Key Takeaways
- • Blue Owl Capital (OWL.N) shares are down more than 40% this year, outpacing peers as publicly traded non-bank lenders have suffered from U.S. tariff-driven market turmoil and shifting Federal Reserve policy, according to Reuters Breakingviews.
- • Blue Owl's listed business development companies trade at a discount to net asset value: OBDC at 0.79 times NAV and OTF at 0.77 times, while its unlisted sister fund OBDC II, which shares 98% of its loans with OBDC, lets investors redeem at NAV, creating an arbitrage of roughly 20%.
- • Blue Owl plans to merge its BDCs to close the gap, with OBDC II redemptions to be gated, per CFO Jonathan Lamm as told to the Financial Times.
- • The two public BDCs paid the equivalent of over 20% of Blue Owl Capital's management fees last year, so stabilizing the funds is important to the parent firm.
- • Payment-in-kind income stood at 9.5% of OBDC's total income and 13.8% at OTF in the most recent quarter, below year-earlier levels of 13.5% and 21%, though still signaling stress.
Summary
Reuters Breakingviews commentary argues that Blue Owl Capital's share price slide is a preview of a broader pain trade in private credit. The $20 billion shadow bank, led by Marc Lipschultz and Doug Ostrover, has seen its shares fall more than 40% this year. Publicly traded non-bank lenders, including Blackstone (BX.N) and Apollo Global Management (APO.N), have also suffered as U.S. tariffs unsettled markets and a more accommodating Federal Reserve signaled an end to higher borrowing costs. Blue Owl's decline has nonetheless outpaced its peers.
A central issue is Blue Owl's reliance on business development companies (BDCs), listed investment funds used to house large loan portfolios. Investors are moving away from these vehicles. Blue Owl Capital Corporation (OBDC.N) trades at 0.79 times net asset value, and Blue Owl Technology Finance Corporation (OTF.N) at 0.77 times. The gap has created an arbitrage: OBDC II, an unlisted vehicle with 98% loan overlap with OBDC, allows redemptions at NAV, so investors could withdraw from OBDC II, buy OBDC, and capture a discount of roughly 20%.
Blue Owl has unveiled a plan to merge the BDCs to address this. According to CFO Jonathan Lamm, as told to the Financial Times, OBDC II redemptions will be gated. Breakingviews notes that selling the public shares will remain costly after the deal. An OBDC buyback plan and a larger dividend may help, though the timing is poor.
Stabilizing these funds matters for the parent firm, since the two public BDCs paid the equivalent of over 20% of Blue Owl Capital's management fees last year. Payment-in-kind interest, or non-cash income, represented 9.5% of OBDC's total income and 13.8% of OTF's in the most recent quarter. Those levels are lower than the 13.5% and 21% recorded a year earlier. Breakingviews states that these problems are unrelated to the First Brands and Tricolor blowups, to which Blue Owl was not exposed. Blue Owl recently agreed to a $30 billion data-center partnership with Meta Platforms (META.O), and the commentary suggests that the firm's current difficulties raise questions about future private credit stress.
A central issue is Blue Owl's reliance on business development companies (BDCs), listed investment funds used to house large loan portfolios. Investors are moving away from these vehicles. Blue Owl Capital Corporation (OBDC.N) trades at 0.79 times net asset value, and Blue Owl Technology Finance Corporation (OTF.N) at 0.77 times. The gap has created an arbitrage: OBDC II, an unlisted vehicle with 98% loan overlap with OBDC, allows redemptions at NAV, so investors could withdraw from OBDC II, buy OBDC, and capture a discount of roughly 20%.
Blue Owl has unveiled a plan to merge the BDCs to address this. According to CFO Jonathan Lamm, as told to the Financial Times, OBDC II redemptions will be gated. Breakingviews notes that selling the public shares will remain costly after the deal. An OBDC buyback plan and a larger dividend may help, though the timing is poor.
Stabilizing these funds matters for the parent firm, since the two public BDCs paid the equivalent of over 20% of Blue Owl Capital's management fees last year. Payment-in-kind interest, or non-cash income, represented 9.5% of OBDC's total income and 13.8% of OTF's in the most recent quarter. Those levels are lower than the 13.5% and 21% recorded a year earlier. Breakingviews states that these problems are unrelated to the First Brands and Tricolor blowups, to which Blue Owl was not exposed. Blue Owl recently agreed to a $30 billion data-center partnership with Meta Platforms (META.O), and the commentary suggests that the firm's current difficulties raise questions about future private credit stress.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.