Blue Owl axes private credit fund merger after market upset (Nov 19)

By Manya Saini, Saeed Azhar and Isla Binnie

Nov 19 (Reuters) - Blue Owl OWL.N scrapped a merger of two of its private credit funds on Wednesday after a plan to freeze withdrawals ahead of the deal rattled investors and deepened a sell-off in the shares of the alternative asset manager.

The company's stock has lost about 8% since Friday, as it answered questions from investors about a plan announced earlier this month to merge two of its debt funds, the publicly traded Blue Owl Capital Corp OBDC.N with a non-public fund called Blue Owl Capital Corp II.

Executives explained the deal to stakeholders on a conference call on Monday, a company filing showed, after the Financial Times reported on Sunday investors in the non-traded fund had to take a 20% loss and would not be able to withdraw their capital until after the merger closed, 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 6% lower on Monday. They have fallen 40% so far this year, through Tuesday's close.

Shares of the alternative asset manager swung between gains and losses in volatile trading on Wednesday. They were last down 3%, more than the broader Dow Jones U.S. Financials Index's .DJUSFN 0.2% fall.

'NO EMERGENCY HERE'

Blue Owl's Co-President Craig Packer sought to tamp down investor fears that the original decision was driven by liquidity concerns.

"There's no emergency here, the fund continues to perform well," he said in an interview with CNBC on Wednesday, 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.

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.

Oppenheimer analyst Mitchel Penn suggested the company wait until the public fund was trading closer to the value of its underlying assets before trying to merge the two again.

Investors in the non-public fund were being asked to exchange their shares at the same value as the public one, which was trading at about 20% below the 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 net asset value," analysts at Piper Sandler wrote in a note.

Blue Owl said it plans to reevaluate alternatives for the funds in the future. BDCs raise money from investors and then typically lend to small and mid-sized companies.

"The whole feature of private assets is they're not liquid, and so we have to manage shareholder liquidity for the funds," Packer said.