Blue Owl Offered Liquidity to Private Credit Investors. Why It’s a Tough Sell.

This data center project in Santa Clara, Calif., is owned by a unit of Blue Owl. (Jason Henry/Bloomberg)

Key Points

• Blue Owl Capital plans to merge a $1.7 billion nontraded business development company (BDC) into its $17 billion publicly traded BDC.
• Shares of Blue Owl Capital Corp. trade at a 20% discount to its net asset value, potentially impacting investors in the nontraded BDC.
• The merger requires approval from nontraded BDC investors, who may reject the deal if the public fund’s discount persists.

The sagging shares of private credit manager Blue Owl Capital slid 6% on Monday before finding its footing Tuesday.

Blue Owl has been trying to simplify its large roster of debt funds, which are known as business development companies. Early this month, it resolved to merge one of its nontraded BDCs into the firm’s big publicly traded BDC.

There would be cost savings and earnings gains from the public fund’s higher leverage. Since the loans in the $17 billion public Blue Owl Capital Corp. are pretty much the same those held in the $1.7 billion nontraded Blue Owl Capital Corp. II, the exchange was set at the net asset values of each fund.

“We have two BDCs that have effectively almost identical overlapping portfolios,” Blue Owl CFO Jonathan Lamm told listeners on a Monday call. “So the real industrial logic associated with bringing BDCs that are under common management with common portfolios together is you get the benefits of scale.”

The problem is the public fund doesn’t trade at net asset value. The investing public has grown skittish toward private credit this year, and Blue Owl Capital Corp. shares have skidded 22%. At $11.77, the public fund now trades at a 21% discount to its $14.89 NAV.

If that discount persists through the merger’s expected closing toward the end of next year’s first quarter, then the private BDC’s investors may find themselves receiving shares that trade for 20% less than what they held—as the Financial Times pointed out in a Monday article that knocked the fund manager’s stock for a loss.

Blue Owl didn’t immediately respond to Barron’s queries. Blue Owl’s Lamm told the Financial Times that souring sentiment on the BDCs wasn’t reflective of the performance of their loans.

“It does highlight a risk of nontraded BDCs,” says Julian Klymochko, the CEO of the Canadian financial services firm Accelerate, which runs an exchange-traded fund filled with BDCs like Blue Owl’s. “They’ve been marketed as low-risk, but the public BDCs are a more realistic representation of the volatility of the asset class.”

Until this year, private credit was the favored child in the asset classes managed by alternative asset managers. Shares of Blue Owl’s management firm soared with those of its larger private-credit rival Ares Management. Blackstone, KKR and Apollo Global Management raced to build credit alongside their private-equity products.

Shares of the Blue Owl management firm are down 40% in 2025. A BDC the firm converted from public to private in June—the Blue Owl Technology Finance Corp. —trades at a 24% discount to NAV.

Whatever is frightening investors, the fundamentals at Blue Owl and its BDCs still look good. Fund inflows have been good, too, but the public BDC’s discount dims the appeal of its nontraded counterpart. The public BDC now yields above 12%. That’s pretty compelling, says Klymochko.

A saving grace for holders of the nontraded BDC is that the merger requires their voting approval. If the public fund’s discount normalizes, then the problem will go away. If it doesn’t, then shareholders can just say no.

Write to Bill Alpert at william.alpert@barrons.com