Blue Owl Scraps Merger of Private Credit Funds

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00:00Tell us why this happened. So you have two BDCs from Blue Owl. BDC, it's basically just a private

00:05credit fund. The idea is that they exist to do lending to small and medium-sized businesses

00:10that banks won't do. One of them is listed. It's traded on the stock exchange. Anyone can go in

00:14and out. The other one is not listed. Unfortunately, the listed one trades at a very steep discount

00:21to its assets, like 20% below of the actual value of it. So Blue Owl says,

00:26we're going to merge these two. It's going to be a great thing for you, for our investors. We're

00:30going to put them together. However, if you're in our non-traded one and you're looking at paper

00:35losses, because we're about to put you in a very discounted fund, we're not going to let you redeem

00:39any of your shares until the merger is done. People saw that. It got scared. The assets,

00:45the share price of Blue Owl itself fell tremendously in the session afterwards. So they said, look,

00:51there's been a lot of volatility because of this announcement. So we are canceling it.

00:55Canceling it or postponing it?

00:57Well, for them, they didn't quite make it clear. I mean, they still said, for example,

01:02we continue to believe that combining the two BDCs would create meaningful long-term value for

01:06shareholders. But we are no longer pursuing the merger at this point, given current market

01:11conditions. So to your point, Scarlett, I would suggest that they want to eventually do it. And by

01:15the way, when they started that non-publicly traded BDC, they even said this has the potential for a

01:20liquidity event that could include a listing or a merger. So they told investors they would do

01:26this. But the thing is, is their publicly listed one is done so poorly, just in terms of how the

01:30market has treated it, not necessarily investments. And investors were kind of scared off by it.

01:34Yeah. Why did it trade at such a discount? Do we have a sense of why that is?

01:37Well, for the most part, a lot of these publicly listed private credit funds have traded really

01:42poorly. It's happened earlier this year when the Fed started saying it would cut rates. Private

01:47credit returns just mathematically aren't as good when they start to cut rates. At the same time,

01:52it's kind of like that cockroach conversation that started to come up. So anywhere in public

01:56markets that you could trade it. And look, I've brought this up with co-CEO Mark Lipschultz again

02:01and again. He typically has the same answer, saying we're healthy. Actually, I just spoke to him with

02:05the end of last month on October 31st, a very spooky day. And here's what he said to me about that.

02:11Credit quality is excellent in our book. And that doesn't mean no defaults. Everyone's going to

02:17have defaults now and then. We all, we said multi-trillion dollar industry. That's okay. You

02:22just can't have many and you have to get good recoveries. And that's exactly what we do at

02:26Blue Island. By the way, so do our peers and so do the banks. So the system is in a strong place.

02:33So again, they will defend this until they're blue in the face. They tend to say

02:37that this is about technicals. The reason that these BDCs are selling off, not fundamentals. It

02:41again, hasn't helped them today. They are still selling off.