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Blue Owl has blocked redemptions in one of its earliest private credit funds as it merges with a larger vehicle overseen by the asset manager in a deal that could leave investors with large losses.
Investors in the fund being acquired could face losses of about 20 per cent on their holdings and will not be able to withdraw their money in advance of the merger, according to a press release.
The deal underscores the risks that retail investors have taken in pouring hundreds of billions of dollars into private debt funds carrying limited liquidity rights.
The fund merger also comes as scrutiny builds on the valuations and returns of private credit funds, which have caused publicly listed debt funds, called BDCs, to sell off and trade at steep discounts to the stated value of their assets.
Earlier this month, Blue Owl told its shareholders that it planned to merge its Blue Owl Capital Corporation II fund, which has $1bn in assets and was one of the first private debt funds targeting wealthy individual investors, with its OBDC fund, which has $17bn in assets.
Blue Owl Capital Corporation II investors are being asked to exchange their shares in the private fund for shares in OBDC at the stated net asset value of both funds. However, OBDC trades on public markets at a discount of about 20 per cent to the stated value of its assets. Blue Owl Capital Corporation II, meanwhile, is not publicly traded and instead offers investors the ability to redeem cash every quarter at the fund’s stated value.
If the mooted deal were to be approved by shareholders and completed at current prices, Blue Owl Capital Corporation II shareholders would see the value of their investments fall by about 20 per cent.
Blue Owl Capital Corporation II investors will be restricted from pulling money from the fund until the merger with OBDC closes in early 2026, at which time they will permanently lose the ability to redeem cash at the fund’s NAV.
The merger of the two funds comes as redemptions in Blue Owl Capital Corporation II have climbed this year to a level where it would eventually be forced to restrict investor redemptions.
Investors in Blue Owl Capital Corporation II have pulled $150mn from the fund through the first nine months of this year, a 20 per cent increase from this time last year, according to securities filings. Redemptions in the third quarter nearly doubled to $60mn, or 6 per cent of its NAV.
Jonathan Lamm, chief financial officer of OBDC, conceded in an interview with the Financial Times that at current prices, the investors in Blue Owl Capital Corporation II could take a potential haircut on their investments. But he said the merger came with significant benefits, such as the ability to own more liquid shares in OBDC, which trade on the New York Stock Exchange.
Lamm said Blue Owl Capital Corporation II was not allowed to leverage its portfolio as significantly as OBDC, causing it to earn lower returns. Blue Owl Capital Corporation II has a dividend yield of about 8 per cent, while OBDC has a dividend yield of about 10 per cent.
The trading price of OBDC, Lamm added, had been hit by souring sentiment on private credit markets that was not backed up by the performance of Blue Owl’s underlying loans.
Investors in Blue Owl Capital Corporation II will be allowed to vote on the merger with OBDC, similar to a prior fund merger that Blue Owl completed in 2025 that garnered more than 90 per cent support from voting shareholders. However, that deal only came with a minor discount for selling shareholders.
“There’s no doubt that this is a no-brainer transaction at 95 cents,” said Lamm of the newer merger. If shareholders were to vote down the deal, he acknowledged that Blue Owl Capital Corporation II may be forced to limit redemptions.
Blue Owl is preparing to discuss the fund merger with wealthy individual investors and financial advisers. Its reception will be a new litmus test on whether individual investors have fully understood the risks they have accepted in investing in private credit funds with limited exit rights.
When it was launched in 2017, Blue Owl Capital Corporation II was the fund manager’s first vehicle targeting retail investors. But it has bled assets in recent years as Blue Owl has closed the fund to new investments and directed investors to newer funds it believes have more appealing structures.
Blue Owl Capital Corporation II’s other alternatives to the fund merger, such as an eventual public offering or wind-down over many years, were unappealing, Lamm said.
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