Blue Owl to call off private credit funds merger, sources say

Core Viewpoint - Blue Owl has decided to cancel its planned merger of private credit funds, which was controversial and faced significant investor backlash due to potential paper losses and reputational risks [1][3]. Company Summary - The merger involved Blue Owl Capital Corporation 2, a non-traded fund, and Blue Owl Capital Corp, a larger publicly listed vehicle [1]. - Investors in the non-traded fund would have faced paper losses of approximately 20% based on the share prices of the larger fund [1]. - Following the announcement of the merger, shares of Blue Owl's parent company dropped by 7%, although they recovered slightly afterward, showing a current increase of about 5.8% [1]. - The boards of directors of both funds concluded that the merger's benefits did not outweigh the reputational damage and stock price decline [1]. - The non-traded OBDC2 fund will allow investors to redeem their investments starting in Q1, as liquidity was previously limited to quarterly redemptions [1]. Industry Summary - The private credit sector, particularly for alternative asset managers, has seen significant declines, with Blue Owl experiencing a drop of about 40% prior to the recent stock movement [1]. - The situation highlights the challenges faced by semi-liquid products, which are primarily marketed to retail investors, and the potential for investor pullback in the wake of the merger cancellation [1][3]. - The publicly traded vehicle did not experience as severe a decline as the parent company, indicating that the issues may be more related to broader industry concerns rather than the specific funds involved [3][4].