And what we have seen consistently for the last year and still today, is inflation has not gone away. Now that’s a consensus view. It seemed like a only voice in the words a year ago, even 4 months ago, we don’t have this conversation when the world was talking about 7 rate cuts. Now we’re in a world where it’s somewhere balanced between 0 rate cuts and 1 right back to the new consensus. And that’s a reality of what’s happening from the ground up. We see wage pressures continue. You see cost pressures continue. Importantly, we see all these companies raising their prices. Someone’s paying for that. So when you add it all together, inflation is not, of course, is not ranging the way it was 1.5 years ago, it’s very real. So look, that does bring us to the higher for longer view from the ground up or not macro experts.
But as a result of that, in a higher-for-longer world, which now seems pretty likely, of course, that does flow through in ever higher returns for our investors and to agree FPR. Remember, what’s really important, though, other than the small amount of variance around fee related, which is not the RPR, which is a modest part of our revenue base. You have to remember, we at Blue Holland you know this, but I’m saying it more broadly, we have Blue Owl paid fees to manage the business. There’s no carry. We have no capital markets fees. We don’t have all these other variable fees that other people have to manage, which is complicated. Our business is very straightforward. And even with gyrations in spread or whether we do have a rate cut, don’t have a rate cut, really, really moderate impacts on our business.
So I’m going to let Alan comment on that, and then I’ll come back to the credit question you had, and it’s the case.
Alan Kirshenbaum: So two points here, I guess. One, I made the comment earlier in 2025, when you look at the curve today. versus at the end of the year, we’re at 60 basis points to 80 basis points higher on the curve than where we were to translate that to how that impacts our business. I mentioned in the last quarter’s call when asked about a rate decline question. I had said that about 100 basis points of rate decline would be about $40 million of increased or decreased. And now in this case, it’s increased as opposed to the question last quarter, which would be decreased about $40 million of increased annual management fees.
Marc Lipschultz: And then let me tack back on to the credit question and attack it a couple of ways. First of all, and I said this before, within the land of our credit business, credit is everything. It’s what we focus on. It’s what we’re focused on from day 1. It’s why we focus on the large end of the market. It’s why we focus so intensely on low loan to values, which in our portfolio, they remain on average in the 40s. So we’re — and in software lower, our portfolio performance. You look at our — we look at our most recent results, on average, the EBITDA and revenue in our portfolio companies grew on average in the last quarter that we just finished our data analysis on at double digits. So we understand and of course, we’re always thinking about, gee, the credit downturn, which is really economic downturn right?
— separate thing called the credit downturn unless you do credit poorly, and I feel confident we haven’t done that. And so at the end of the day, we’re still growing robustly in our portfolio on average. Of course, there’s going to be peculiar credit issues. Of course, there’s companies that have their own peculiar challenges. But remember, our nonaccruals are well below 1% of our book. And our loss rate historically now has been at 7 basis points per year. So I think we’re starting from an incredibly good place. And here’s I guess 2 things to take away from that. We care intensely about credit. As an investor in the Blue Owl stock, they’ll again, remember, we could pay fees to manage these funds. So ultimately, that’s not really a question that bears on the shareholder of Blue Owl in any meaningful way, matters to us and it matters grow a lot to our LPs, and that’s what we work for every single day.
So we’re intensely focused on it, but it’s not really an earnings question. Last point, I think this is what also gets lost in the conversations about credit. I absolutely do get and agree that people — we can say, Hey, we just don’t know because there’s this new thing called private credit, not so new and it hasn’t been fully tested well pass on through with test, but it is a good way of just creating for those who wish to uncertainty. There’s a lot of data, a lot, right? I just told you our data on nearly $100 billion of loans, and it hasn’t exactly been sailing to the land of COVID and wars and runs on banks. And again, it hasn’t been a deep dark recession. But actually, the tar recessions have happened in the land of leveraged credit. This isn’t new.
We’re making loans to the same companies, except with tighter documents and lower loan to values that the syndicated market did back in the 2000s, and we actually do know what that looks like. And frankly, if it was that — even that bad, so to speak, think about the returns. We’re starting with unlevered returns today, depending on, again, which spread we’re all using 10% to 12%. You can take pretty meaningful changes in defaults and still have one heck of a risk return. So we think about it all the time. But I really think this sort of propensity of say, this market is just on test. It actually is extremely well tested. It just hasn’t been tested, frankly, in this more durable format. And I think what you will find. When that test comes in this exact format, I think you’re going to find out that loan losses are lower.
Because you have parties in bilateral arrangements with very aligned incentives, which is, you know what, we all want this company to do well. We all want this company to thrive and pay back its capital, burn games, there are tricks the aren’t credit default swaps. There aren’t credit on creditor violence, all that stuff will happen in the syndicated market. So yes, you’ll live that stuff again in private credit, I would proffer that you’re going to see a better experience when that version of days comes again.
Operator: Question comes from Patrick Davitt from Autonomous. Your line is now open.
Patrick Davitt: My question is on Kuvare. Could you help us frame maybe how much run rate organic flow you expect from the insurance entity post close maybe how fast that has been growing? And then more broadly, contrast how you see alt’s insurance TAM versus others. Given your asset classes are generally outside of the lower fee fixed income replacement assets, most of the other alts are focusing on.
Marc Lipschultz: Sure. So I don’t want to speak on behalf of Kuvare, the insurance company, which remember, we are buying the asset manager, and we’re an asset manager, so balance sheet light provider of management services, and they are a really strong insurance originator. So that’s their side of the equation. I don’t mean that in a lack of partner way. We’re very much partnered, but I want to understand that they are the insurance company, we are their partner asset manager. With that said, we know that, for example, last year, they grew their book by $5.6 billion. So part of this whole exercise was to get more capital freed up and focused on supporting the growth of their insurance company, including our $250 million preferred investment.
So last year was $5.6 billion. They were looking for more capital to continue to grow and to grow, I think we’ll continue to see very healthy growth. They have a great origination business. I’ve mentioned this before, but they punch way above their weight. Here’s a firm of a size that is in the Japanese market, which is one of the most discerning markets, as I understand it, for these types of annuity products. And they’re right in there with the very biggest and the very best. And I think it’s a real credit to what they’ve done on the insurance origination and management side. So I won’t forecast their number for them, but I think it is safe to say that given the growth they’ve had in the past, we expect to see that kind of growth continues, that’s why they want the capital.
Alan Kirshenbaum: And the vast majority of that growth is going to come for assets that we manage going forward.
Marc Lipschultz: Yes. And remember, we now require the whole of their asset management business, which means we do have all the product capabilities built out. That you just described. So with this brings to us the ability to deliver the comprehensive solution, you just postulated about others. So we do have all that now. Our focus isn’t on the low fee products. But we have the capabilities now and it’s not like we just missed having matter just having the comprehensive set of solutions. It will be part of our growth profile going forward, too. So we do have that full range today. In terms of the addressable market, it’s actually a really interesting question. We all know this is evolving in the interrelationship between insurance and asset management or alternative asset managers.
And there’s different models, I don’t think there’s one singular right model. I will say that our model is built around staying very focused on being really good at asset management and letting insurance companies to be really good at insurance and being a partner to them as opposed to a competitor with them, which is very consistent with our model. We are a capital solutions provider with the picks and shovels, right? We do that. We provide capital solutions to GPs themselves with our GP solutions business, help them grow their businesses. We provide capital solutions to corporate owners of real estate to help them grow their businesses. We provide financing solutions to PE portfolio companies. And now with our below strategic equity, we provide GP Continuation Capital.
All of those are solutions to, for example, a private equity firm, not competition with the private equity firm. So I think we’ve got a very clear focus and same thing in insurance. We are now — we are their partner, and we’re here to help them grow and not try to take growth from them.
Operator: Our next question from Crispin Love from Piper Sandler. Your line is now open.
Crispin Love: You hit on this a little bit with a prior question, but just with the announced acquisition of Prima. You explain why you did the deal and how you do the credit work. But can you discuss what opportunities you’re most interested in once the deal closes? Would you expect to be active in distressed areas such as deals in office or be active in multifamily or kind of other areas like CMBS in addition to deals more related to your triple net lease product, but on the debt side. Just curious, your thoughts here on where you might add capital in this part of the business when the deal closes?
Marc Lipschultz: Sure. Well, let me start with this observation on every acquisition we make, our mission is to have a best-of-class team as a part of that, and we have that with Prima, which also means first job is to make sure we only enhance doing well at they already do, we once combined. And that’s been true. Look at our Oak Street business, now the real estate business. That’s a business that has thrived because they’re great at what they do, again, now we, but is phrasing, I’m purposely trying to be intentional about this idea of not ever disrupted only enhancing the investment process. So our first job is to continue to do a fantastic job for Prima LPs in the products they have. Now with their capabilities and ours, there are opportunities for us to deliver great results to their existing or new LPs and do so well for our shareholders.
When you think about where we’ll go, remember we also have now brought on a world-class real estate finance professional, Jesse Hom. Jesse Hom, who is quite well known in the world of real estate finance, having led this at GIC will be joining us to lead this overall initiative. So Prima comes on board, we’ll keep doing Prima really well. And then we will extend — to answer your question, again, remember our DNA and our comfort, our idea is to go into a market and find ways to take risk out and are really attractive, stable returns. So that would tend towards leaning our mindset, not toward opportunistic stress let’s go find a messy office building rather it, hey, this is a dysfunctional market now. We can go in and do very high-quality things that are much lower leverage, much less deep in the cap stack and earn a very active return providing that capital.
So I think that frame of reference is likely to be more where we live than all of a sudden trying to move out to the periphery of return seekers, that’s not our mission. Our mission is to have sleep at night well money for our investors and deliver really good returns for it.
Operator: Our next question comes from Brian Mckenna. Your line is now open.
Brian Mckenna: Most questions have been asked, but just a quick one for me. So you’ve clearly been active on the M&A front, and you’ve also made a number of senior hires as well. So I think integration of all these businesses and people will be important to the longer-term growth and success of Blue Owl. So what are you doing to make sure integration of all this is successful over time? And I guess what I’m getting at is how do you make sure 1 plus 1 equals more than 2?
Marc Lipschultz: That is exactly right at exactly what we focus on and exactly where I think we’ve developed now, I’d say, our muscles to do it well. We think integration is critical. And that is part of — again, the benefit here is don’t disrupt anything about the strong investment performance and practices of businesses but enhance them with the intellectual capital and capabilities that we have, bring the backbone that we have operationally to each of these companies to help support them doing an even better job at the investment business. I want to make sure we say this. We’ve talked a lot about M&A on here. The vast preponderance of our growth is organic. And the M&A is actually pretty moderate when you get down to a number of people, impact on business.
I just talked about Prima. It’s a wonderful business. It comes with a wonderful team. It does something very specific, though. It’s not this isn’t some grand complex integration. Actually, it’s pretty straightforward. And that’s not to take it lightly. It’s just to say we to distinguish between complicated integrations and acquisitions, not something that we pursue with any great vigor and relatively simple ones like a Prima. So an acquisition is not an acquisition in the generic set. That said, I think we feel very, very good about our pathway. And let me just point back to real estate. So Oak Street, when we acquired Oak Street now our real estate business, I believe it had about $70 million in FRE. And today, we’re running at about $200 million of FRE.
Triple. Tripled that business. And Marc Zahr and his team and Chair and others have been phenomenally effective as an integrated part of this firm. Michael Reiter, who comes in as operational integrates to our operations that has been an absolutely case study for us in how we can do this. And so we learn our lessons. Again, we’re not saying we’re perfect by any measure. But I think we feel very, very good that we can handle these acquisitions, and we’ll be very, very careful as we look and we’ll continue to look at organic and inorganic growth, but let’s not lose track of the fact that most of our growth has been and likely will be organic growth up and to the right, the boring Blue Street up to the right.
Operator: We don’t have any questions at this moment. I’d now like to hand back over to Marc for final remarks.
Marc Lipschultz: Great. Thank you all very much. Really appreciate the time and your patience and your interest, and we’re going to go away and be credit animals and try to do some more boring quarters for you. But we do appreciate it very much and back to it. Thank you.
Operator: Thanks for attending today’s call. We hope you have a wonderful day. Stay safe.
