How Blue Owl found itself at the middle of Wall Street’s latest private credit fears
Public worries over the world of private debt have forced major lender Blue Owl Capital (OWL) to scrap plans to give a clear way out to shareholders in one of its private funds.
The situation draws more scrutiny to the opaque world of private debt, which has boomed in recent years — and is now gradually making its way into the brokerage and retirement accounts of millions more Americans.
New York-based Blue Owl, one of the nation’s largest private lenders, called off a planned merger on Thursday that would have combined two of its debt funds — a smaller private fund ($1.7 billion) and a larger public fund ($17.1 billion).
The lender cited “current market volatility.”
“We are no longer pursuing the merger at this point given current market conditions,” said Craig Packer, CEO of both these funds, in a press release statement. “Both portfolios in both funds are doing extremely well,” Packer told CNBC the same day. “There’s no rush here, there’s no emergency here, the fund continues to perform well.”
Originally formed as Owl Rock Capital in 2016 by Packer and parent company co-CEOs Marc Lipschultz and Doug Ostrover, Blue Owl is the fastest-growing private credit-focused Wall Street giant of the past 10 years. It manages $295 billion in assets, with a little more than half of that being credit, according to the firm’s most recent filings.
The company has gained a foothold in private lending within a range of categories, from consumer loans via fintech platforms such as SoFi (SOFI) and PayPal (PYPL) to private US companies. This year, it also notched a string of major data center deals with tech giants, including a $27 billion joint venture financing deal with Meta Platforms (META) last month.
In a recent interview with Yahoo Finance, co-CEO Lipschultz described the AI infrastructure development as “an opportunity for Blue Owl to do something really special.”
Packer, along with other fund executives, pitched the merger to shareholders just two weeks ago as an effort to save administration costs for both funds, which hold nearly the same kind of assets.
But the merger involved exchanging stakes in the private fund for those in the larger one, which, based on current prices, entailed a sharp unrealized loss of roughly 20% for private fund investors who had the authority to vote down the combination.
Earlier this week, Blue Owl’s stock slumped 7% following a Financial Times report that first spotted that potential haircut. It recovered some of those gains on Thursday.
Credit quality wasn’t the problem, according to Piper Sandler analyst Crispin Love. Instead, the problem was the merger’s timing coinciding with the market’s sagging view of private credit, Crispin added.
Looking ahead, Crispin said he’ll be paying close attention to how many investors in the private fund will be looking to exit at their next opportunity in January.
Quarterly withdrawals from the private fund had already doubled in the previous quarter to $60 million compared to the year-ago period, according to regulatory filings. It is not clear why.
The company is also taking concrete steps to move into retail investor, wealth management, and retirement account channels. Its private fund in the scrapped merger is primarily marketed to financial advisers.
Like other Wall Street giant fund managers, Blue Owl’s stock has faced a tough 2025 after soaring over the previous two years.
Year to date, Blue Owl’s stock is down 39%, underperforming rivals Ares Management (ARES), Yahoo Finance owner Apollo Global Management (APO), and Blackstone (BX). The firm’s stock is also the most shorted among peers, according to Yahoo Finance data.
No rush: Blue Owl CEO Craig Packer speaks during an interview with CNBC on the floor at the New York Stock Exchange on Nov. 19. (Reuters/Brendan McDermid) ·REUTERS / Reuters
Wall Street has been worried about credit in recent months following two major bankruptcies — subprime auto lender Tricolor and auto parts supplier First Brand — as well as some other idiosyncratic cases where lenders have taken losses and alleged fraud. Blue Owl said it has no exposure to either of the bankruptcies.
The Federal Reserve’s decision to further lower its benchmark policy rate would make it easier for these same giants to buy and sell their fund assets, according to CFRA analyst Ken Leon. That also means delaying such cuts would push out those benefits.
But co-CEO Lipschultz did get caught in the crossfire after JPMorgan Chase (JPM) CEO Jamie Dimon cast some doubt over the bank’s private lending rivals.
“We don’t know all the underwriting standards that all of these people did,” Dimon told analysts last month while addressing the bank’s own $170 million loss on a loan to Tricolor. His comments weren’t specifically targeted at Blue Owl, but co-CEO Lipschultz was prompted to fire back when asked later the same day at an alternative asset summit in Los Angeles. He referred to what Dimon said as “an odd kind of fear mongering.”
Private credit remains “under a microscope,” Piper Sandler’s Love added in the same Wednesday note.
David Hollerith covers the financial sector, ranging from the country’s biggest banks to regional lenders, private equity firms, and the cryptocurrency space.
Leave a Comment
Your email address will not be published. Required fields are marked *