US investment manager Nuveen this year bought a controlling stake in alternative debt firm Arcmont Asset Management Ltd. And several lenders in the region are looking at bundling direct loans into collateralized loan obligations, another milestone in the development of the asset class.
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Private credit providers have about $250 billion of European direct lending assets under management compared with less than $9 billion just over a decade ago, according to data provider Preqin.
Direct lenders there now target gross returns of between 12% and 14% for senior lending and firms including Ares Management Corp. are raising more funds in the region as the market grows.
Another option for Blue Owl is to raise a fund in the region that would be overseen by a portfolio manager based there, the people said. The plans are at an early stage, there has been no hiring to date and the expansion may still not go ahead, they added.
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Blue Owl hired its first employee in London, Amy Ward, in recent years to oversee institutional client service and business development in Europe. The firm has its roots in Owl Rock, which was founded in 2016 by Doug Ostrover, Marc Lipschultz and Craig Packer.
Ostrover is the O in GSO Capital Partners, an alternative credit manager that became Blackstone’s credit arm. Lipschultz is a former KKR & Co. management committee member and Packer is a former Goldman Sachs Group Inc. partner who helped lead its leveraged finance business.
Owl Rock merged with Dyal Capital to form Blue Owl in 2021.
–With assistance from Davide Scigliuzzo and John Sage.
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