Major Pension Funds Including OMERS Acquire $1.4 Billion Blue Owl Loan Portfolio
In a significant move within the private credit sector, Blue Owl Capital Inc. has successfully sold a US$1.4 billion portfolio of loans to a consortium of buyers, including three of North America's largest pension funds and its own insurance firm. This transaction, executed at 99.7% of par value, was designed to return capital to investors in the firm's Blue Owl Capital Corp II fund, which faced substantial redemptions last year.
Key Buyers and Transaction Details
The buyers of the loan portfolio include the California Public Employees’ Retirement System (Calpers), the Ontario Municipal Employees Retirement System (OMERS), and the British Columbia Investment Management Corp. (BCI), alongside Chicago-based insurer Kuvare, which Blue Owl acquired in a US$750 million deal in 2024. The sale was evenly distributed across three funds, reflecting a strategic effort to manage liquidity and investor expectations.
Blue Owl co-founder Craig Packer emphasized the strength of the deal, noting on an earnings call that bidder interest was so robust that buyers expressed willingness to purchase additional amounts. He described the size and price as "an extremely strong statement," even as market concerns about rising risks in private credit assets led to a sell-off in the firm's stock.
Background and Strategic Implications
This transaction underscores the growing interconnection between private credit and the insurance industry. Initially, Blue Owl planned to return capital by merging the fund with a publicly traded vehicle, but this approach was abandoned due to scrutiny over potential investor losses. The current sale provides a more direct path to cash returns, highlighting the adaptability of financial institutions in navigating market pressures.
Analysts at Barclays have raised concerns that this deal could set a precedent for future transactions, where debt from business development companies (BDCs) might be shifted into more opaque and highly leveraged vehicles, such as collateralized loan obligations (CLOs). They warned that frequent similar transactions could deepen ties between non-bank sectors, making risk tracking more challenging and potentially adding leverage to private credit assets.
Market Reactions and Future Outlook
Despite the positive reception from buyers, the deal has sparked discussions about risk management in private credit. Packer assured stakeholders that the buyers made "an arm’s length economic decision" with no hidden agendas. As private credit continues to evolve, this transaction may influence how pension funds and insurers collaborate in asset management, balancing returns with regulatory and market uncertainties.
The involvement of major pension funds like OMERS, Calpers, and BCI signals their ongoing interest in alternative investments, even as they navigate redemption challenges and seek stable returns in a volatile economic landscape.
