Morningstar

Blue Owl Capital: Fair Value Estimate Reduced on Continued Private Credit Concerns

The company’s shares are now modestly undervalued, with few positive catalysts that we can see to move them off their lows.

The Blue Owl Capital logo is seen displayed on a smartphone screen.
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Securities in This Article
Blue Owl Capital Inc Ordinary Shares - Class A
(OWL)

Key Morningstar Metrics for Blue Owl Capital

  • Fair Value Estimate
    : $10.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : High

We expect the negative perceptions attached to the private credit market, and Blue Owl Capital OWL in particular, will be a drag on the company’s results in the near and medium terms.

Why it matters: Alternative asset managers rely on their reputations, product offerings, and investment performance history not only to raise capital but also to maintain their standing as go-to firms for investors seeking exposure to the private markets.

  • The first hit to Blue Owl’s reputation occurred when it failed to merge Blue Owl Capital Corp II into its larger publicly traded credit fund, Blue Owl Capital Corporation, after it emerged that the move would deplete the value of the holdings of investors in OBDC II by up to 20%.
  • The second and more damaging hit occurred when Blue Owl permanently restricted investors from withdrawing capital from OBDC II, announcing instead that the fund would return at least 30% of its capital to investors in the near term and then make periodic payments over time as it sold down more assets.
  • Once lost, reputations in the asset management industry can be difficult to recover—especially when working with institutional and high-net-worth investors. These events, in our view, will not only hinder Blue Owl’s future fundraising efforts but will also likely increase redemption requests in the near- to medium-term.

The bottom line: Expectations for diminished fundraising and increased redemptions for its global credit operations have led us to reduce our fair value estimate for Blue Owl to $10 per share from $12, as we note that Blue Owl is currently garnering 52% of its fee-earning AUM and 60% of its base management fees from its credit segment.

  • Following the valuation change, the company’s shares are modestly undervalued, with few positive catalysts that we can see to move them off their lows.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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