By Pritam Biswas and Arasu Kannagi Basil
Feb 20 (Reuters) – Blue Owl Capital shares extended their selloff for a second session on Friday, as the alternative asset manager’s plan to return capital from a debt fund stoked concerns around private-lending standards and a liquidity crunch in the sector.
The stock, which has lost more than half of its value over the last 12 months, was down 4% after dropping 6% in the previous session.
Investor worries began on Wednesday after New York-based Blue Owl said it would sell $1.4 billion of assets across three funds, return the proceeds to investors and pay down debt.
Blue Owl stock was also weighed down by a Bloomberg News report that the investment manager had sold the portfolio of loans to three of North America’s biggest pension funds, as well as its own insurance firm – Chicago-based Kuvare.
Investment firms Saba Capital and Cox Capital said on Friday they had offered to buy shares in three Blue Owl funds at a 20-25% discount to their most recent published valuations.
“A lot of pushback this morning focusing on the fact that one of the four buyers of the loans was Kuvare, Blue Owl’s own insurance asset manager,” said Brian Finneran, managing director at Truist Financial.
In an interview with CNBC, Blue Owl Co-President Craig Packer said each of the four institutions the company sold its assets to had appetite to buy more.
About “the fact that one of the four might be part of our insurance business – How is it reasonable that would undermine the other 75% of the sales?” Packer told CNBC.
Blue Owl had said the debt it was selling spanned 128 portfolio companies across 27 industries, with the largest concentration, 13%, in software and services.
It sold the loans at 99.7% of par value, matching its own book marks, which the firm cited as validation of its valuations. Packer said Blue Owl was being “super selective” about making loans to software companies.
Shares of larger peers such as Apollo Global and KKR also came under pressure from mounting unease over software valuations as rapid advances in artificial intelligence threaten to upend established business models.
“NOT HALTING INVESTOR LIQUIDITY”
Blue Owl on Wednesday permanently removed an option for investors, mainly wealthy individuals, to withdraw some funds from one of its vehicles, Blue Owl Capital Corp II.
The company said it would return 30% of the net asset value of the fund to investors, and stop quarterly redemptions. A day later it clarified that it was “not halting investor liquidity in non-traded debt fund Blue Owl Capital Corp II”.
Instead of resuming a tender-offer process that would have allowed investors to redeem 5% of their capital, Blue Owl said its new plan “returns six times as much capital and returns it to all shareholders over the next 45 days”.
“In the coming quarters, we will continue to pursue this plan to return capital to OBDC II investors,” the asset manager said.
Co-President Packer said on Friday the firm was only changing how redemptions are carried out, not halting them, and that the shift would speed up the process.
“We think this is a difficult short-term patch. Our results are good over time. That’s what’s going to matter,” Packer told CNBC.
Nearly 12.5% of Blue Owl’s free float is shorted, according to Ortex data as of February 19. Short interest has increased by 3.2 percentage points over the past 90 days, data showed.
“It’s not one big giant pool of assets, but it’s literally dozens and hundreds of different funds and vehicles, some of which might be affected by software and others will not be,” Oppenheimer analyst Chris Kotowski said.
“People have been jumping to unwanted conclusions. And in my view, as I said in my report, buying opportunities.”
The private credit industry has been under sharp scrutiny following the twin bankruptcies of auto-parts maker First Brands and subprime lender Tricolor last year. Investors have been highly skeptical about the quality of private credit portfolios and valuations.
“This is indicative of a bigger issue in the private alternative world, whether it’s private credit, private equity, or venture capital,” Steve Wyett, chief investment strategist at BOK Financial, said.
“This is about this mismatch between the need for liquidity from underlying investors and what the managers can deliver based upon the assets that they’re invested in.”
FINANCING FAILURE REPORT HITS SHARES
Separately, Blue Owl termed as incorrect a Business Insider report that it was unable to secure financing for a $4 billion data-center project it is co-developing in Pennsylvania with CoreWeave.
“Under our agreement with CoreWeave, our sole obligation is to provide approximately $500 million of bridge financing through March 2026, and that commitment remains fully in place,” the company said.
CoreWeave shares were down 8.6% in late-afternoon trading.
(Reporting by Pritam Biswas and Arasu Kannagi Basil in Bengaluru; Additional reporting by Shashwat Chauhan, Prakhar Srivastava and Ateev Bhandari; Editing by Leroy Leo, Arun Koyyur and Maju Samuel)
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