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Boaz Weinstein’s Saba Capital hedge fund said it would offer to buy shares of three Blue Owl funds at steep discounts at a time when the $307bn private credit group is seeking to shore up confidence in a crucial retail debt vehicle.
Saba said on Friday that it would launch a so-called tender offer for investors to sell it their shares in Blue Owl Capital Corporation II, which permanently halted redemptions earlier this week, and two other funds at prices 20 to 35 per cent below their net asset value.
The move would allow investors in the funds to cash out, although they would realise significant losses in the process.
The offer from Saba comes at a turbulent period for Blue Owl and the wider $2tn private credit industry.
Blue Owl has faced a bout of withdrawals from a handful of its funds. Investors and analysts are also raising questions about the futures of the software companies large private credit groups have been lending to as advances in AI threaten their business models.
Blue Owl earlier this week said it would sell $1.4bn of loans from three of its funds, including Blue Owl Capital Corporation II, known by its ticker OBDC II, to return capital to investors and dial back leverage on the funds.
The loans were sold at 99.7 per cent of their stated value, which Blue Owl said pointed to the strength of its portfolio and could be used to return up to 30 per cent of the fund’s value to investors.
Weinstein said the tender offer would “help retail investors navigate this challenging period”, adding in a post on X that more details would be available soon.
“With rising redemptions and limited liquidity, private [business development companies] and intervals funds are facing one of their toughest periods yet — leaving many investors with limited options,” he added, referring to vehicles that typically lend to riskier mid-size companies, often backed by private equity.
Saba said it was also offering to buy shares in Blue Owl Technology Income Corp and Blue Owl Credit Income Corp, known by the tickers OTIC and OCIC, respectively. Blue Owl has continued to allow redemptions on those funds even as withdrawal requests have risen sharply above thresholds that would allow the asset manager to limit outflows.
Cox Capital Management, a financial firm that specialises in high-net-worth investors, has teamed up with Saba for the tender offer.
Tender offers like the one Saba proposed on Friday have occasionally been proposed during previous times of stress for credit markets, and they are often viewed as predatory, given the large concessions they seek. The tenders can also undermine investor confidence in the stated net asset value of a fund, say industry participants.
Saba’s offer amounts to a discount relative to a deal Blue Owl sought to pursue for its OBDC II fund in November, when it planned to merge it with a larger publicly traded credit fund managed by Blue Owl.
The transaction was ultimately scrapped after the FT reported that investors in OBDC II would face a 20 per cent hit.
Blue Owl’s shares have fallen more than 10 per cent since the private investment manager said on Wednesday that investors would no longer be able to withdraw cash from OBDC II and instead receive periodic distributions from asset sales. The company’s shares are down 28 per cent this year.
Blue Owl did not respond to a request for comment.
Craig Packer, Blue Owl’s co-president, defended the company’s decision to sell loans and return capital to investors. He told CNBC on Friday that investors in the fund “think what we’re doing is quite attractive”.
“We wanted to accelerate the return of capital to investors so we opportunistically chose to sell a fairly sizeable chunk, it’s about 35 per cent of the fund OBDC II,” he said.
Saba is known for making bets on dislocations in the credit market, but also wages high-profile activist campaigns against closed-end funds. In 2012, Weinstein minted his reputation on Wall Street and made a fortune by trading against a JPMorgan credit derivatives trader known as “the London Whale”.
Saba partner Kieran Goodwin earlier this month warned that the uptick in redemptions across so-called business development companies — a vehicle favoured for holding private loans — would lead investment firms to either limit withdrawals or sell down their portfolios of loans.
“Selling assets to meet redemptions would only cause redemptions to further increase,” he wrote in a post on X, without naming any companies or vehicles. “The loans are marked at 100 but a great bid for a private loan would be in low 90s.”
Saba declined to comment to the FT on its strategy beyond its statement on Friday and social media posts.