By Andrew Bary
An underappreciated problem for semiliquid private credit funds like Blue Owl Capital Income and Blackstone Private Credit Fund is the wide gap between the prices of public and private funds.
Put simply, the public funds are cheaper, reflecting investor concern about the $1 trillion private-credit market and fund portfolios of the high-rate loans.
The public funds trade for an average of less than 75 cents on the dollar, according to recent Raymond James research, while the private funds essentially trade at a full dollar.
This gap -- plus continued negative headlines about private credit -- could lead to even bigger outflow requests from private funds in the coming quarters. Private-credit critic Jeff Gundlach, the chief investment officer at DoubleLine, a bond manager, is predicting that.
There is incentive for wealth managers and their clients to pull money out of the private funds and invest elsewhere, including similar public funds from the same manager at 25%-plus discounts in some cases.
The risk/reward of staying in private funds isn't good because fund performance has started to weaken and there is a risk of higher redemptions in the coming quarters. Why hold money in a fund that is limiting or may limit liquidity when the alternative, public funds, offers cheaper prices and immediate liquidity? There is little upside to the private funds and plenty of potential downside if credit quality weakens. With the public funds, the risk of lower loan prices is already reflected in the share prices.
The public funds offer higher yields, sometimes 13% or more, against 9% to 10% on some of the private funds. The Van Eck BDC Income ETF that holds leading public BDCs yields around 13% at its current price of under $13 a share.
The trouble facing private funds was highlighted by news Thursday that Blue Owl Capital Income and Blue Owl Technology Income, the two big Blue Owl private funds, were curbing redemptions after outsize withdrawal requests in the first quarter. Blue Owl is one of the leading private credit managers along with Ares Management, Blackstone, KKR and Apollo Global Management.
The Blue Owl Capital Income fund got withdrawal requests from holders of 21.9% of the $36 billion fund and the figure was 40.7% for the $6.2 billion Blue Owl Technology Income fund. Blue Owl Capital Income is the No. 2 private fund in size, behind only the Blackstone Private Credit Fund.
The Blue Owl funds restricted redemptions to its 5% quarterly limits instead of relaxing them. Those investors requesting withdrawals were prorated, meaning they got only a fraction of their money back.
Here are some of the mechanics of the public private-credit funds, that include Ares Capital, Blue Owl Capital, Blackstone Secured Lending and FS KKR Capital. They trade like closed-end funds on the New York Stock Exchange or Nasdaq at a premium or discount from net asset values based on investor demand.
Holders of these funds can't request redemptions from the managers, they can only sell in the open market. Demand now is weak and nearly all of the 50 or so public BDCs trade at discounts, the Raymond James data show.
The public and private funds from the same manager aren't identical but they tend to have similar have similar industry allocations and sometimes hold many of the same loans. There can be different fees and leverage structures.
The Blue Owl redemptions were outsize relative to other semiliquid private funds in the first quarter, and that could reflect the particularly large discounts on the its public BDC funds, Blue Owl Capital and Blue Owl Technology Finance.
Blue Owl Capital shares finished Thursday around $10.90 a share, a discount of more than 25% to its year-end net asset value of $14.81 a share. Blue Owl Technology Finance is even cheaper. Its shares trade around $11.50, a discount of more than 30% from its year-end NAV of $17.33 a share. By contrast, the Blue Owl private funds change hands at their net asset values.
The price gap between the public Blue Owl BDC funds and private Blue Owl funds creates incentive for investors swap out of the private funds into the public ones.
Julian Klymochko, the CEO of Accelerate Financial, a Canadian firm, follows the space and tweeted recently that he is long the two public Blue Owl funds, arguing that 25%-plus discounts on private-credit BDCs historically have been buying opportunities.
"So if one can sell at 100 and buy at 67-72, then it is logical to do so, " he tweeted. With the 67-72 reference, he's describing the price of the Blue Owl public funds in cents on the dollar. Klymochko has told Barron's that investors should avoid the private BDCs and focus on the deeply discounted public ones.
The public/private pricing gap is present with Blackstone's two vehicles but is less pronounced than at Blue Owl.
Blackstone Private Credit fund is the largest semiliquid private credit fund with about $80 billion of total assets. Investors buy and sell it at its net asset value. An alternative is the smaller, public Blackstone Secured Lending, which has a similar industry lending allocation and some of the same loans. It trades at around $23.75 a share, a discount of more than 10% to its year-end NAV. It does carry higher fees than its private counterpart.
There are about $500 billion of high-rate private credit loans packaged into business development companies (BDCs) both public and private.
What's the argument for the private funds? Managers say the funds have less price volatility than public ones. That's true, but the volatility of the public funds has led to big pricing disparities between private and public funds.
Barron's has argued that the industry erred by setting up private and public funds because it gives investors incentive to swap from private to public when the public funds get cheap.
Money that flows into private funds usually gets funneled through private wealth managers who can earn fees from the private-credit managers.
Despite the worries and headlines about private credit, new money continued to flow into the private funds including the two Blue Owl private BDCs during the first quarter -- and nearly equaled outflows in some cases.
Industry inflows figures can include reinvested dividends from investors who opt to take additional fund shares rather than cash.
The new-money inflows could slow in the current quarter. Wealth managers may be reluctant to put new money into funds that are "gated" with redemption limits in place, or face a high likelihood of being subject to redemption restrictions in the current quarter.
It's rare in the investment world to have two similar groups of securities trading at vastly different prices.
Those gaps normally get arbitraged away. Not yet in the case of private credit funds. And that creates pressure on the private funds as investors get the opportunity to sell the more expensive private funds and buy the cheaper public ones.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 03, 2026 11:22 ET (15:22 GMT)
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