Capital Allocators – Inside the Institutional Investment Industry
Episode: [REPLAY] Private Equity Masters 6 – Doug Ostroover – Blue Owl Capital (EP.205)
Release Date: May 15, 2025
Host: Ted Seides

Introduction

In the sixth episode of the eight-part miniseries Private Equity Masters, host Ted Seides engages in a comprehensive conversation with Doug Ostroover, co-founder and CEO of Blue Owl Capital. Doug brings over three decades of experience in leveraged finance and private equity, having previously co-founded GSO Capital Partners, now Blackstone's alternative credit platform. The discussion delves into Doug's career trajectory, the importance of company culture, investment strategies, the formation of Blue Owl Capital, and his perspectives on the future of direct lending.

Doug Ostroover’s Early Career and Entry into Leveraged Finance

Doug begins by recounting his upbringing in Somerset, New Jersey, where his father worked in the textile business. Although his early exposure to business was limited to his father's work, Doug developed a profound interest in the business world. He narrates his initial foray into finance during his college years, securing a position at EF Hutton.

Doug Ostroover [02:32]: "I have to admit with regard to Wall Street I had no exposure... It really wasn't until I got to college that I got any real exposure to Wall Street."

Doug's transition into leveraged finance was serendipitous. Initially placed in municipal finance, a change in tax laws forced him into the junk bond group within corporate finance—a pivot that significantly shaped his career.

Doug Ostroover [03:36]: "Leverage finance actually picked me. And I pinch myself every day that I was fortunate enough to get into it."

Starting at EF Hutton in the mid-1980s, Doug faced the challenge of competing against Drexel Burnham Lambert, the dominant player in the junk bond market at the time. His early years were marked by self-driven learning and adaptability, including seeking tutoring in financial modeling to bridge his knowledge gaps.

Building GSO Capital Partners

After various stints at firms like LF Rothschild and Wasserstein Perella, Doug joined Donaldson, Lufkin & Jenrette (DLJ) in 1992, a decision he later describes as one of his best. DLJ offered him a supportive environment to develop his expertise further. However, in 2005, following significant changes in Credit Suisse's leadership post-acquisition of DLJ, Doug decided to co-found GSO Capital Partners with Bennett Goodman and Tripp Smith.

Doug Ostroover [10:09]: "We were going to do something that nobody really had ever done and that was marry both public market expertise with origination."

GSO focused on direct lending, an area not heavily explored at the time. Despite leaving a lucrative position during a favorable market period (2005–2007), which drew skepticism from peers, Doug and his partners successfully built GSO into a formidable force within the leveraged finance sector.

Emphasizing Culture at Alrock Capital

Post-GSO, Doug founded Alrock Capital in 2016, a direct lender managing $30 billion in permanent capital assets. He underscores the pivotal role of culture in organizational success. Drawing inspiration from his experiences at Blackstone and observing leaders like Steve Schwarzman, Doug aimed to create a work environment that balanced excellence with respect and work-life balance.

Doug Ostroover [13:12]: "My real goal, though, was to create something that was a little kinder, a little more gentle... I think you can have a work life balance."

At Alrock, Doug prioritized hiring top talent, fostering open communication, and ensuring that employees felt valued and respected. This focus on culture resulted in impressive retention rates, with no voluntary departures in six years.

Investment Strategy and Direct Lending

Doug elaborates on Alrock's investment philosophy, emphasizing the preservation of capital and protection against downside risks. The firm specializes in senior secured floating rate loans, targeting industries with stable cash flows such as software and healthcare. By focusing on top-performing companies within their sectors, Alrock minimizes default risks and ensures robust underwriting standards.

Doug Ostroover [22:47]: "The one thing I would say I was maniacally focused on is what's called our deal funnel."

Alrock distinguishes itself by maintaining an extensive deal funnel, enabling the firm to evaluate a broad spectrum of opportunities and select the most viable investments. Additionally, Alrock pioneered offering institutional-quality direct lending products to retail investors, creating a unique retail sleeve that mirrors their institutional fund's investments.

Formation of Blue Owl Capital through Merger with Dial Capital

In a strategic move to enhance service offerings and expand their reach, Doug discusses the merger with Dial Capital, leading to the creation of Blue Owl Capital. This merger was driven by the desire to provide comprehensive solutions to private equity and venture capital firms, encompassing both direct lending and equity stake opportunities.

Doug Ostroover [42:43]: "Our goal is, obviously we want to see the most deal flow possible, but we also want to make sure that we win those deals where there's real alpha attached to it."

The merger aimed to combine the strengths of both firms, leveraging Dial Capital's extensive network and operational expertise to broaden Blue Owl's product suite. Culture compatibility was a critical factor in ensuring the merger's success, with both sides prioritizing mutual respect and shared values.

Perspectives on the Future of Direct Lending and Private Credit

Looking ahead, Doug is optimistic about the growth trajectory of the direct lending market. He highlights the sector's ability to provide tailored financing solutions that offer greater stability and flexibility compared to traditional syndicated loans. Doug anticipates that as private equity firms continue to seek alternatives to Wall Street's conventional financing, direct lenders like Blue Owl will play an increasingly vital role.

Doug Ostroover [34:42]: "We are in the really early innings. I think I've been pretty right on seeing this."

He also touches upon the innovative structuring of permanent capital vehicles, which provide investors with immediate liquidity and long-term investment opportunities, distinguishing Blue Owl from traditional fund structures.

Personal Insights and Lessons

Throughout the conversation, Doug shares personal anecdotes and lessons that have shaped his professional journey. He emphasizes the importance of perseverance, long-term vision, and the value of building strong, respectful relationships.

Doug Ostroover [55:41]: "When you get out there, you're ambitious, and you really think it's a sprint. And the truth is, it's not. You still have to be ambitious, work hard, try to get ahead, but it's really a marathon."

Doug also reflects on his biggest mistake during the 2008 financial crisis, where excessive leverage led to significant losses. This experience instilled in him a cautious approach to leverage, prioritizing sustainable growth over aggressive expansion.

Closing Thoughts

Ted Seides wraps up the episode by thanking Doug for his insightful contributions. Listeners are encouraged to apply the lessons shared in their investing and personal lives, and to engage with the Capital Allocators community for continued learning and growth.

Notable Quotes with Timestamps

• Doug Ostroover [02:32]: "I have to admit with regard to Wall Street I had no exposure... It really wasn't until I got to college that I got any real exposure to Wall Street."

• Doug Ostroover [03:36]: "Leverage finance actually picked me. And I pinch myself every day that I was fortunate enough to get into it."

• Doug Ostroover [10:09]: "We were going to do something that nobody really had ever done and that was marry both public market expertise with origination."

• Doug Ostroover [13:12]: "My real goal, though, was to create something that was a little kinder, a little more gentle... I think you can have a work life balance."

• Doug Ostroover [22:47]: "The one thing I would say I was maniacally focused on is what's called our deal funnel."

• Doug Ostroover [34:42]: "We are in the really early innings. I think I've been pretty right on seeing this."

• Doug Ostroover [41:29]: "Culture is the key. Acquisitions are hard. And this wasn't really an acquisition, this was a merger. And so it's really a merger of equals."

• Doug Ostroover [55:41]: "When you get out there, you're ambitious, and you really think it's a sprint. And the truth is, it's not. You still have to be ambitious, work hard, try to get ahead, but it's really a marathon."

Conclusion

This episode of Capital Allocators offers a deep dive into Doug Ostroover's extensive experience in the private equity and direct lending sectors. From his unexpected entry into leveraged finance to building successful firms like GSO and Alrock Capital, and culminating in the strategic formation of Blue Owl Capital, Doug shares invaluable insights into effective capital allocation, the critical role of company culture, and the evolving landscape of private credit markets. His reflections on personal growth and professional challenges provide listeners with both inspiration and practical lessons applicable to their own investment and business endeavors.