Blue Owl scrutiny to ramp up as shares near ‘doomsday’ level

Blue Owl Capital, whose battered stock has served as a proxy for concerns over the health of the $1.8 trillion private credit industry, will face fresh scrutiny from investors and Wall Street analysts with the release of its first-quarter earnings. 

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Shares of the alternative asset manager have slumped some 40% year to date and recently touched an all-time low after the firm said it will limit redemptions from two of its private credit funds following a surge in withdrawal requests. On Wednesday, the stock ticked 0.4% higher as of late morning in New York to $8.90.

While worries over rising risks have hit the industry as a whole, Blue Owl has stood out as a target because of its elevated exposure to software companies that could be upended by artificial intelligence.

Heading into earnings, investors will listen for what Blue Owl says about its ability to raise new funds, and how it addresses the wave of redemptions at its retail-focused vehicles, or business development companies, which had been a source of growth. Credit quality will also be in focus — from risks around its software holdings to its heavy involvement in data-center financings.

“There’s a lot of ‘doomsday’ scenarios built into the stock’s current valuation,” said Raymond James analyst Wilma Burdis. “To the extent investors expect a big reputational hit, seeing continued good fundraising will be a positive,” she added. 

READ MORE: Private credit is deliberately illiquid — did advisors explain that?

The company will release results before the market opens on Thursday. It’s expected to report assets under management of $316 billion and fee-related earnings of $384 million, both up from a year earlier, according to the average estimate of analysts surveyed by Bloomberg. Heading into earnings, the company has no sell ratings, with 11 buys and five holds, data compiled by Bloomberg show. 

On the firm’s February earnings call, Co-Chief Executive Officer Marc Lipschultz stated there were no “red flags” — or even “yellow flags” — in the firm’s technology loans. Investors will want an update.

“Blue Owl’s commentary on private credit health and fundraising trends will be closely watched,” Bloomberg Intelligence analyst Michael Kaye wrote in a note. Investors will zero in on whether elevated redemption activity at the company’s non-traded BDCs persists, and how that affects net flows, along with whether institutional demand can offset softer retail sentiment, Kaye said.  

After Blue Owl, Ares Management and TPG will report later in the week, with earnings from KKR and  Apollo Global Management to follow in the coming weeks. 

Blue Owl has borne the brunt of investor angst around private credit and their non-traded BDCs after a scrutinized and eventually scrapped merger of two of its private credit funds in November led the manager to halt redemptions from the non-traded vehicle. A few months later, Blue Owl sold $1.4 billion in assets, in part to start returning capital to those investors. 

Buying opportunity?

Those moves, in addition to the lenders’ swift growth and focus around software and artificial intelligence, led to unprecedented redemption requests of more than 40% from one of its private credit funds, and over 20% from another. In total, investors asked for around $5.6 billion back and received $1.2 billion.

“We expect OWL to have a relatively soft quarter across the board driven by lower fundraising and net flows (including higher redemptions) in its private credit wealth suite,” BofA Securities analyst Craig Siegenthaler wrote in a note. “Expect generally softer investing activity due to muted deal flow and lower returns given the widening of leveraged loan spreads,” he wrote.

Publicly listed BDCs, which trade like stocks, are also set to report earnings in the coming weeks. Blue Owl’s public tech-focused vehicle, Blue Owl Technology Finance, as well as its main publicly traded private credit vehicle, Blue Owl Capital, will report earnings next week. 

With shares of some BDCs trading at depressed levels, earnings could offer a stock-buying opportunity. “Attractive valuation and spread relief set the stage for outperformance for those with stable credit,” Wells Fargo analyst Finian O’Shea wrote in a note. “All in, we are more cautious over losses that likely continue to filter through.”