[NEW YORK] It might sound like another techland unicorn: a four-year-old startup suddenly worth US$2.5 billion.
But instead of Silicon Valley, this one emerged from Wall Street's booming world of private credit. And it shows just how quickly fortunes are being minted by lending to companies too small or too risky to borrow from the traditional banking sector.
Owl Rock Capital, founded by a trio of veteran Wall Street dealmakers, is selling a 20 per cent minority stake to Neuberger Berman's Dyal Capital Partners in a deal that will pump around US$500 million into the firm, valuing it at about US$2.5 billion, people with knowledge of the deal told Bloomberg News. The firms announced their partnership on Monday without disclosing the terms. Representatives for Neuberger and Owl Rock declined to comment on valuations.
Owl Rock was founded in 2016 by Doug Ostrover, Marc Lipschultz and Craig Packer, who held senior positions at Blackstone Group Inc, KKR & Co and Goldman Sachs Group Inc, respectively. In that time they've amassed more than US$14 billion of capital, most of it through investment vehicles known as business development companies, or BDCs, that make loans to small or mid-size companies.
With the cash from the Dyal investment, Owl Rock plans to set up a new, publicly traded BDC worth between US$3 billion and US$5 billion, one of the people with knowledge of the deal said. The firm will also start a new opportunities fund that makes loans deemed too dicey for Owl Rock's existing vehicles, the person said.
"It was never about the value of the business, but this investment sets us up for the long run," Mr Lipschultz said in an interview. "It gives us capital to continue to raise funds and invest in them."
Owl Rock's valuation underscores the meteoric rise of the private credit market, which is on pace to hit US$1 trillion by next year, according to one estimate. As traditional banks retreated from risky, capital-intensive lending in the years after the financial crisis, firms like Owl Rock swooped in, fuelled by a decade of low interest rates that prompted pension funds, endowments and other institutional investors to shift cash away from low-yielding public markets and into private investments.
The Dyal deal marks the first time that the three co-founders - who invested more than US$100 million of their own money to set up the firm's first two funds - have sold a major stake in Owl Rock, which acts as the investment adviser, the person said.
Direct lenders traditionally focused on small and mid-size companies, borrowers that were often overlooked by the world's biggest banks. But as they amass larger pools of capital, their buying power is now encroaching on businesses long dominated by Wall Street heavyweights: arranging large loans for highly leveraged companies. Except direct lenders bypass a syndication process whereby the big banks arrange loans and sell the debt to institutional investors.
In one of the largest such deals ever, a group of around 10 lenders including Owl Rock agreed last month to provide a US$1.6 billion loan to an insurance brokerage.
Earlier this year, Owl Rock took its business development company public, and it's now valued at almost US$7 billion amid an explosion of interest in direct lending.
The sale of minority stakes has become a popular way for money managers to unlock wealth from rapid growth. Some firms have used proceeds to cash out founders as others have diversified or committed additional money to existing funds. A minority interest in asset managers can give investors a share of ongoing fee income.
"All of the new equity is going into our funds," Mr Lipschultz, a former member of KKR's management committee, said in the phone interview. "None of this is money that we are taking out."
In addition to Mr Lipschultz's private equity pedigree, Mr Packer is a former Goldman Sachs partner who helped lead its leveraged-finance business. And Mr Ostrover was the O in GSO Capital Partners, the giant credit unit of Blackstone.
"Private credit and private equity (PE) are both growing, but PE is growing faster than private credit and they are our primary customer," Mr Lipschultz said.