Blue Owl Capital’s Revolt: The Less Than 1% Tender Offer That Rocked Wall Street

What recently transpired with Saba Capital Management is subtly defiant. Never one to back down from a public altercation with fund managers, Boaz Weinstein entered the private credit industry anticipating a line of irate investors.

Rather, he discovered something more akin to quiet. Less than 1% of the Blue Owl Capital Corporation II shares tender offer, which was made at a 35% discount to net asset value, was accepted. That is a rejection by all reasonable standards.

Weinstein might have misinterpreted the space, but it’s also possible that the space is simply acting oddly. Locked-up retail investors in non-traded BDCs want their money back, and they’ll take a haircut to get it, according to Saba’s straightforward thesis. Weinstein told viewers on CNBC that the hedge fund was “hearing from investors in these funds that they wanted their money back.” Nearly all of the $10 million in total face value from 190 trades in the Starwood Real Estate Income Trust tender came from SREIT rather than Blue Owl. For an operation with this level of ambition, that is a small number.

The background is important. In mid-February, Blue Owl stopped quarterly OBDC II redemptions, opting instead to return capital piecemeal through portfolio asset sales. The manager then capped withdrawals at the now-familiar 5% gate when investors attempted to withdraw $5.4 billion from two additional Blue Owl private-credit funds in early April.

The majority of the industry is acting in the same manner. Depending on which side of the trade you are on, Saba’s pitch may sound opportunistic or prophetic because allocators believe that the gates won’t be closing anytime soon.

The conversations in any wealth-management office in Greenwich or Manhattan right now sound strangely muted. Clients are being informed by advisors as to why their quarterly liquidity is no longer quarterly. Some customers agree to it. Some people don’t. It turns out that most people would prefer to wait because selling at 35% off NAV is a different kind of pain, the kind that turns a paper loss into a real one. Institutional players occasionally overlook the stubbornness of retail capital.

Saba has responded in a very measured manner. Given that OBDC II only has $332 million remaining, the firm’s statement that the “pool of illiquid capital available to tender was naturally limited” is accurate but also a little defensive. Weinstein isn’t backing down, as evidenced by its forward-looking statement about credit risk building up into 2027 and 2028 and its intention to bid on other products like Blue Owl’s OCIC and the Cliffwater interval fund. He’s shifting positions. The exact moment at which the private-credit boom begins to seem less like a boom will determine whether or not that patience pays off.

Additionally, there is another complication. Blue Owl revealed a £36 million exposure to a defunct UK lender that catered to affluent customers. This is the kind of headline that seldom gets better with time. Although it’s minor when compared to the firm’s total book, it raises concerns about underwriting in areas of the market that aren’t subject to the same scrutiny as public BDCs.

It’s difficult to ignore the asymmetry as you watch this play out. Saba gave Barry Sternlicht at Starwood praise for allocating equity capital to finance redemptions, arguing that he should be given credit for pressuring the issue. The way Blue Owl blinked has changed. It’s still unclear if that’s confidence or stubbornness. It is evident that those who opted to do nothing won the first round.