Investment fund questions valuations in Blue Owl’s private credit portfolio
Glendon Capital Management says debts are marked higher than similar publicly traded securities
Private credit lenders such as Blue Owl are obscuring weaknesses in their portfolios and a sharp correction in debt markets is approaching soon, a US distressed debt investment fund has told its investors.
Glendon Capital Management, a $5bn Los Angeles-based fund, wrote in a presentation seen by the FT that private credit funds managed by Blue Owl and many of its rivals had “misrepresented” loss rates in their portfolios and were sitting on “larger losses than reported”.
Glendon, founded by Oaktree veteran Holly Kim, declined to say whether it was betting against Blue Owl or any of its credit vehicles or the loans within its portfolios that it criticised.
Private capital has exploded into a multitrillion-dollar industry in the past decade, drawing in vast amounts of capital from all manner of institutional and retail investors. But higher interest rates and financial difficulties in some portfolio companies have begun to expose weaknesses in underwriting and raised concerns about liquidity and credit quality that could threaten several high-profile asset managers.
The fund focused its criticisms on how Blue Owl had valued loans inside one of its largest funds, the $17bn Blue Owl Capital Corporation. It noted the fund’s higher marks on its loans, made at the end of 2025, compared with current public trading prices of debts tied to the very same companies, which gave it “concerns about the true valuation” of its portfolio.
Glendon said loans at multiple companies inside the Blue Owl credit fund, called OBDC, where the lender had marked riskier junior slices of debts it held at values meaningfully above the recent public trading prices of safer, more senior debts issued by those same companies. Junior tranches are rarely valued higher than senior ones because they have lower recovery priority in the event of a bankruptcy or restructuring.
In one example, OBDC marked $235mn in junior preferred stock and second-lien debt it held in human resources software company Cornerstone OnDemand at about 90 cents on the dollar at the end of 2025.
But the Clearlake Capital-owned company’s most senior tranche of debt recently traded at just 78 cents on the dollar, a price broadly considered a sign of distress. The gap implies OBDC will be forced to partially write down the value of its junior Cornerstone securities holdings for the quarter that ends later this month.
OBDC’s current share price implies a 25 per cent discount to its reported net asset value at the end of last year.
Glendon pointed to similar disconnects in Blue Owl’s loans to KKR-owned cyber security group Barracuda, Peraton Corp, a defence contractor owned by private equity group Veritas Capital, and Conair Holdings, a PE-owned seller of hair dryers and Cuisinart kitchen appliances, among others. Glendon questioned whether Blue Owl would be forced to further mark down the loans, which represented 3 per cent of the fund’s $17bn in overall assets.
A person briefed on Blue Owl’s thinking said Glendon’s comparison was “apples to oranges”, given that marks were done at the end of 2025, but loan prices have fallen sharply in 2026. They also noted that the debts were marked at lower prices than where the more senior debts traded at the end of last year, justifying the valuations.
Several other managers, including Ares and KKR, had debt funds with similar or higher marks to the ones Glendon had flagged at Blue Owl. The groups did not immediately respond to requests for comment.
Multiple investment funds that the FT has spoken with in recent months have been concerned about junior tranches of loans marked at prices that were higher than related senior tranches traded in public markets.
OBDC’s share price has plunged more than 20 per cent over the past year amid rising fears of credit losses and falling yields inside its debt portfolio.
Shares in Blue Owl, which manages the fund for a fee, have fallen further, plunging more than 60 per cent over the past year amid rising redemptions from its retail credit funds.
Glendon further argued that business development companies — private credit funds such as OBDC — touted loss rates in marketing materials that were too low given the risk profile of the companies they lent to. The loan portfolios it examined at several BDCs advertised loss rates of less than one-tenth of 1 per cent.
Glendon characterised the loss rates as misleading and said the kinds of companies that had borrowed from private credit managers were inherently weaker and thus “were forced to turn to private credit after rejection by public markets”.
Glendon speculated that “[p]rivate credit losses are misrepresented and the credit is far worse than thought”, noting yields for junior junk bonds, now at less than 7 per cent, were consistently cheaper than senior private credit loans which typically yield about 10 per cent or more.
Several listed BDCs including those sponsored by KKR and BlackRock have cut dividends or sharply reduced marks on certain portfolio investments in recent weeks after recording large writedowns.