Blue Owl’s private credit fund U-turn

One scoop to start: Gordon Singer, the London-based co-managing partner of US hedge fund Elliott Management, unsuccessfully attempted to donate to Robert Jenrick during his failed run for the UK Conservative party leadership last November. 

And another thing: Lloyd’s of London has hired lawyers to investigate potential failings in its governance around the appointment of an executive under its previous boss, John Neal.

And one great listen: There has been a wild and hectic series of M&A deals in the pharmaceuticals industry. DD’s James Fontanella-Khan joined the Unhedged podcast to talk about the frenzy.

In today’s newsletter: 

• Blue Owl faces a private credit test

• David Ellison’s inside track for Warner Brothers 

• Private equity’s UK pharma headache

Blue Owl backtracks on a controversial fund merger

On Sunday, the FT brought to light a niche but controversial fund merger filtering through the private credit world. 

DD’s Antoine Gara examined Blue Owl’s efforts to combine its inaugural private credit fund targeting individual retail investors with a publicly traded credit fund and highlighted a few concerns. 

Mainly, investors in the $1bn retail fund, called Blue Owl Capital Corporation II, were being asked to exchange their investments in a manner that would leave them with a 20 per cent loss given the trading price of the acquiring credit fund, OBDC. 

Secondarily, Blue Owl Capital Corporation II had decided to block investors from redeeming their money in advance of the merger, in effect “gating” the fund.

After more than a few eyebrows were raised in the ensuing days, Blue Owl decided on Wednesday to abandon the fund merger and consider new options for its Blue Owl Capital Corporation II fund.

The abandoned deal will be an interesting test case for the private credit world, which has seen its assets surge due to a flood of new money coming into private funds designed specifically for individual investors. 

Such wealthy investors — think retired financiers, dentists and local property barons — have poured hundreds of billions of dollars into private credit funds over the past decade. Their enthusiasm has also convinced the $13tn private capital industry that ordinary retirees could soon invest trillions of dollars into private markets.

But these funds remain largely untested from panics such as the 2008 financial crisis, recessions, a credit cycle or even a prolonged market pullback. 

In those scenarios, the FT has questioned whether investors (and their advisers) have fully understood the risks they have taken in pouring cash into funds that exchange limited liquidity rights for the ability to invest in illiquid but presumably higher returning investments. 

They will also challenge the private capital giants that have staked their growth on this market. Already, many, such as Blackstone and Starwood Capital, have faced big tests. 

Blackstone this year stabilised its flagship retail property fund after a multiyear crisis stemming from fears over property valuations. Starwood’s fund, which almost fully gated after the FT’s reporting in 2024, continues to significantly restrict its investors from pulling their cash.

Now Blue Owl, one of the fastest-growing private capital firms and a dominant lender to technology and artificial intelligence companies, faces its own scrutiny, albeit for a fund that is a small fraction of its total assets.

Its Blue Owl Capital Corporation II fund had already seen redemption rates climb in the third quarter, the FT reported. 

While the fund will remain closed to redemptions through 2025, Blue Owl said on Wednesday investors would again be able to pull cash beginning in the first quarter of 2026. 

Warner Bros Discovery: Ellison’s to Lose 

Is the third time the charm? That’s what Warner Bros Discovery investors and employees are asking as the storied company behind HBO and CNN is put up for sale for the third time in less than a decade.

Paramount, Netflix and Comcast are firing their opening shots today in what is expected to be a bidding war for WBD that could cross $100bn and radically reshape Hollywood.

Team DD has been tracking this race closely and the man to watch, David Ellison.

The son of Oracle founder Larry Ellison earlier this year acquired Paramount and has put himself in pole position to buy WBD, the FT reports. The 42-year-old has vast financial firepower — family wealth, potential equity from Gulf investors and debt capacity from private capital giant Apollo — and enjoys the sort of Trump-era political tailwinds that increasingly matter for big M&A.

The elder Ellison is a longtime Donald Trump ally, and people watching the auction say the US president would welcome seeing Paramount-owned CBS and WBD-owned CNN combined in friendlier hands. That’s especially true now that anti-woke crusader Bari Weiss runs CBS News.

Paramount has also hired Makan Delrahim, Trump’s former antitrust chief, as its chief legal officer. Delrahim once tried to block AT&T’s takeover of Time Warner, the former parent of Warner Bros, adding a layer of irony to this latest round of media consolidation.

Ellison’s rivals are formidable but face clear obstacles.

Comcast, owner of NBCUniversal, is run by Brian Roberts, an executive Trump recently labelled “a disgrace to the integrity of broadcasting”. The feud dates back to NBC dropping Trump’s show The Apprentice a decade ago. Given Trump’s fondness for vendettas, Comcast’s odds look bleak.

Netflix has the cash to compete but has never done a mega-deal and would face steep antitrust resistance if the world’s dominant streamer moved to absorb HBO. Internally, Netflix’s leadership is also divided, particularly over what to do with WBD’s large linear portfolio.

The battle is expected to run for at least a month with plenty of back-and-forth. But for now, most people involved in the negotiations view the contest as Paramount’s to lose.

The pharma groups stressing Europe’s PE firms

Earlier this month DD’s Alexandra Heal and Ivan Levingston revealed a decade-old buyout had come back to haunt one of Europe’s most reliable private equity firm’s, Cinven.

Now a European peer, Triton Partners, is having its own issues at a seemingly unconnected UK pharma investment, as investors in its debt wince at poor performance, accounting issues and rapid C-suite turnover.

But the two deals have a counterparty in common: Both firms bought their portfolio businesses from Essex-based brothers Vijay and Bhikhu Patel.

Cinven’s ownership of Advanz, a group it formed in 2013 by merging Mercury Pharma and Amdipharm Group, has caused it all sorts of trouble. The PE firm agreed to buy a majority stake in Amdipharm from the Patel brothers in 2012.

Years after partner Supraj Rajagopalan described Cinven’s 2015 sale of the Advanz as “one of the most successful deals we’ve ever done”, a court has upheld the Competition and Markets Authority’s findings that Advanz had price-gouged the NHS.

The ruling previously resulted in a £52mn fine for Cinven, and now regulators may apply to court to have Rajagopalan barred from running UK companies.

Triton bought its Basildon-based portfolio company Pharmanovia (formerly known as Atnahs) from the Patel brothers in 2019. It also racked up the prices of numerous drugs that it sold on to the NHS, although it has never been accused of wrongdoing.

With five chief financial officers and three chief executives (excluding interim) in five years, eight accounting adjustments in its latest accounts, and a new auditor that has told it to write down the value of its intangible assets by 45 per cent, investors have been selling out of Pharmanovia’s debt rapidly.

Job moves

• Lawrence Summers has stepped down from the board of OpenAI following the release of emails between the former US Treasury secretary and the late sex offender Jeffrey Epstein.

• Severn Trent chief executive Liv Garfield is stepping down after 11 years in the role. James Jesic, a senior executive at the company, will become CEO in January.

• Skadden has hired Vince DiMascio as chief digital and information officer. He joins the firm from PwC.

• Latham & Watkins has hired Jeremy Kenley as a partner in the firm’s real estate practice in London. He joins from Gibson Dunn.

Smart reads

Team of rivals As he feared he was losing his grip on power, the late UK billionaire Mike Lynch feuded with a rising star at one of his companies, journalist Katie Prescott writes in an excerpt from her new book on the tech magnate.

Pay-to-play Private equity-owned skating rinks are blocking parents from filming their own kids’ ice hockey games, The Lever reports, forcing them to instead pay a steep price for exclusive recording and streaming services. Now, a US senator — and outraged parent — is crying foul.

High stakes It’s a boom year for activist investors, which are on track for more public campaigns this year than any in the past decade, Lex writes. Companies, especially in the UK, beware.

News round-up

Elon Musk’s xAI nears $230bn valuation in fundraising deal (FT)

Saudi Arabia leads $900mn funding round in Luma AI as US ties deepen (FT)

Nokia splits AI business into separate unit after $1bn Nvidia investment (FT)

Accounting group BDO to fuse national firms (FT)

Santander exposure to First Brands and its founder rises to around $300mn (WSJ)

Abbott nears deal for cancer test maker Exact Sciences (Bloomberg)