Blue Owl, Newest Private-Equity Creation, Sees Wisdom in Simplicity

The company’s founders say that, as a service provider to the private-equity industry, it has a business model that is the envy of the buyout firms themselves—

Blackstone Group Inc.,

BX 1.56%

Apollo Global Management Inc.,

APO 0.48%

KKR

& Co. and the like.

For starters, Blue Owl gets all of its earnings from management fees, avoiding the less predictable performance-related income to which public investors typically assign a lower value. By comparison, 55% of Blackstone’s earnings, and about 67% of the industry’s on average, come from management fees, according to Autonomous Research.

Moreover, about 91% of Blue Owl’s roughly $52 billion in assets are in permanent-capital vehicles—meaning the company doesn’t need to return investors’ money within a set period—easing fundraising pressure. Even at Apollo, whose insurance business has allowed it to gather billions in permanent capital, only 60% of assets are in such vehicles, according to Autonomous.

The upshot is that Blue Owl’s earnings are more predictable, its founders say. The company says it can reach $561 million in so-called distributable earnings by 2022, nearly double what it achieved in 2020, just by implementing scheduled fee increases and investing money already raised that isn’t yet earning fees.

Investors have taken notice, with the company’s shares climbing about 23% since their May 20 debut, to $12.34 apiece as of the market close Tuesday.

There is no guarantee that Blue Owl’s growth will continue at its current pace over the long term, however. Golub Capital and Sixth Street Partners, credit-focused firms in which Dyal owns a stake, filed a lawsuit before the merger was consummated, arguing that it was a conflict of interest for Owl Rock, a competitor, to own a piece of them. Other credit firms that Dyal owns stakes in supported the transaction, and a judge sided with Dyal; but some other credit managers might now hesitate to do business with it.

Dyal and its chief competitors have already purchased stakes in many of the biggest buyout firms, meaning Blue Owl could struggle to find more high-quality managers to invest in.

Owl Rock, which kept fees low for years to drive growth, started raising them last year and has further increases planned. That could drive away institutional investors such as pension funds, particularly if performance slips.

Blue Owl’s executives had front-row seats when the big private-equity firms started going public more than a decade ago and say they have learned from what they have observed over the years.

Co-President

Michael Rees

was a banker at Lehman Brothers Holdings Inc. when he helped advise Fortress Investment Group LLC on its 2007 initial public offering. Co-President

Marc Lipschultz

was a partner at KKR for 20 years, and Blue Owl Chief Executive

Doug Ostrover

was the ‘O’ in GSO, the big credit firm acquired by Blackstone in 2008, a year after going public.

Mr. Lipschultz says investors like the merger because they understand that Dyal and Owl Rock both stand to benefit from the robust growth of the private-equity industry without being directly exposed to the performance of the notoriously risky buyouts themselves.

Says Mr. Rees, “In the gold rush, the only people that made money all the time were the ones who sold you picks and shovels. They didn’t have to worry about whether there was gold ‘in them thar hills.’”

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com