Blue Owl's Stock Slump: Operational Strength vs. Governance Concerns

What happened

Blue Owl Capital's stock has declined approximately 29% over the past year, despite reporting strong Q4 2025 results with AUM reaching $307 billion and fee-related earnings rising over 20% year-over-year. A Seeking Alpha article attributes this sell-off to irrational fears over credit quality and AI disruption, emphasizing OWL's conservative lending practices. However, the DeepValue master report highlights that market skepticism is rooted in real governance issues, such as the failed OBDC II merger and liquidity pressures in retail-oriented funds. Additionally, the report points to risks from OWL's expansion into consumer credit through partnerships with Upstart and SoFi, which could exacerbate losses in a downturn. While OWL trades at a discount to peers on forward earnings, this reflects persistent concerns over its retail business model and emerging credit exposures rather than mere market overreaction.

Implication

OWL's high dividend yield and fee growth are appealing, but the upcoming OBDC II tender program restart in Q1 2026 will test liquidity management and investor confidence. Private wealth fundraising must sustain its momentum to support fee-related earnings, as any decline could signal broader retail appetite issues. Credit performance in OWL's BDC and consumer loan portfolios is crucial; monitoring non-accrual rates and default curves is essential to assess underwriting strength. Deployment of the $28.4 billion in non-fee-paying AUM needs to accelerate to meet growth targets and justify the current valuation. Given the elevated valuation multiples and limited margin of safety, investors should size positions cautiously and focus on upcoming earnings and fundraising data for confirmation.

Thesis delta

The Seeking Alpha article reinforces the view of OWL's operational undervaluation but overlooks the governance and credit risks central to the DeepValue analysis. Therefore, the core thesis remains intact: OWL is a potential buy if it can navigate retail structure challenges and maintain credit discipline, but risks are substantial and warrant close monitoring. No fundamental shift is indicated; instead, the news underscores the divergence between short-term sentiment and long-term structural concerns.