Key Takeaways
- • Morningstar reduced its fair value estimate for Blue Owl Capital (OWL) to $10 per share from $12, citing expected diminished fundraising and higher redemptions in its global credit operations.
- • Blue Owl's credit segment accounts for 52% of fee-earning AUM and 60% of base management fees, making the firm highly exposed to private credit sentiment.
- • Two reputational setbacks drove the revision: a failed merger of Blue Owl Capital Corp II into Blue Owl Capital Corporation, which Morningstar says would have cut OBDC II holdings' value by up to 20%, and a permanent restriction on investor withdrawals from OBDC II.
- • Morningstar assigns Blue Owl a Narrow economic moat and High uncertainty rating, and views the shares as modestly undervalued with few near-term positive catalysts.
Summary
Morningstar Equity Research has lowered its fair value estimate for Blue Owl Capital to $10 per share from $12, reflecting its view that negative perceptions of the private credit market, and of Blue Owl specifically, will weigh on the company's results over the near and medium terms. The firm carries a Narrow economic moat rating and a High uncertainty rating.
Morningstar identifies two reputational blows as the basis for the revision. The first occurred when Blue Owl failed to merge Blue Owl Capital Corp II (OBDC II) into its larger publicly traded credit fund, Blue Owl Capital Corporation (OBDC). Morningstar notes that the proposed move would have reduced the value of OBDC II investors' holdings by up to 20%. The second and more damaging event was Blue Owl's decision to permanently restrict investor withdrawals from OBDC II. Under the revised arrangement, the fund will return at least 30% of its capital to investors in the near term and then make periodic payments as it sells down more assets.
Morningstar argues that reputations in asset management are difficult to rebuild, particularly with institutional and high-net-worth investors. In its view, these events will hinder Blue Owl's future fundraising and are likely to increase redemption requests over the near to medium term. The credit segment is central to this exposure: according to Morningstar, it generates 52% of Blue Owl's fee-earning AUM and 60% of its base management fees.
Following the valuation change, Morningstar considers the shares modestly undervalued but sees few identifiable positive catalysts that would lift them from current lows. The note was originally published as a stock note by Morningstar Equity Research.
Morningstar identifies two reputational blows as the basis for the revision. The first occurred when Blue Owl failed to merge Blue Owl Capital Corp II (OBDC II) into its larger publicly traded credit fund, Blue Owl Capital Corporation (OBDC). Morningstar notes that the proposed move would have reduced the value of OBDC II investors' holdings by up to 20%. The second and more damaging event was Blue Owl's decision to permanently restrict investor withdrawals from OBDC II. Under the revised arrangement, the fund will return at least 30% of its capital to investors in the near term and then make periodic payments as it sells down more assets.
Morningstar argues that reputations in asset management are difficult to rebuild, particularly with institutional and high-net-worth investors. In its view, these events will hinder Blue Owl's future fundraising and are likely to increase redemption requests over the near to medium term. The credit segment is central to this exposure: according to Morningstar, it generates 52% of Blue Owl's fee-earning AUM and 60% of its base management fees.
Following the valuation change, Morningstar considers the shares modestly undervalued but sees few identifiable positive catalysts that would lift them from current lows. The note was originally published as a stock note by Morningstar Equity Research.
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