Alternative asset manager Blue Owl scrapped a planned merger of two of its private credit funds on Wednesday after the deal raised concerns over potential losses for investors.
The company earlier this month said it would merge its two debt funds, the publicly traded Blue Owl Capital Corp with the non-traded business development company Blue Owl Capital Corp II.
However, it said investors in the non-traded fund would not be able to redeem their capital until the merger closes, which was expected in the first quarter of 2026.
Credit markets were already unsettled this year, especially after the failures of auto parts maker First Brands and subprime lender Tricolor this fall.
Asset management executives said they have been treated too harshly in the broader selloff, but the events put fresh attention on a market that has expanded quickly with strong institutional demand and rising corporate lending in recent years.
Blue Owl’s move to restrict investor redemptions weighed on its shares this week, which closed down 6% on Monday. They have fallen 40% so far this year.
Shares of the alternative asset manager swung between gains and losses in early volatile trading on Wednesday. They were last down 0.9%.
“No emergency here”
“There’s no emergency here, the fund continues to perform well,” Blue Owl BDC’s CEO Craig Packer said in an interview with CNBC, adding that investors will stay in the fund and work with the board.
The smaller, private Blue Owl fund was backed by retail investors, who are increasingly buying private assets, in some cases encouraged by their governments.
The now-reversed decision to restrict withdrawals highlighted the lower liquidity of many private market investments compared with public stocks and bonds where individuals have traditionally invested.
“Maybe they wait until OBDC trades at NAV and then merge. They could take the private BDC public, which would allow shareholders to have liquidity,” Oppenheimer analyst Mitchel Penn said.
The Financial Times on Sunday reported that investors in the private fund could potentially take paper losses on some of their investments at current prices.
This is because investors are being asked to exchange their shares for the value of the larger fund, according to the statement announcing the merger. That fund currently trades at a discount of about 20% to the stated value of its assets.
“We continue to believe that a merger between OBDC and OBDC II makes sense for multiple reasons, but believe the issue here didn’t have to do with credit, but instead with the timing of the merger announcement with the public BDC trading at a sizable discount to NAV,” analysts at Piper Sandler wrote in a note.
Blue Owl said it plans to reevaluate alternatives for the funds in the future.
“The whole feature of private assets is they’re not liquid, and so we have to manage shareholder liquidity for the funds,” Packer said.
Deloitte estimates retail investors’ holdings in private assets will grow from around $80 billion to $2.4 trillion in the United States by 2030, and will more than triple from 924 billion euros to 3.3 trillion euros in the European Union.
Reuters
