Blue Owl drops again on investor worries over asset sale, debt fund changes

By Pritam Biswas and Arasu Kannagi Basil

Feb 20 (Reuters) - Blue Owl Capital OWL.N shares fell 1.5% on Friday, extending a selloff from the previous session 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 had fallen 6% on Thursday, and has now shed more than half its value over the last 12 months.

New York-based Blue Owl said on Wednesday it would sell $1.4 billion of assets across three funds, return the proceeds to investors and pay down debt.

Larger peers, including Apollo Global APO.N and KKR KKR.N, were also under pressure from mounting unease over software valuations as rapid advances in artificial intelligence threaten to upend established business models.

Blue Owl's 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.

"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's 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 on Wednesday 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.

NOT HALTING INVESTOR LIQUIDITY

Blue Owl had 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 the asset manager 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," it added.

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.

The private credit industry has already 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 portfolio 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 was unable to secure financing for a $4 billion data-center project it is co-developing in Pennsylvania with CoreWeave, Business Insider reported on Friday.

Blue Owl told Reuters the report was incorrect.

"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 added.

CoreWeave shares were also down over 8% in morning trading.