Market Commentary

2024 Market Outlook

January 18, 2024
Less than 31 min read
Foreword Credit Outlook GP Strategic Capital Outlook Real Estate Outlook Webcast highlights
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We are in uncertain times politically, geopolitically and economically. It is this uncertainty that drives our high degree of confidence in the outlook for our three investment platforms – Credit, GP Strategic Capital and Real Estate

 

“We built our strategies to seek durability and strong results in a wide range of different environments.”
Doug Ostrover & Marc Lipschultz, Co-CEOs of Blue Owl Capital

Looking into 2024 at a U.S. macro-level, the Federal Reserve’s sustained campaign against inflation is showing preliminary signs of success. Subsequent indicators, however, may prove otherwise, and it will be interesting to see how the overall economy fares going into the first quarter of the year. Regardless, the recent rally in stocks and bonds suggests investors are very optimistic about the potential for interest rate cuts after an unprecedented period of tightening monetary policy.  Given how stubborn inflation is and how strong the performance of the economy appears to be through the lens of our portfolio companies, we are not so sure about this very broadly accepted view.


If the cost of capital eases even modestly, the floodgates of M&A may begin opening as private equity firms seek to deploy a record $2.6 trillion of dry powder.  The tailwinds of this deployment can benefit the overall alternatives industry, creating an especially potent advantage for firms such as Blue Owl, whose capital solutions are intended to service the needs of financial sponsors. 


Less clear is the state of global affairs. The conflict in the Middle East is a human tragedy first and foremost, but thus far has had limited impact on the financial markets. This could change if the conflict continues with the potential for repercussions across the broader EMEA region. Uncertainty with China also persists, especially as it relates to capital commitments from U.S. investment firms and ongoing trade disputes. Throw in a U.S. Presidential election, and even the most self-assured markets forecaster may want to pause for a moment of self-reflection. 
Within this potentially dichotomous paradigm, Blue Owl will continue to focus on driving value for our investors and our users of capital. 


As has always been the case for Blue Owl, the focus of our products and solutions is on income generation and capital preservation, two areas investors tend to prioritize during times of uncertainty. This coming May will also mark three years as a public company, a milestone we are excited and incredibly humbled to celebrate.


With all that said, we invite you to delve deeper into the outlooks for each of our three investment platforms. We hope these can serve as a helpful roadmap for how we think about our respective business areas and provide some insights into the markets in which we operate.  

We wish you all the best this year. 

Foreword Sigantures

Explore our platform outlooks

Leaders from Blue Owl share their outlooks across Credit, GP Strategic Capital and Real Estate

 

Download 2024 Market Outlook

Watch highlights from our 2024 Market Outlook Webcast

Leaders from across our business discuss their key themes and potential opportunities for our investment platforms in 2024.

 

Foreword

Co-CEO Marc Lipschultz shares his views and perspective on the year ahead.

Highlights: 2024 Credit Outlook

Watch Co-President Craig Packer, break down the themes and opportunities for Credit in 2024.

Highlights: 2024 GP Strategic Capital Outlook

Watch Senior Managing Director, Sean Ward, break down the themes and opportunities for GP Strategic Capital in 2024.

Highlights: 2024 Real Estate Outlook

Watch Co-President, Marc Zahr, break down the themes and opportunities for Real Estate in 2024.

Read more from Blue Owl

Contact Us

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Reach out to member of our Private Wealth team today.
Individual investors, please contact your financial advisor for more information.

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Foreword endnotes

  1. S&P Global Market Intelligence: Private equity firms face pressure as dry powder hits record $2.59 trillion. December 13, 2023.

Credit endnotes

  1. Sources: Pitchbook, LCD. As of September 30, 2023.
  2. Source: U.S. Bureau of Labor Statistics as of December 2023
  3. Sources: Bloomberg, Cliffwater as of September 30, 2023 unless otherwise noted. Global Aggregate represented by the Bloomberg Global Aggregate Index, Global IG represented by the Bloomberg Global Aggregate Corporate Index, US High Yield represented by the ICE BofA US High Yield Index, U.S. Direct Lending represented by the Cliffwater Direct Lending Index.(CDLI) through September 30, 2022. Past performance is not a guarantee of future results. Index comparisons are for illustrative and informational purposes only. All investments involve risk of loss, including loss of principal invested. Indices listed do not represent benchmarks for the funds but allow for comparison of a fund's performance to an Index. There can be no assurance that historical trends will continue during the life of any fund. An investor cannot invest directly in an index. Index performance does not reflect fees and expenses. The indices presented represent investments that have material differences from an investment in a non-traded BDC, including those related to vehicle structure, investment objectives and restrictions, risks, fluctuation of principal, safety guarantees or insurance, fees and expenses, liquidity and tax treatment.
  4. Sources: Bloomberg, Cliffwater for the period June 29, 2006 to September 18, 2007. Global Aggregate represented by the Bloomberg Global Aggregate Index, Global IG represented by the Bloomberg Global Aggregate Corporate Index, US High Yield represented by the ICE BofA US High Yield Index, U.S. Direct Lending represented by the Cliffwater Direct Lending Index.
  5. Source: JPM Morgan Markets as of September 30, 2023.
  6. Average annual loss rate based on total annual net realized losses across all investments divided by the average aggregate quarterly cost of investments. The loss rate is based on the average loss rates in each year since inception from 2016 to ‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌3Q23‌‌‌. Loss rates by fund: OBDC (-0.17%), OBDC II (-0.12%), OBDC III (-0.08%), OCIC (-0.06%), OTF (-0.04%), OTF II (0.00%), OTIC (0.00%), OFLF (-0.01%), OLF (0.00%).
  7. Sources: JP Morgan. As of October 31, 2023. 2024 High Yield & Bank Loan Market Outlook.  
  8. As of ‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌September 30, 2023‌‌‌. Borrower financials are derived from the most recently available portfolio company financial statements, have not been independently verified by Blue Owl, and may reflect a normalized or adjusted amount Accordingly, Blue Owl makes no representation or warranty in respect of this information.
  9. As of September 30, 2023. Excludes add-ons, syndicated transactions, equity-only deals, and transactions for existing borrowers.
  10. As of September 30, 2023 based on Fair Value.
  11. Sources: Bloomberg, S&P Global Market Intelligence, Preqin Pro. US High Yield represents the Bloomberg Barclays US High Yield Corporate Index, US Bank Loans represents the S&P US Leveraged Loan Index. Estimated Direct Lending Market share is based on Direct Lending AUM divided by US High Yield and US Bank Loan amounts outstanding.

GP Strategic Capital endnotes

  1. Source: Preqin, “2024 Global Report Private Equity”, December 2023.
  2. Source: Preqin, “Alternatives in North America 2023”, September 2023.
  3. Source: Preqin, “Alternatives in North America 2023”, September 2023. Quartile rankings are based on a fund’s pre-assigned benchmark grouping. Market Benchmarks are made based on funds’ vintage, investment strategy, and geographic focus. Within each benchmark group, performance metrics of called-up, distributed, unrealized value, multiples, and net IRRs are calculated for the following:
    • Median – the middle value from an ordered set of a specific benchmark grouping (for each performance metric).
    • Average – the mean net IRR is taken from a specific benchmark grouping to calculate the average fund performance metrics.
    • Pooled – accounts for the timing of calls/distributions; aggregates cash flows of constituent funds and calculates resultant net IRRs.
    • Weighted – takes the performance ratios of each individual fund and calculates a weighted average using the size of each fund.

      Within each benchmark, funds are assigned a Quartile Ranking – an easy indicator of how a fund is performing relative to other constituents in the benchmark group. The ranking applies to funds that are included in our ‘most up-to-date’ range, i.e. have reported data within the past 5 quarters. Both the multiple and net IRR rankings of each constituent fund are used to determine the fund’s overall quartile rank, with equal weighting. If one of the two metrics is unknown, its ranking is estimated based on the known metric’s ranking. In instances where the sample size is too small for a specific benchmark group, the fund will be compared to a broader category.
  1. Source: KPMG 2022 Market Insights Survey covering 120 PE firms in the US (44%) and UK (56%) of whom 22% had AUM of>$10bn.
  2. Source: The Advantage of Persistence: How the Best Private Equity Firms “Beat the Fade”, February 2008.
  3. Source: Bain & Company’s Global Private Equity Report 2023, March 2023.
  4. Source: Private Equity International, “Spot the Difference: How GP stakes firms differentiate their capital”, as of April 19, 2023.
  5. Source: Represents transactions by GP Stakes vehicles since 2010 to July 31, 2023.

Real Estate endnotes

  1. Source: Wall Street Journal, “The Money Has Stopped Flowing in Commercial Real Estate” published October 31, 2023
  2. Source: CBRE: “Commercial Loan Losses to Create Short-Term Pain, Long-Term Opportunities” published July 13, 2023
  3. Source: Fortune “Commercial real estate valuations are so hard-hit that CBRE warns they could fall ‘another 10%,’ after saying earlier they ‘may come down 15%, 20%’” published November 9, 2023
  4. Source: Mortgage Bankers Association, January 2023
  5. Source: PERE: Fundraising Report Q3 2023
  6. Source: CNN Business “The US is spending billions to boost chip manufacturing. Will it be enough?” published October 18, 2022
  7. Source: The Economist “Taiwan’s dominance of the chip industry makes it more important” published March 6, 2023
  8. Source: Nasdaq.com, “Global Chip Race: Everything Investors Need to Know” published October 26, 2023
  9. Source: Precedence Statistics as of June 2023
  10. Source: Investors Business Daily, “Intel, TSM And Samsung Are Point Players In U.S. Construction Boom” published September 28, 2023
  11. Sources: FRED Economic Data, U.S. Census Bureau as of October 31, 2023
  12. Investment grade companies must have  “BBB-” rating or higher by S&P or an equivalent rating from a nationally recognized statistical rating organization (NRSRO). Creditworthy refers to businesses that Blue Owl deems financially sound enough to justify an extension of credit or engage in a lease agreement.

Important information

Unless otherwise indicated, the information referenced herein is as of September 30, 2023.

Past performance is not a guarantee of future results.

This material contains proprietary information regarding Blue Owl Capital Inc. (“Blue Owl”), its affiliates and investment program, and may not be reproduced or distributed without express permission from Blue Owl.

The views expressed and, except as otherwise indicated, the information provided are as of the date herein and are subject to revision and verification, materially or otherwise, without notice, as market or other conditions change. Since these conditions can change frequently, there can be no assurance that the trends described herein will continue or that any forecasts are accurate. In addition, certain of the statements contained in this presentation may be statements of future expectations and other forward-looking statements that are based on the current views and assumptions of Blue Owl and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. These statements may be forward-looking by reason of context or identified by words such as “may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential or continue” and other similar expressions. Neither Blue Owl, its affiliates, nor any of Blue Owl’s or its affiliates' respective advisers, members, directors, officers, partners, agents, representatives or employees or any other person (collectively the “Blue Owl Entities”) is under any obligation to update or keep current the information contained in this document.

All investments are subject to risk, including the loss of the principal amount invested.

This material is for educational and informational purposes only and is not an offer or a solicitation to sell or subscribe to any fund and does not constitute investment, legal, regulatory, business, tax, financial, accounting, or other advice or a recommendation regarding any securities of Blue Owl, or any fund or vehicle managed by Blue Owl, or of any other issuer of securities.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Blue Owl. It Is delivered on an “as is” basis without warranty or liability. All individual charts, graphs and other elements contained within the information are also copyrighted works and may be owned by a party other than Blue Owl. By accepting the Information, you agree to abide by all applicable copyright and other laws, as well as any additional copyright notices or restrictions contained in the information.