20-35% below net asset value! Hedge funds are offering to buy shares of Blue Owl's funds, intensifying market skepticism towards private equity.

Famous hedge fund manager Boaz Weinstein’s Saba Capital announced on Friday that it will acquire shares of three funds under Blue Owl at a discount of 20% to 35% below net asset value. This offer directly challenges the credibility of the private credit giant managing $307 billion in assets regarding its asset valuation and intensifies market doubts about the accuracy of asset marking in the $2 trillion private credit industry.

This move comes at a critical time for Blue Owl. Earlier this week, the company’s retail debt instrument, Blue Owl Capital Corporation II (OBDC II), suspended redemptions permanently and shifted to returning capital to investors through asset sales and other means. To ease liquidity pressures, Blue Owl announced this week it would sell $1.4 billion of loan assets from three funds at 99.7% of face value, attempting to demonstrate the robustness of its portfolio quality.

However, Saba’s discounted buyout offer reveals a harsher reality: the market’s true valuation of these assets is far below what Blue Owl reports as net asset value. This not only questions the authenticity of the company’s claim of near-par asset sales but also exposes the widespread overvaluation issues in the private credit sector. Since the redemption suspension was announced on Wednesday, Blue Owl’s stock has fallen over 10%, with a year-to-date decline of 28%.

Discount Offer Reveals Valuation Disputes

The buyout offer jointly launched by Saba Capital and Cox Capital Management, which focuses on secondary market trading for high-net-worth clients, targets three of Blue Owl’s business development companies (BDCs): the suspended-redeemable OBDC II, Blue Owl Technology Income Corp (OTIC), and Blue Owl Credit Income Corp (OCIC).

Weinstein stated on social platform X that the move aims to “help retail investors get through this challenging period.” He pointed out that with redemption requests rising and liquidity constrained, private BDCs and interval funds are facing some of their toughest times, with many investors choosing limited participation.

The key to the buyout offer is its pricing: a discount of 20% to 35% compared to the most recent published net asset value and dividend reinvestment prices. This discount far exceeds Blue Owl’s claimed asset quality levels, directly challenging the company’s assertion that loans were sold at 99.7% of face value this week. Market observers note that if assets were truly close to face value as Blue Owl claims, Weinstein wouldn’t be offering such a steep discount.

This discount also surpasses a deal Blue Owl attempted last November, when it planned to merge OBDC II with a larger publicly traded credit fund. The deal was ultimately canceled after the Financial Times reported that it would cause OBDC II investors to face a 20% loss.

Not surprisingly, Blue Owl’s stock surged after news of Saba’s buyout offer emerged but then plummeted as the market scrutinized the terms and realized the proposed discount.

Blue Owl’s Liquidity Dilemma

This week’s series of actions by Blue Owl highlight multiple pressures. The company announced the sale of $1.4 billion in loan assets, including $600 million from OBDC II (34% of its total commitments), $400 million from OTIC (6%), and $400 million from another publicly traded Blue Owl Capital Corp (OBDC) (2%).

These assets were sold at 99.7% of face value to four North American pension and insurance investors. Blue Owl Co-CEO Craig Packer defended this decision in an interview with CNBC, saying investors “find our approach quite attractive.” He added that the company aims to accelerate capital returns to investors, hence the sale of a sizable portion—about 35%—of OBDC II’s assets.

Proceeds from the sales will be used to reduce leverage and fund redemptions. OBDC II plans to distribute a special cash dividend equivalent to about 30% of its net asset value as of December 31, 2025, and has terminated its dividend reinvestment plan. The fund stated it will replace buyouts with quarterly capital return distributions, which may be funded through income, asset repayments, other asset sales, or strategic transactions.

However, this arrangement raises new concerns. OTIC faces redemption requests in Q4 2025 amounting to roughly 15% of its net asset value—well above the threshold allowing the manager to limit withdrawals. Yet, Blue Owl continues to permit redemptions, indicating the pressure may be more severe than publicly disclosed.

Related-Party Transactions Raise Questions

A key detail in Blue Owl’s asset sale further undermines its confidence-boosting efforts: one of the buyers is Kuvare, a life insurance company owned by Blue Owl itself. This effectively makes the transaction a related-party deal, severely weakening the credibility of the “near-par sale proves asset quality” narrative.

Blue Owl disclosed that “some institutional investors are investors in funds managed by the company’s affiliate investment adviser.” This means the assets being sold will enter Blue Owl-managed collateralized loan obligations (CLOs), which may be purchased by Kuvare. Market insiders describe this as “from one pocket of Blue Owl to another.”

Barclays analysts attempted to defend this, stating that “having related parties as part of the buyer group aligns with fair transaction principles (Blue Owl owns Kuvare but not these BDCs).” However, they also acknowledged that the arrangement looks bad and could set a precedent for other private credit managers, many of whom own or are affiliated with insurance companies.

This arrangement deepens the ties between the insurance industry and private capital, making risk tracking more difficult. It also adds leverage to private credit assets, as BDC equity leverage is about 1x, while CLO leverage ranges from 9 to 10x.

Focus on Software Loan Exposure

Another critical detail of the asset sale is its industry composition. The largest sector in the sold assets is internet software and services, accounting for 13% of the total. This aligns with the overall industry allocation of Blue Owl’s portfolio, where software accounts for 11.1% of OBDC investments and 12% of OBDC II investments.

Software loans have recently become a major risk point in the private credit industry. As advances in AI threaten traditional software business models, investors and analysts are questioning the outlook for large private credit groups lending to these companies. Software is the largest sector exposure for BDCs, with the sector’s market value evaporating by $1 trillion over recent months.

Notably, Blue Owl’s dedicated tech-focused public BDC—Blue Owl Technology Finance Corp (OTF)—did not participate in this sale. As of Q3 2025, 55% of its portfolio was concentrated in software. Market insiders suggest this may mean OTF’s software loans are currently difficult to find buyers at current prices.

All assets sold are rated as top-tier (Level 1 or 2) within Blue Owl’s internal 5-level rating system, with 97% being senior secured debt. But this raises another concern: if the assets sold are the highest quality, what about the remaining assets on the books?

Industry Systemic Risks Emerge

Saba’s buyout offer and Blue Owl’s difficulties are not isolated incidents but symptoms of broader pressures facing the $2 trillion private credit industry. Kieran Goodwin, a partner at Saba, warned earlier this month that increasing redemption requests in BDCs will force managers either to restrict withdrawals or sell loan portfolios.

“Asset sales to meet redemptions will only lead to further redemptions,” he wrote on social media, “these loans are marked at 100, but fair value for private loans should be in the high 90s.” That prediction is now coming true.

Weinstein, known for betting on dislocation in the credit markets, has also been a vocal advocate for defending closed-end funds. In 2012, he gained prominence on Wall Street by betting against JPMorgan’s credit derivatives trader “London Whale,” earning substantial profits. He has long criticized closed-end mutual fund managers, including BlackRock, arguing that such funds tend to worsen over time, trapping shareholders in illiquid assets.

Industry data show mounting pressure. According to Morningstar DBRS, the rolling default rate in private credit has risen from 2.8% a year ago to 4%, with more downgrades than upgrades. UBS warns that if AI disrupts the 17% of the BDC loan portfolio in software companies, default rates could reach 13%. Hard-to-pay loans (where borrowers can’t meet interest payments and only add to debt) have surged to over 11% of BDC income.

Market insiders note that if this Blue Owl deal exhausts secondary market demand for private credit assets, other BDCs seeking to exit portfolios may face difficulties. For example, New Mountain Finance (NMFC) has announced it is seeking to sell $500 million of investments, representing 17% of its total investments as of Q3 2025.

Blue Owl has not responded to the buyout, and aside from Friday’s statement and social media posts, Saba has refused further comment on its strategy. But the market has spoken: the confidence crisis in private credit has only just begun.

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