Rising Global Private Credit Demand Will Reshape Alternative Markets

Key Takeaways

• Rapid fundraising, expanding retail adoption, and accelerating market share gains position Blue Owl for strong, sustained revenue and earnings outperformance versus peers and analyst expectations.
  
• Structural advantages in permanent capital, fee-centric earnings, and increased demand for private credit could drive durable growth in margins and long-term profitability.
  
• Concentration in the US market, fee pressure, and competition threaten Blue Owl's revenue growth, margins, and ability to sustain asset growth amid uncertain economic conditions.

Catalysts

Operates as an alternative asset manager in the United States.

• Analyst consensus broadly expects an incremental $290 million in annual management fees once $23 billion of AUM is fully deployed, but this view may significantly understate the uplift as the current pace of fundraising and accelerated global investor adoption could result in AUM and corresponding fee income growing well above this near-term target, driving outperformance in revenue and forward earnings.
  
• While analysts expect the OTF/OTF II merger to deliver $135 million in extra annual fees and make Blue Owl's tech BDC the largest in the market, they may be underappreciating the compounding effect of market dislocation; this platform could rapidly consolidate market share as traditional lenders retreat, resulting in higher than modeled revenue and fee growth.
  
• The mainstream adoption of alternatives by massive retail players (e.g., Edward Jones launching alts for the first time with Blue Owl as a premier offering), combined with the extremely low penetration of alternatives among retail and global private wealth channels, creates a greenfield opportunity that could usher in a multi-year step-change in fundraising, supporting management-fee-driven revenue and long-term margin expansion.
  
• Blue Owl's unique fee-related earnings (FRE)-centric, mostly permanent capital platform remains structurally advantaged, enabling it to post at least 25% FRE growth annually even in challenging macro environments; continued scale, diversification, and cross-platform operating leverage could sustain or accelerate this level of earnings and net margin growth beyond consensus expectations.
  
• Private credit is undergoing a long-duration inflection as bank lending contracts globally and syndicated markets shut down; Blue Owl, with its scale, resilience, and brand as a premier solutions provider, stands to capture a disproportionate share of the multi-trillion-dollar shift toward private capital, fueling sustained AUM, revenue, and operating income growth at rates well above traditional asset managers.

Blue Owl Capital Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Blue Owl Capital compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Blue Owl Capital's revenue will grow by 19.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.7% today to 97.0% in 3 years time.
• The bullish analysts expect earnings to reach $4.1 billion (and earnings per share of $2.38) by about July 2028, up from $91.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, down from 128.7x today. This future PE is lower than the current PE for the US Capital Markets industry at 27.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Blue Owl Capital Future Earnings Per Share Growth

Risks

• Blue Owl's strong focus on the US market could expose it to regional economic downturns or changes in US regulations, which may increase risk and ultimately reduce net margins and overall profitability.
  
• Rising interest rates and inflation volatility could make private credit less attractive to institutional investors when compared to traditional fixed income, potentially causing slower AUM growth and lower long-term revenue.
  
• Industry-wide fee compression and demands for greater transparency are likely to put pressure on Blue Owl's fee structures, which could diminish revenue growth and compress earnings over the long term.
  
• Heavy reliance on perpetual capital and continued AUM growth through acquisitions may eventually result in integration challenges and diminishing returns on new assets, weighing on future revenue growth and operating earnings.
  
• Increasing competition from larger, more diversified alternative asset managers could erode Blue Owl's market share and reduce its ability to win new business, thereby limiting revenue growth and pressuring long-term margins.

Valuation

• The assumed bullish price target for Blue Owl Capital is $28.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Blue Owl Capital's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $28.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $4.1 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 7.8%.
• Given the current share price of $18.91, the bullish analyst price target of $28.0 is 32.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.