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Blue Owl has called off a merger between two of its private credit funds after a Financial Times article outlined how the move risked inflicting steep losses on investors in one of the vehicles.
The private credit group with almost $300bn in assets told investors on Wednesday it was abandoning a merger between its Blue Owl Capital Corporation II fund, one of the earliest private credit funds for individual investors, and its far larger publicly traded credit fund OBDC.
The announcement comes days after the FT reported how investors in Blue Owl Capital Corporation II were being asked to exchange their investments for holdings in OBDC at the stated net asset value of both funds.
However, OBDC trades at a 20 per cent discount to its NAV on public markets, meaning the wealthy individual investors in Blue Owl Capital Corporation II stood to see the value of their holdings drop by about a fifth.
New York-based Blue Owl said on Wednesday that it would “re-evaluate alternatives in the future” for Blue Owl Capital Corporation II.
It added that the abandonment of the merger reflected the commitment of the funds’ boards “to acting in the best interests of shareholders”, and was “based on management’s recommendation due to current market conditions”.
The planned merger came against a backdrop of rising scrutiny of the risks that retail investors have taken in pouring hundreds of billions of dollars into private debt funds carrying limited liquidity rights.