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.
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