Key Takeaways
- • Blue Owl Capital Corporation (Blue Owl) faces putative securities class actions filed in December 2025 and January 2026 in the U.S. District Court for the Southern District of New York, alleging it concealed mounting redemption pressures in its business development company vehicles.
- • A derivative suit filed April 27, 2026 alleges Blue Owl Credit Advisors LLC breached its fiduciary duty under Section 36(b) of the Investment Company Act of 1940 by charging excessive fees.
- • The derivative complaint alleges the adviser's dual role as portfolio manager and valuation designee creates an incentive to inflate illiquid asset values and increase management and incentive fees.
- • Fee mechanics under scrutiny include management fees on gross assets, incentive fees including payment-in-kind income, and the absence of a clawback provision.
- • The D&O Diary argues that litigation risk in private credit is migrating from borrower insolvency to claims against lenders and managers, implicating both D&O and E&O coverage.
Summary
The D&O Diary reports that stress in the private credit market, highlighted by the collapses of borrowers Tricolor and First Brands, is increasingly producing securities litigation against private credit lenders themselves. Blue Owl Capital Corporation recently moved to limit redemptions following a historic surge in withdrawal requests, a liquidity strain that coincides with the company's litigation exposure.
Two putative securities class actions, filed in December 2025 and January 2026 and both pending in the Southern District of New York, allege that Blue Owl misrepresented its liquidity and mounting investor redemption pressures within its business development company vehicles. The plaintiffs claim the firm artificially inflated its stock price by withholding these operational risks, and that its share price fell significantly once redemption news became public.
A separate derivative suit, filed April 27, 2026 in the same court, was brought by a shareholder on behalf of Blue Owl Capital Corporation against its investment adviser, Blue Owl Credit Advisors LLC. The complaint asserts claims under Section 36(b) of the Investment Company Act of 1940, alleging that the adviser breached its fiduciary duty by charging excessive fees not produced by arm's-length bargaining. According to the allegations, the adviser acts as both portfolio manager and valuation designee for the fund's largely illiquid holdings, creating an incentive to overstate values that raise management and incentive fees. The plaintiff also challenges a management fee based on gross assets, an incentive fee that includes payment-in-kind interest, and the lack of a clawback provision.
The D&O Diary contends the case illustrates structural risks in private credit. Valuation opacity in Level 3 assets places reliance on internal models, and compensation tied to internal marks may prompt claims that boards failed to oversee valuations. Liquidity mismatches between periodic redemption features and illiquid assets may generate disclosure-based liability, while fee mechanics tied to unrealized income raise potential E&O issues. The publication notes recent reporting that large direct lenders may be extending riskier loans to highly leveraged borrowers, and it characterizes the Blue Owl case as an early indicator of how private credit risks will be litigated, with claims potentially implicating both D&O and E&O coverages. These are allegations, not findings.
Two putative securities class actions, filed in December 2025 and January 2026 and both pending in the Southern District of New York, allege that Blue Owl misrepresented its liquidity and mounting investor redemption pressures within its business development company vehicles. The plaintiffs claim the firm artificially inflated its stock price by withholding these operational risks, and that its share price fell significantly once redemption news became public.
A separate derivative suit, filed April 27, 2026 in the same court, was brought by a shareholder on behalf of Blue Owl Capital Corporation against its investment adviser, Blue Owl Credit Advisors LLC. The complaint asserts claims under Section 36(b) of the Investment Company Act of 1940, alleging that the adviser breached its fiduciary duty by charging excessive fees not produced by arm's-length bargaining. According to the allegations, the adviser acts as both portfolio manager and valuation designee for the fund's largely illiquid holdings, creating an incentive to overstate values that raise management and incentive fees. The plaintiff also challenges a management fee based on gross assets, an incentive fee that includes payment-in-kind interest, and the lack of a clawback provision.
The D&O Diary contends the case illustrates structural risks in private credit. Valuation opacity in Level 3 assets places reliance on internal models, and compensation tied to internal marks may prompt claims that boards failed to oversee valuations. Liquidity mismatches between periodic redemption features and illiquid assets may generate disclosure-based liability, while fee mechanics tied to unrealized income raise potential E&O issues. The publication notes recent reporting that large direct lenders may be extending riskier loans to highly leveraged borrowers, and it characterizes the Blue Owl case as an early indicator of how private credit risks will be litigated, with claims potentially implicating both D&O and E&O coverages. These are allegations, not findings.
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