Blue Owl shares slide again as latest capital-return plan unnerves some investors

By Isla Binnie

NEW YORK, Feb 19 (Reuters) - Private capital manager Blue Owl's OWL.N latest strategy to return capital from a small debt fund spooked investors on Thursday, three months after a previous attempt pushed down the $307 billion firm's shares.

Blue Owl said Wednesday it had sold $1.4 billion in assets from three funds and would return some of the proceeds to investors in a nine-year-old fund. It permanently removed an option for investors in that vehicle, mainly wealthy individuals, to withdraw some funds every quarter.

Blue Owl's shares slid as much as 10%, closing down 5.9%, capping 12 months in which its market value has more than halved. Larger peers Apollo APO.N and Ares ARES.N also fell.

Blue Owl co-President Craig Packer said the asset sale would give back six times more to investors in the Blue Owl Capital Corp II (OBDC II) fund this quarter than a previous plan to let them apply for redemptions would have done.

Debt vehicles like OBDC II, which has around $1.6 billion in assets, usually offer investors the chance to withdraw some assets every quarter. Blue Owl paused that program in November and proposed merging OBDC II with a larger listed fund, a plan it abandoned after investors objected to potential losses.

Truist Securities analyst Brian Finneran said investors were interpreting the asset sale to mean that withdrawal requests had accelerated and led to forced sales of higher-quality assets.

Blue Owl sold the loans at 99.7% of their par value, the same level it had marked them in its books, which the firm welcomed as a sign of confidence in its valuation, or marking - a process that has come under scrutiny across the industry.

"Realistically these loans have all been made at higher yields over the past few years and given rates have come down they should be fetching premiums to par," Finneran said in a note.

Packer told analysts it was "common when you do secondary asset sales for them to come at a discount."

Blue Owl said in a statement that it was "accelerating the return of capital" to OBDC II investors who would get their payout within 45 days and said, "in the coming quarters we will continue to pursue this plan."

SCRUTINY

Blue Owl was created through the merger of private credit firm Owl Rock and the Dyal Capital Partners division of Neuberger Berman in 2021. Its private lending business grew during the period of low interest rates that followed.

Along with other large alternative asset managers, it has built up a vast portfolio outside traditional stock and bond markets and is now facing scrutiny over issues ranging from private lending standards to overexposure to the software industry. Retail investors are increasingly piling in to the asset class.

It turned heads with a $27 billion deal last year to finance Meta's biggest data-center project.

As the group's stock slid, Blue Owl's publicly traded Blue Owl Capital Corp OBDC.N fund has lost 27% over the past year. The asset sale included $400 million of loans from that fund, which Blue Owl said it would use to pay down debt.

NOT GETTING A BREAK

Some analysts questioned Thursday's stock plunge.

Raymond James analysts described it as an "overreaction" and said the firm was "planning (to) make the OBDC II fund investors whole over time "and thus it would not make sense for OWL to reopen the redemption window".

It had already stopped those redemptions last year when it proposed the fund merger, but said it would start them again.

Negative sentiment around the asset class has led to skepticism, said Oppenheimer analyst Mitchel Penn.

"They created liquidity which is pretty hard to do right in a private asset class, and they were able to sell assets at the mark, so they essentially sent a message that their pricing is accurate," Penn said. "Nobody is getting a break."