OWL ALERT: Class Action Filed for Blue Owl Investors!

Introduction and Background

Blue Owl Capital Inc. (NYSE: OWL) is a fast-growing alternative asset manager with over $295 billion in assets under management (AUM) as of Q3 2025 (^[1]). It operates across three main platforms – Credit, Real Assets, and GP Strategic Capital – focusing on private credit lending, real estate finance, and taking minority stakes in investment managers (GP stakes) (^[1]) (^[1]). Blue Owl went public in 2021 via a SPAC merger (combining Owl Rock Capital and Dyal Capital), and since then has rapidly expanded through acquisitions and fundraising, amassing a substantial permanent capital base (~$214B) that provides stable fee income (^[1]) (^[1]).

Recent Developments: In late 2025, Blue Owl’s stock came under pressure amid troubles in its private credit funds and a resulting securities class action lawsuit. The lawsuit, filed on behalf of shareholders who purchased OWL between Feb 6, 2025 and Nov 16, 2025, alleges that Blue Owl failed to disclose material problems in its business. Specifically, investors claim Blue Owl misled them by hiding: (1) significant redemption pressure in its business development companies (BDCs); (2) resultant liquidity issues; (3) plans to limit or halt BDC redemptions; and (4) the fact that prior optimistic statements lacked a reasonable basis (^[2]). These allegations center on Blue Owl’s handling of two affiliated credit funds – one publicly-traded BDC (OBDC) and one non-traded BDC (OBDC II) – that Blue Owl attempted to merge in late 2025. In early November, Blue Owl announced a definitive merger agreement between OBDC and OBDC II and suspended redemptions in the private fund, effectively forcing OBDC II investors to accept a ~20% haircut given OBDC’s stock was trading well below its net asset value (^[3]) (^[4]). This move, coupled with disappointing Q3 earnings, triggered a sharp drop in OWL’s share price and prompted investor backlash: Blue Owl’s stock fell ~4% after its Q3 results missed estimates on Oct 30 (^[3]), then another ~5% on Nov 6 following the BDC merger announcement (^[3]). A negative Financial Times piece on Nov 16 highlighting the potential losses and “souring sentiment on private credit” drove OWL down further (–5.8% to $13.77) (^[3]). Under mounting pressure, Blue Owl canceled the BDC merger on Nov 19, 2025, citing “current market conditions” (^[3]). The class action filing swiftly followed, alleging that Blue Owl’s management knew of these liquidity and redemption risks but did not fully disclose them to investors earlier (^[2]). This report examines Blue Owl’s fundamentals – dividend policy, leverage, valuation – in light of these events, and analyzes the risks, red flags, and open questions facing the company.

Dividend Policy, Earnings, and Coverage

Blue Owl has positioned itself as an income-oriented asset manager, steadily growing its dividend since going public. In 2025, management raised the annual dividend 25% to $0.90 per Class A share (or $0.225 per quarter) (^[1]), up from $0.72 in 2024. This reflects confidence in the firm’s fee-related earnings growth. At the current share price in the mid-teens, the dividend yields roughly 6% (^[5]) – a notably high yield in the asset management sector. For context, Blue Owl’s forward dividend yield is about 6.0% as of December 2025 (^[6]), meaning a $100 investment in OWL yields approximately $6 in annual dividends (^[7]). Such a generous yield both attracts income-focused investors and signals that the stock has been under pressure (a declining share price pushed the yield higher).

🪙

Discover the hidden gold Buffett is targeting

A 100%-accurate indicator is flashing. One gold miner could be Buffett’s next move — selling at a deep discount.

Reveal Buffett's Pick →

Fast read — built for mobile. Grab the name & ticker now.

Crucially, investors must assess whether this dividend is adequately covered by earnings. Instead of GAAP net income (which is reduced by large non-cash amortization charges from acquisitions), Blue Owl and analysts focus on Distributable Earnings (DE) – a non-GAAP cash flow metric analogous to Funds From Operations (FFO) or Adjusted FFO used by REITs and BDCs. DE represents the firm’s fee-related profits plus realized performance income, minus expenses and interest, and is intended to reflect “net realized earnings that are expected to be or become available for distribution or reinvestment” (^[1]). In Q3 2025, Blue Owl reported DE of $341.0 million, or $0.22 per adjusted share (^[1]). This was only a penny below the $0.225 dividend for that quarter (^[1]), implying a payout ratio of essentially 100% of DE. In fact, year-to-date in 2025 the dividend payout has been at or slightly above the distributable earnings generated – for example, Q1 2025 DE was only $0.17 per share (due to seasonal expense timing) against the $0.225 dividend, though stronger Q2–Q3 earnings made up some ground (^[1]) (^[1]). On a trailing twelve-month basis through Q3 2025, DE grew ~15% year-on-year to ~$1.24 billion (^[1]), equating to about $0.83 per share annualized. Compared to the $0.90 annual dividend, this suggests a full-year payout ratio slightly above 100%, leaving only a thin cushion. Management has emphasized that a large portion of Blue Owl’s AUM is permanent capital, providing reliable fee streams to support the dividend. However, the near-complete payout of DE is a red flag – it indicates limited room for error if earnings falter. Indeed, the sharp 33% decline in performance fee revenue in Q3 2025 (to virtually zero at $188k) underscores that Blue Owl’s earnings are currently almost entirely fee-driven (^[3]). Should fee-earning AUM growth slow or margins compress, the firm may face pressure to either cut the dividend or fund it by dipping into cash reserves. Investors will want to watch dividend coverage closely going forward, especially given recent turbulence. On the positive side, Blue Owl entered 2025 with momentum (boosting the dividend 25%) and still achieved a 57.1% fee-related earnings margin in Q3 (^[3]). Barring a severe downturn, the dividend appears safe for now, but coverage ratios are tight – any sustained dip in DE would quickly push the payout beyond 100% of earnings. This balance between an attractive yield and high payout ratio is a key aspect of Blue Owl’s investment profile.

Leverage, Debt Maturities, and Interest Coverage

Unlike many traditional asset managers, Blue Owl employs a notable amount of corporate leverage – partly a legacy of debt-funded acquisitions and partly to provide flexibility for growth initiatives. As of Q3 2025, the company carried approximately $3.3 billion of total debt on its balance sheet (^[1]). This consists primarily of long-term unsecured notes with no near-term maturities: Blue Owl’s outstanding bonds mature in 2028, 2031, 2032, 2034, and even 2051, resulting in a weighted-average debt maturity of ~10 years (^[1]) (^[1]). In addition, Blue Owl maintains a sizable revolving credit facility for liquidity – in October 2025 the firm increased the capacity of its revolver by $700 million to $2.4 billion and extended its maturity to August 2030 (^[1]). At September 30, 2025, about $759 million was drawn on this revolver, leaving roughly $1.64 billion of undrawn credit available as supplemental liquidity (^[1]). Blue Owl also held a small cash balance (~$137 million), bringing total available liquidity to around $1.8 billion (^[1]). These actions to bolster liquidity suggest management is prudently shoring up finances amid the current market volatility. Notably, all three major rating agencies assign Blue Owl solid investment-grade credit ratings (Fitch BBB+, Moody’s Baa2, S&P BBB) (^[1]) – a reflection of its stable fee income and moderate leverage relative to cash flow. The company’s after-tax cost of debt is low, about 3.8% on average (^[1]), thanks in part to the long-term notes issued when interest rates were favorable.

Blue Owl’s interest expense is well-covered by earnings, indicating the debt load is manageable. In Q3 2025, interest expense was about $42 million (^[1]) for the quarter. By comparison, quarterly fee-related earnings before interest were $376 million (^[1]), and even after all costs, distributable earnings were $341 million (^[1]). This implies an interest coverage ratio on the order of 8–9x (i.e. DE is nearly nine times the interest burden) – a very comfortable cushion. The firm’s fixed-charge coverage is bolstered by the fact that its expenses are largely variable (tied to compensation and performance), whereas interest costs are a small, fixed obligation. In short, leverage does not pose an immediate threat: debt maturities are staggered far into the future, and Blue Owl’s recurring cash flows easily service the interest. Furthermore, the recent upsizing of the credit facility to $2.4B suggests lenders remain confident; management can tap additional debt if needed (for example, to fund strategic investments or support any temporary liquidity needs in its managed funds). One caveat is that net debt/EBITDA (or debt/DE) is not trivial – roughly 2.6x if we compare $3.28B debt to ~$1.24B annual DE (^[1]) (^[1]). This is higher than some peer asset managers that carry little to no debt. However, given Blue Owl’s stable fee revenues and the absence of near-term refinancing risk, the leverage appears prudent and well-structured rather than excessive. Investors should monitor that Blue Owl’s debt remains investment-grade and that any growth in borrowing aligns with growth in earnings. At present, credit risk seems contained, and in fact the company’s decisive moves to extend maturities to 2030+ and lock in low rates may prove wise if financial conditions tighten.

Valuation and Comparative Metrics

Blue Owl’s shares have been significantly de-rated in 2025 amid the challenges in the private credit market. Year-to-date, OWL stock has tumbled over 40%, far underperforming larger alternative-asset peers like Blackstone and Apollo which saw milder declines (^[8]). This sharp drop reflects investors pricing in Blue Owl’s specific headwinds (e.g. BDC issues, near-term earnings misses) and has left the stock trading at a discounted valuation by several measures. For instance, at around $14–15 per share, Blue Owl’s dividend yield sits at approximately 6% – roughly double the dividend yield of Blackstone (currently ~3%) and well above that of most asset managers (^[5]). Such a high yield suggests the market has lower confidence in Blue Owl’s growth stability, demanding more income to compensate for perceived risk. Another angle: in terms of cash flow multiples, OWL changes hands at about 16–18 times Distributable Earnings (DE). Using the Q3 run-rate ($0.22 DE/share) or forward street estimates, the P/DE is in the high teens. This is not especially low; it’s roughly on par with the broader market’s P/E. However, relative to peers, there is a case that Blue Owl is undervalued if it can deliver its expected growth. Many larger alternative asset managers trade at premium multiples due to their diversification and track records. For example, Blackstone’s stock has historically commanded 20–25x distributable earnings (and a lower yield), reflecting investor trust in its brand and performance. Ares Management, which like Blue Owl is credit-focused, currently yields about 3% and has a forward P/E in the low 20s. By contrast, Blue Owl’s forward P/E is around 15–16x based on 2025 earnings projections (^[7]), indicating a more pessimistic outlook is baked in. In effect, the market is pricing Blue Owl more like a steady high-yield BDC than a growth asset manager at the moment. This could represent an opportunity if Blue Owl navigates its issues – the stock would have significant upside re-rating potential should confidence return. On the other hand, the depressed valuation could be a value trap if fundamentals deteriorate further.

“I built my approach on tiny, early-stage bets that turned into life-changing wins. Now I’ve packaged that playbook — and six immediate ideas — just for you.”

— Gerardo, Lead Analyst, Junior Resource Speculator

Send Me Gerardo’s 6 Ideas

It’s worth noting that GAAP earnings for Blue Owl are much lower than DE due to heavy amortization of intangibles from acquisitions (which is non-cash). As a result, traditional GAAP metrics like P/E are less meaningful. (For reference, GAAP net income was only $55 million before tax in Q3 2025 (^[1]), implying a triple-digit GAAP P/E.) Investors instead focus on fee-related earnings and DE for valuation. Blue Owl’s price-to-fee-related earnings is reasonable given its mid-teens growth: FRE grew 15% YoY in Q3 (^[1]), and the stock trades around ~14x annualized FRE. Moreover, Blue Owl’s management fee streams are tied to long-duration capital, which in theory deserve a premium versus more volatile transaction-driven earnings. Comparables: Blue Owl’s closest public comps are perhaps Apollo Global (APO) and Ares Management (ARES), which also emphasize credit and permanent capital. Apollo, thanks to its annuity-like insurance arm, trades around 10–12x forward earnings (with a lower ~2% yield) but has a different business mix. Ares trades nearer 20x earnings with a ~3% yield, reflecting strong credit fundraising momentum. Blue Owl’s current multiple and yield are closer to those of Business Development Companies (BDCs) or alternative yield vehicles than to high-growth managers – an indication that investors are wary. In summary, OWL’s valuation appears inexpensive relative to its growth prospects, if one believes the firm’s issues are temporary. However, the stock’s lofty yield and lagging performance signal that the market is unconvinced, likely waiting to see stabilization in the private credit environment and resolution of the recent missteps before bidding the shares back up.

Key Risks and Red Flags

Blue Owl faces several risk factors and warning signs that investors should keep in focus, especially in light of the recent class action and market turmoil. Below are some of the most pertinent risks and red flags:

– BDC Liquidity Crunch & Reputational Damage: The aborted merger of OBDC and OBDC II in November 2025 has turned into a cautionary tale. Blue Owl planned to merge a $1.7 billion non-traded BDC (marketed to retail investors) with its $17+ billion publicly traded BDC (^[9]) (^[10]), in order to halt redemptions and close a valuation gap. However, this move backfired — the announced halt of redemptions meant OBDC II investors would be locked in and potentially take a 20% loss (haircut) on the value of their shares (^[4]). The news triggered panic, a backlash from retail investors, and a 10% drop in Blue Owl’s stock over a few weeks (^[9]). While Blue Owl’s Co-President insisted there was “no liquidity crisis” in the funds (^[4]), the incident exposed an illiquidity risk in Blue Owl’s semi-liquid products and arguably damaged management’s credibility. This saga is at the heart of the class action claims that Blue Owl misled investors about pressures in its BDC business (^[2]). The reputational hit could impair Blue Owl’s ability to raise new capital from retail channels and has already drawn scrutiny from media and law firms. It’s a red flag whenever an asset manager’s actions provoke a class action – even if the suit’s allegations prove unfounded, the episode suggests a lapse in judgment or communication by management.

Bryce

Bryce Paul: My #1 Coin (Oct 2025)

3 bucks. Instant report. Fast-action bonus call included.

Download $3

– Private Credit Market Stress: Blue Owl’s core business is private credit (direct lending), which is going through a challenging period. In 2025, rising interest rates and a few high-profile corporate loan defaults (e.g. First Brands Group, Tricolor Auto) have rattled investor confidence (^[4]) (^[8]). Blue Owl’s share price decline (>40% YTD) actually outpaced peers like Blackstone or Apollo (^[8]), indicating that the market perceives it as particularly vulnerable to a credit downturn. A key issue is that Blue Owl’s BDCs (and similar funds) hold loans that may be marked down or trade at discounts to NAV when credit spreads widen. Indeed, OBDC’s stock has been trading at only ~0.79x its NAV (a >20% discount) (^[8]), which was the root cause of the redemption arbitrage problem. If broader private credit sentiment continues to sour, Blue Owl could see slower fundraising, more redemption requests in any open-ended vehicles, and pressure on fee income. The firm has noted it avoided direct exposure to the recent “blowups” (it didn’t lend to First Brands or Tricolor) (^[8]). However, investors worry that “credit cockroaches” could yet emerge – i.e. hidden credit risks that come to light as economic conditions tighten (^[11]). Blue Owl’s heavy concentration in private middle-market lending means it is not immune if default rates climb. This market risk is largely outside management’s control and remains an ongoing concern.

– High Payout and Earnings Reliability: As discussed, Blue Owl is paying out nearly all its distributable earnings as dividends. This leaves little margin for error. Any hit to earnings – whether from declining fee-paying AUM, compression of fee margins, or loss of performance fees – could put the dividend in jeopardy or force the company to use debt/cash to cover it. The fact that Q1 2025 DE fell short of the dividend is an example of how timing or one-off factors can stress coverage. While Blue Owl’s permanent capital AUM (over $213 billion) provides stability (^[1]) (^[1]), the drop in performance revenues to effectively zero in recent quarters means there’s no upside buffer from incentive fees (^[3]). In a benign market, Blue Owl could likely grow out of this with rising AUM and some performance fees returning. But if the firm faces net outflows or further earnings misses, the sustainability of the current dividend policy could be questioned. Thus, the high dividend payout ratio itself is a risk factor, signaling that Blue Owl is operating with less flexibility than peers who retain a greater share of earnings.

– Acquisition Integration and Intangibles: Blue Owl’s rapid growth has been fueled by acquisitions (e.g. Oak Street Real Estate, Ascentium, KKR’s Prisma/Atalya platform, etc.), which can pose integration risks. The firm’s balance sheet carries substantial goodwill and intangible assets from these deals (as evidenced by large amortization expenses reducing GAAP income). If any acquired business underperforms, Blue Owl might face impairment charges or the operational drag of poorly integrated teams. So far, there’s no specific sign of trouble on this front – in fact, acquisitions helped boost AUM by 26% YoY (^[1]). But investors should be mindful that Blue Owl is a relatively young platform assembled from multiple parts in a short time. Ensuring a cohesive culture and strategy across Credit, Real Assets, and GP stakes, under one brand, is an ongoing execution challenge. Management turnover or strategic discord could be red flags to watch (none have been reported, but it’s an area to monitor given the rapid expansion).

– Legal and Governance Overhang: The current securities class action lawsuit is an obvious overhang. Such suits are common after a sharp stock drop and often get settled or dismissed over time. Nonetheless, this case will likely keep Blue Owl in the headlines for negative reasons in the near term. Executives will have to devote attention to legal defense, and there’s always a risk (albeit low) of regulatory inquiries piggybacking on the allegations. At minimum, the suit could reveal internal communications or lapses that embarrass management or force changes in disclosure practices. From a governance perspective, investors might question whether Blue Owl’s leadership appropriately balanced the interests of different stakeholders (public shareholders vs. BDC investors) in the attempted merger. The incident suggests a need for better risk management and transparency when dealing with affiliate transactions. How management responds – in terms of communication, perhaps adding safeguards for retail investors, etc. – will be important to rebuilding trust.

In sum, Blue Owl’s primary risks revolve around the private credit cycle and its own strategic choices. The firm is somewhat on the defensive now: it must prove that the BDC misstep was an anomaly and that its overall business model (of locking up permanent capital and delivering steady yields) remains sound. The above red flags do not doom the company by any means, but they do warrant a higher risk premium until resolved.

Open Questions and Outlook

Looking ahead, several open questions remain about Blue Owl’s trajectory and how it will address recent challenges:

– Will the BDC Merger Be Revisited? Despite the merger’s cancellation, Blue Owl may not have abandoned the idea entirely. According to Reuters sources, the firm is considering reviving the OBDC–OBDC II merger if conditions improve – specifically, if OBDC’s stock price recovers to trade near NAV (eliminating the unfair discount) (^[10]). Officially, management maintains the deal is off the table for now (^[10]). The open question is what happens next for OBDC II. Will Blue Owl find another way to provide liquidity to investors in that private fund? If OBDC’s discount persists, how will the firm handle ongoing redemption requests? The resolution of this situation is critical. It will influence retail investor confidence and could set a precedent for other alternative asset managers dealing with semi-liquid products. Investors should watch for any signals – perhaps improved market sentiment could allow a friendly merger, or else Blue Owl might need to explore different options (such as tender offers, secondary market solutions, or even letting OBDC II remain separate but gated).

– Can Blue Owl Restore Investor Trust? The company’s stock price performance and the class action suggest a trust deficit. Management’s near-term task is to regain credibility. This could come through delivering consistent results (hitting earnings targets, covering the dividend comfortably) and being more transparent about risks. An open question is whether Blue Owl will adjust its communication going forward – for instance, providing more clarity on fund redemption levels or leverage in its products. Also, will the firm consider a more conservative dividend policy until things stabilize? So far, no dividend cut has been hinted; in fact they raised it for 2025. But if market stress continues, the board might need to prioritize financial flexibility over aggressive dividend growth. Restoring trust may also involve strengthening governance – perhaps adding independent directors with risk management expertise, or setting up mechanisms to better align decisions between the public company and its managed funds. How Blue Owl navigates the fallout in the next few quarters will be telling. Positive fund performance or asset growth would go a long way to reassure investors that the business remains healthy despite 2025’s hiccups.

– How Resilient is Blue Owl’s Business Model Through a Credit Cycle? Blue Owl’s pitch is that its permanent capital and focus on income-oriented strategies make it resilient and “redefining alternatives” (^[1]). The current environment is a test of that thesis. So far, fee-related earnings have held up well (growing double-digits even in 2025) (^[1]), showing the value of locked-in management fees. However, the performance fee component has vanished in a tougher market (^[3]), and questions linger about asset quality in its credit portfolios. An open question is what happens if credit conditions worsen: will Blue Owl’s AUM actually prove “sticky” (since much is permanent capital), or could we see NAV declines and investor withdrawals undermine parts of the franchise? Additionally, Blue Owl has branched into newer areas (real estate, GP stakes, sports team financing) – how will those hold up in different market scenarios? The diversification within Blue Owl’s platform could provide cushion, or it could expose the firm to more moving parts that are hard to juggle. In essence, the coming year or two will help answer whether Blue Owl’s model truly offers stable, growing cash flows across cycles, or if it is more correlated to market ups and downs than it claims. This will determine the appropriate valuation multiples and investor base for OWL stock.

– Growth Outlook: Pause or Continue? Before the recent turmoil, Blue Owl was in expansion mode – raising new funds, entering new segments, and potentially eyeing further acquisitions. It’s unclear whether management will hit the brakes on expansion in 2026 to focus on internal stability, or if they will view the downturn as an opportunity to gain market share (for example, picking up assets from distressed rivals or launching new products to attract yield-hungry investors). The outcome of this strategic choice is an open question. On one hand, a more cautious approach – consolidating the 26% AUM growth achieved in the past year (^[1]) – might be prudent until the class action and BDC issues are fully resolved. On the other hand, Blue Owl’s DNA is one of growth, and the secular trend (banks retreating from middle-market lending, etc.) still favors private credit managers in the long run. Investors will be looking for guidance from management on 2026 fundraising plans, any shifts in product strategy, and how the firm is balancing risk management with growth. Clarity on these points could either alleviate concerns or raise new ones.

In conclusion, Blue Owl Capital finds itself at a pivotal moment. The class action lawsuit and the BDC merger fiasco have spotlighted the firm’s growing pains. Yet, the company still boasts enviable assets: a large base of sticky AUM, strong fee revenues, and an attractive dividend (backed by substantial cash earnings). The stock’s sell-off and high yield indicate that much bad news is already priced in. Going forward, the key for Blue Owl will be execution – proving that it can navigate the current credit cycle and learn from recent missteps to emerge as a more mature, resilient franchise. If management succeeds in addressing the open questions and rebuilding confidence, there is considerable upside potential in both the business and the stock. However, if challenges persist or further surprises emerge, Blue Owl may continue to trade at a discount and could even face tougher choices regarding its dividend and growth plans. Investors in OWL should stay “OWL Alert,” closely monitoring developments around the class action and the private credit market, as these will heavily influence Blue Owl’s risk-reward profile in the coming quarters (^[8]) (^[4]). The situation remains fluid, but one thing is clear: Blue Owl is entering 2026 with lessons learned and a mandate to regain its footing, making it a story to watch in the alternative asset management space.

Sources: Blue Owl Capital investor filings and press releases; U.S. SEC filings; Reuters and Financial Times reporting; and company statements as cited. (^[3]) (^[4]) (^[2])

Sources

For informational purposes only; not investment advice.