Shares of Blue Owl Capital tumbled more than 5% during Friday morning trading, continuing a steep decline that has seen the investment management firm lose over half its stock value during the past year.
The New York-based alternative asset manager announced Wednesday it would liquidate $1.4 billion worth of assets from three investment funds, with proceeds going back to investors in a nine-year-old investment vehicle.
According to Bloomberg News reporting Friday, the company sold its loan portfolio to three major North American pension funds and its own Chicago-based insurance company, 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,” Brian Finneran, managing director at Truist Financial, explained.
The debt being sold covers 128 different companies spanning 27 industries, with software and services making up the largest portion at 13 percent, Blue Owl reported.
Company officials said the loans were sold at 99.7 percent of their listed value, matching the firm’s internal valuations, which they pointed to as proof their asset pricing was accurate.
The investment manager also permanently eliminated a feature that allowed investors – primarily wealthy individuals – to withdraw portions of their funds each quarter, raising red flags about private lending standards and the sector’s ties to the struggling software industry.
“We are not halting investor liquidity in non-traded debt fund Blue Owl Capital Corp II,” the company stated Thursday, one day after announcing it would return 30 percent of the fund’s net asset value to investors while ending quarterly withdrawals.
Rather than continuing a tender-offer system that would have let investors reclaim 5 percent of their investment, Blue Owl said its new approach “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 company added.
The stock decline reflects weeks of mounting anxiety over software company valuations as artificial intelligence developments threaten to disrupt existing business models.
This uncertainty has spread to private credit firms that have become major lenders to the technology sector, an industry that has increasingly relied on private credit since banking regulations tightened traditional lending after the financial crisis.
The turbulence also affected larger competitors Apollo Global and KKR, with sector returns broadly under pressure from valuation concerns.
The private credit industry has faced intense examination following last year’s bankruptcies of auto-parts manufacturer First Brands and subprime lender Tricolor. Investors have expressed strong doubts about the quality of private credit portfolios and their valuations.
“We’re not to the point that we say what’s going on with Blue Owl is necessarily systemic any more than when we see a particular bank have some credit risk,” Steve Wyett, Chief Investment Strategist at BOK Financial, noted.
“This is indicative of a bigger issue in the private alternative world, whether it’s private credit, private equity, or venture capital, 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.”
Adding to Blue Owl’s troubles, Business Insider reported Friday that the company failed to secure financing for a $4 billion data center project it is jointly developing in Pennsylvania with CoreWeave.
Blue Owl did not respond immediately to requests for comment about the financing report.
The financing setback comes several months after Blue Owl secured a $27 billion agreement to fund Meta’s largest data center project.
“And then the hits keep coming, Blue Owl down again this morning on headline that it couldn’t secure financing for a $4 billion CoreWeave data center,” Finneran said.
