By Jonathan Weil
The stock market has lots of questions about private-credit funds, namely how much they're really worth. Investors are having a tough time figuring out answers.
One reason: Even when investors know what's in these funds, they quickly realize that they don't know all that much. The result is that the funds often trade at discounts to their official net asset values.
In that case, a dollar of assets ends up being worth less than a dollar.
Blue Owl Capital Corp. is an example. The publicly traded private-credit fund trades for just 78% of its reported NAV.
The fund, known as OBDC, cut its net assets 3% to about $7.2 billion when reporting first-quarter results last week. But that wasn't enough of a markdown for investors. Since the earnings release, the discount to NAV has widened slightly.
Why is this happening? The fund's valuation disclosures are voluminous. But they are also often opaque and hard to understand.
This is typical among so-called business-development companies. And even when it is possible to figure out the valuation methodology the fund is using for a specific investment, the numbers sometimes make little sense.
OBDC listed the names and fair-market values for hundreds of investments in its latest quarterly report. The majority were Level 3 investments where valuations were "based on inputs that are unobservable and significant to the overall fair value measurement."
Most of OBDC's holdings are debt investments. Usually investors can't discern precisely how a given investment was valued.
For some equity investments, though, it is possible to identify the valuation multiples OBDC used. This involves cross-referencing the numbers from different sections of OBDC's quarterly report. Using the same cross-referencing technique for previous reports, it is possible to track how the valuation multiples for the holdings have changed over time.
Blue Owl declined to comment.
Here are two examples. On its schedule of investments, OBDC listed an equity stake in a lender called Wingspire Capital Holdings with a fair value of $606.792 million as of March 31.
That dollar amount served as a unique identifier in a separate disclosure table showing OBDC's valuation methods for different categories of Level 3 investments. While the methodology table omitted company names, it listed a "specialty finance" equity investment with a fair value of $606.792 million, matching the value for Wingspire.
OBDC said it valued the investment using a multiple of 1.3 times earnings before interest, taxes, depreciation and amortization. The methodology table didn't list other inputs, leaving the impression that 1.3 times Ebitda might have been the entirety of the valuation formula. That was up from 1.2 times Ebitda at the end of 2024.
Whether this was the only input used or one of many, valuing a lender using a multiple of Ebitda is unusual because it ignores interest expense, which is a lender's primary cost. This creates an inflated view of profitability.
Similarly, OBDC on its schedule of investments listed an equity stake in a company called Fifth Season Investments with a $303.148 million fair value. The methodology table listed a "specialty finance" equity investment with the same value. OBDC used a multiple of 1.0 times assets under management. That was the only input listed, down from 1.1 times AUM as of Dec. 31.
The valuation for Fifth Season also raises tricky questions. It isn't clear from the disclosures how much, if any, of Fifth Season's AUM belongs to third-party clients.
On its website, Fifth Season says it "invests for its own account in life insurance backed assets." Investing for its own account means owning the assets, rather than managing assets for third parties. Elsewhere on its website Fifth Season says it "manages and invests in life insurance backed assets." OBDC describes Fifth Season as "a portfolio company created to invest in life insurance based assets."
By comparison, Blackstone, the giant alternative-asset manager, has a stock-market value equivalent to about 12% of AUM. Blackstone makes money mainly from fees, and less so from owning assets.
Valuing Fifth Season at 1.0 times AUM might make sense, if it had no third-party assets under management and no liabilities. But if that were the case, it would have made more sense for OBDC to list the metric as 1.0 times book value or NAV.
As with Wingspire, Fifth Season's financial statements aren't disclosed. Together, the two holdings represented about 13% of OBDC's net assets as of March 31.
Here's the rub for investors: If digging beneath the surface leads to more questions than answers, there's no telling what sorts of unusual estimates are driving the valuations of many other investments for which there is even less transparency.
Until there's real clarity, expect many of these funds to continue trading at big discounts to their NAVs.
Write to Jonathan Weil at jonathan.weil@wsj.com
(END) Dow Jones Newswires
May 13, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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