By Jonathan Weil

Weeks after Blue Owl unveiled a $1.4 billion asset sale, the market's confidence in its private-credit empire remains weak. Some previously unreported details of the deal's structure might help explain why.

The deal came at a time of rising stress in private-credit markets. It provided cash for Blue Owl to pay shareholders at one of its struggling funds, while also signaling that the asset values across its fund complex were reliable.

But Blue Owl's flagship publicly traded business-development company, Blue Owl Capital Corp., still trades at a 25% discount to its net asset value, indicating that investors believe the NAV is inflated. Meanwhile, shares of Blue Owl Capital Inc., the asset manager that oversees the funds, have dropped 27% since the deal was announced Feb. 18.

The buyers of the Blue Owl assets were the insurer Kuvare and three large public pension funds, including the California Public Employees' Retirement System. But some of these purchasers, particularly Calpers, already owned stakes in the same assets they were buying, giving them an interest in avoiding a markdown of their existing holdings.

At Calpers, there was a high degree of overlap -- about 70% -- between the assets it bought and its existing holdings, people familiar with the matter said.

If a buyer already owns a large amount of the same assets through its existing funds, it has a natural incentive to protect those valuations. Buying at a discount could force a write-down of the existing book, while buying near par validates it.

The sale price for the February deal, at 99.7% of par value, looked remarkably high, considering the recent pressure on private-credit valuations. This is why the purchasers' identities and incentives are important. The loans that Blue Owl sold, which cut across 128 different companies in 27 industries, are illiquid, hard to value and lack market quotes.

Blue Owl has said the transactions were "arm's length," meaning the parties were unrelated and acting independently in their own self-interest. Initial scrutiny from investors and the media centered on whether Kuvare somehow might be a related party, which didn't make sense. Blue Owl owns Kuvare preferred stock and manages some of its investments, but that doesn't mean they are related parties. Insurance regulators consider them unaffiliated, and Kuvare, which is closely held, has said its decision to buy was entirely its own.

The overlap at Calpers presents a different issue. As of Sept. 30, Calpers held three customized Blue Owl private-credit funds valued at $1.4 billion. Blue Owl manages the primary fund, and a second fund co-invests alongside it. In addition, Calpers maintains investment authority over a so-called overflow fund. It was this fund that participated in the February deal, according to people familiar with the matter.

These people said Calpers liked the terms and rejected some assets, and that supporting valuations wasn't a consideration. Buying the assets in the overflow fund lets Calpers keep all profits and avoid fees, they said, while familiarity with the assets allowed Calpers to move quickly.

Like Calpers, two other purchasers, Kuvare and the Ontario Municipal Employees Retirement System, also had overlap. But theirs was less than 10%, one of the people said. The fourth purchaser, British Columbia Investment Management, had no overlap, the person said.

Blue Owl also took steps to manage the deal's optics. On Feb. 11, a week before the deal, the Calpers overflow fund "Blue Owl Diversified Lending $(CP)$ III LLC" changed its name to Chestnut Diversified Lending (CP) III LLC. The "CP" refers to Calpers, according to people familiar with the matter. The name change, filed with the Delaware secretary of state's office, was signed by Blue Owl's general counsel.

The Ontario pension fund made a similar shift. Uniform Commercial Code filings in the District of Columbia on Feb. 19 show that "Blue Owl Diversified Lending (OM) I LP" changed its name to Ovington Diversified Lending (OM) I LP. The "OM" refers to the Ontario fund.

In its Feb. 18 disclosure, Blue Owl listed the newly named "Chestnut" and "Ovington" entities as purchasers rather than listing the pension funds directly.

In a statement, Blue Owl said the transactions were "the result of highly sophisticated institutional investors conducting their own extensive due diligence over multiple months," and that "each asset was sold at its individual fair market value as determined by an independent, third-party valuation agent."

The Blue Owl group structure is dense. It includes the publicly traded asset manager and five separate business-development companies, or BDCs. Three are nontraded, meaning their shareholders rely on public tender offers for liquidity. On Feb. 18, one of these, known as OBDC II, pivoted, replacing tender offers with quarterly cash distributions to head off a wave of redemption requests.

That was the same day Blue Owl announced the $1.4 billion sale by three of its BDCs, including the nontraded OBDC II and the publicly traded Blue Owl Capital Corp., known by its OBDC ticker symbol. OBDC II's portion was $600 million, which it earmarked for debt repayment and a $288 million cash distribution representing 30% of its NAV.

The deal wasn't just about raising cash, though. Last year, OBDC and OBDC II reported a 98% overlap in their holdings. Selling at 99.7% of par signaled that the BDCs' net asset values were valid and served as a proxy for the public fund's loans.

The stock market, however, isn't biting. One possibility is that investors believe Blue Owl picked its highest-quality loans for the sale. Another is the "overlap" theory: that a price set by a deal involving existing stakeholders isn't as strong of a market signal.

None of this suggests impropriety. Calpers's decision to add to its holdings might prove savvy, and the market's skepticism might be misplaced.

But at a time of growing wariness over private-market valuations, investors have good reason to scrutinize deals, particularly when the buyers are already deeply committed to the same assets.

Write to Jonathan Weil at jonathan.weil@wsj.com

(END) Dow Jones Newswires

March 27, 2026 05:30 ET (09:30 GMT)

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