Saba Capital finds little appetite for tender offer of shares in Blue Owl, Starwood private credit funds

Saba Capital Management's attempt to capture market share in the non-traded business development company liquidity space produced disappointing results, underscoring investors' reluctance to accept deep discounts even amid widespread fund redemption pressures. The hedge fund launched tender offers in early March targeting Blue Owl Capital Corporation II and Starwood Real Estate Income Trust, offering to purchase shares at significant haircuts to net asset value. Blue Owl's OBDC II tender came at a 35% discount, while SREIT offerings ranged from 24% to 29% depending on share class. By early April, when results were disclosed, the program had acquired only approximately $10 million in aggregate face value across 190 separate trades—substantially below Saba's expectations. Notably, the Blue Owl tender failed to generate more than 1% participation, while the vast majority of successful trades came from the Starwood offering.

The weak tender performance reflects a broader market dynamic in which private-credit funds and non-traded BDCs are experiencing elevated redemption pressures despite attempting to restrict capital outflows. Blue Owl, one of the largest players in the space, halted quarterly redemptions in OBDC II in mid-February, pivoting instead to periodic capital returns through portfolio asset sales. The fund manager faced further pressure in the first quarter when investors submitted $5.4 billion in redemption requests across two of its other private-credit funds; Blue Owl capped these requests at 5%, consistent with peer-group practices. This redemption wave provided the impetus for Saba's tender offer strategy. Saba Capital's Boaz Weinstein stated to CNBC that the firm was "hearing from investors in these funds that they wanted their money back," prompting the liquidity initiative.

The tender offer's failure to gain traction suggests investors are unwilling to crystallize losses at the proposed discount levels, despite facing uncertain redemption timelines and restricted access to capital. This stance diverges from Saba's initial thesis regarding market opportunity. In response to redemption pressures, Starwood Capital Group and Chairman Barry Sternlicht announced plans to inject additional equity capital into SREIT to accelerate investor redemptions, signaling confidence in the fund's underlying value while addressing liquidity concerns. Saba indicated it would expand its liquidity provision strategy across additional non-traded BDCs and interval funds, including Cliffwater interval funds and Blue Owl's OCIC, and simultaneously deployed capital into other alternative asset managers' publicly traded securities, acquiring $40 million in FS KKR Capital Corp. and $75 million in Bluerock Private Real Estate Fund at significant discounts to net asset value.