Overview
Blue Owl’s largest publicly traded private credit fund is moving to lower its exposure to software assets, executives said, citing unease over the way artificial intelligence developments are affecting valuations in the sector. Management reported the fund’s share of software-related holdings dropped to 16% from 19% during the first quarter.
How the reduction occurred
The decrease in software weighting was driven "naturally" by loan repayments, according to Craig Packer, the fund’s chief executive, who discussed the change with analysts on a conference call. Packer added that the firm plans to remain cautious on software and, as additional loans mature and are repaid, will likely continue reducing that exposure.
Software strategy across Blue Owl funds
While the largest private credit vehicle is trimming its software holdings, a smaller Blue Owl fund specifically established to target software, Blue Owl Technology Finance Corp, will maintain its focus on the sector. That fund’s president, Erik Bissonnette, said on a separate call that the bar for new investments has risen.
"As we evaluate opportunities against a rapidly evolving AI landscape, we are increasingly selective, continuing to pass on legacy models," Bissonnette said, indicating a preference for deals that fit a changing technological backdrop.
Market context and investor sentiment
Private equity and credit firms invested heavily in enterprise software during and following the COVID-19 pandemic. More recently, investors have grown uneasy about the high valuations some software companies command, a trend managers cited as contributing to heightened selectivity.
Fund performance, markdowns and dividends
Executives said volatility in publicly traded loan markets has put downward pressure on fund asset values. OBDC marked down its assets by 2.7% to $14.41 per share in the first quarter and trimmed its dividend to $0.31 per share from $0.36. OTF reduced its valuation by 4.8% to $16.49 per share.
Packer noted the environment made it harder to deliver earnings because both interest rates and risk premiums had fallen, though he said borrower performance remained stable and he anticipated growing demand for direct lending.
Share buybacks and stock moves
In the first quarter the two funds, OBDC and OTF, repurchased a combined $85 million of their own shares. Market moves reflected the pressures on the sector: OBDC’s shares were down 2.4% on the day of reporting and were down 7.7% year to date, while OTF’s shares fell 5.5% on the day and were down about 23.5% on the year.
Broader implications
Blue Owl’s decision to pare software exposure reflects wider reassessments among private credit and private equity managers about valuations and the pace of technological change. Management’s comments emphasize selectivity toward new software investments and a willingness to let repayments reduce exposure over time rather than pursue new deals aggressively in the category.
Key details repeated
- Software weighting in the largest public private credit fund fell to 16% from 19% in Q1.
- OBDC cut asset values by 2.7% to $14.41 per share and reduced its dividend to $0.31 from $0.36.
- OTF lowered its valuation by 4.8% to $16.49 per share.
- OBDC and OTF repurchased $85 million of stock combined in Q1.
- Executives said borrower performance remained stable despite the tougher earnings environment.
Note: All figures and quotations are as provided by the fund’s executives and reflect the most recent reporting discussed on the calls.