Blue Owl Credit Income Corp.
S
Blue Owl
09/09/23
$5.87B
$7.5B
Core
New York, NY
Non-Accredited
$2.27B
Maryland Corporation
Private Credit
April 2020
$25,000
8.84%
6.21%
N/A
N/A
Monthly
12.5%
1.25% of NAV
Permanent Capital
Blue Owl Credit Advisors LLC
Blue Owl Securities LLC
KPMG LLP
Eversheds Sutherland (US) LLP and Alston & Bird LLP
Strategy
Blue Owl Credit Income Corp. (OCIC), formerly known as Owl Rock Core Income Corp. (ORCIC), is a private credit strategy that seeks to generate risk-adjusted current income and to a lesser extent, long-term capital appreciation. OCIC focuses primarily on direct lending to middle-market companies in the US, including senior secured loans. Blue Owl defines middle-market companies as companies with EBITDA between $10M - $250M on an annual basis and/or annual revenue of $50M - $2.5Bn at the time of investment. They aim for each position to comprise 1-2% of the portfolio. With that stated, this is a very diversified fund, and it has investments in 228 companies. Ninety of these companies are private equity backed companies.
Blue Owl takes a defensive and income-orientated approach that considers the potential long-term credit performance of companies. Principal protection is a fundamental ideology of the fund, it only invests in companies with low loan-to-value (LTV) ratios which are LTVs below 50%. Blue Owl performs a multi-stage selection process for each investment (each loan they lend out) and then continues to monitor each investment. With active portfolio monitoring, they are always on the lookout for any credit deterioration.
OCIC’s structure allows it to offer monthly closes (periods where investors may contribute to the fund). Similar to a bond fund, this private credit fund also offers monthly distributions. Despite the monthly closes and distributions, this fund should not be considered liquid. Liquidity is only offered to investors on a quarterly basis of up to 5%.
Style
| Value | Core | Growth | |
| Large | |||
| Mid | |||
| Small |
Fit Check
The OCIC Fund is available to non-accredited investors.The investor requirements for Blue Owl include either a $70,000 gross annual income and $70,000 net worth subject to additional state standards, or a $250,000 net worth.
The Fund is only appropriate for investors that do not require liquidity and are able to tolerate a high degree of risk. Investors should not expect to sell shares on any exchange and only through the Fund's quarterly repurchase program, which is not guaranteed. While there is no lock-up period, there is an early repurchase fee of 2% for shares repurchased within 1 year.
Portfolio Snapshot
As of July 31, 2023
Assets
Geography
End Market
Score Breakdown
BULLS SAY
Attractive distribution rate: Fund provides monthly income and a healthy 8.8% annualized distribution rate.
High quality portfolio: The majority of the portfolio consists of floating rate debt which benefits investors in inflationary and rising rate environments. The Fund consists of directly originated, senior secured loans that should help deliver stable risk-adjusted returns.
Focus on downside protection: The diversified nature of this portfolio helps reduce overall risk within the fund, softening the impact of potential defaults.
BEARS SAY
High fees: The fund has high upfront and annual fees for Class S shares. The performance fee and hurdle rates are not investor friendly but may help improve alignment of interest with investors.
Illiquidity: This is an illiquid fund. While it may be considered more liquid than most private credit funds, these shares are only available for repurchase on a quarterly basis. Quarterly repurchases are not guaranteed by the fund.
Short track record: While performance has been relatively stable since inception (April 2020), the lack of a material track record makes it hard to determine skill and how the manager adds value over a full market cycle.
Fees
|
Fees & Expenses |
Class S |
Class D |
Class I |
|
Minimum initial investment |
$25,000 |
$25,000 |
$1,000,000 |
|
Availability |
Through participating broker-dealers and, RIA’s. |
Through participating broker-dealers and, RIA’s. |
Through participating broker-dealers and, RIA’s. |
|
Up to 3.50% |
Up to 1.50% |
None |
|
|
1.25% |
1.25% |
1.25% |
|
|
0.85% |
0.25% |
None |
|
|
6.40% |
6.40% |
6.40% |
|
|
0.28% |
0.28% |
0.28% |
|
|
Total Annual Expenses |
8.78% |
8.18% |
7.93% |
To help you compare the cost of investing in the Fund with the cost of investing in other funds, we have provided an example of the projected dollar amount of total expenses that would be incurred over various periods with respect to a hypothetical investment in the minimum amount required for each class of the Fund’s Common Shares.
-
In calculating the projections above, we made a few assumptions:
(1) A hypothetical 5.0% annual return, as required by regulation of the SEC and applicable to all registered investment companies. The assumed return is not a prediction of, and does not represent, the projected or actual performance of the Fund. Performance will vary and may result in a return greater or less than 5.0%
(2) Annual operating expenses and offering expenses remain at the levels set forth in the Price Tag table above. They should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.
(3) Net return after payment of fees and expenses is distributed to shareholders and reinvested at NAV.
Managers
-
Industry Experience 30+ years.
Career highlights Co-founded Blue Owl, an industry-leading alternative asset manager and lender with about $140 billion assets under management. Previously, Mr. Ostrover co-founded GSO Capital Partners (GSO), Blackstone’s alternative credit platform and served as a Senior Managing Director at Blackstone for a decade.
Education B.A. in Economics from University of Pennsylvania and M.B.A. from New York University Stern School of Business.
-
Industry Experience 30+ years.
Career highlights Co-founded and co-presides Blue Owl. Prior to founding Owl Rock, Mr. Lipschultz held various leadership roles in private equity, infrastructure and direct asset-investing at KKR, and in M&A at Goldman Sachs.
Education B.A. from Stanford University and M.B.A from Harvard Business School
-
Industry Experience 30+ years.
Career highlights Co-founded Owl Rock in 2016, after leading the Leveraged Finance and High Yield Capital Markets divisions at Goldman Sachs for 10 years. Prior to joining Goldman Sachs, Mr. Packer was Global Head of High Yield Capital Markets at Credit Suisse for 6 years.
Education B.Sc. University of Virginia and M.B.A. from Harvard Business School
Full Review
BELOW AVERAGE
The Fund has high fees. Class S shareholders may be charged a sales load up to 3.5% of the transaction price. This means that if you invest $100 in OCIC, only $96.50 will be invested. Along with that, all share classes are charged a 1.25% annual management fee and class S is charged an additional 0.85% annual servicing fee on net assets. High upfront and ongoing fees may be a cause for concern when evaluating alignment of interests with investors.
There are two layers of performance (incentive) fees paid, one for net investment income and one for capital gains. The performance fee on investment income equals 100% of income between 1.25% - 1.43% and 12.50% of returns greater than the 1.43% upper level breakpoint. This means that once the income from the fund has surpassed the upper level breakpoint of 1.43% in a quarter, Blue Owl collects 12.5% of every dollar from income paid above the 5% annual hurdle rate. A hurdle rate refers to the minimum rate of return that investors expect to receive before the fund manager can start earning a share of the profits. No performance fee is charged before the initial 5% return in a year (investors keep 100% of the first 5% of all investment income in a year or 100% of the first 1.25% in a quarter). Depicted in the graph below, there is also a catch-up fee. When the net investment income is between 1.25% quarterly preferred return and the 1.43% upper level breakpoint per quarter, the investment manager collects 100% of investment income. This is not a shareholder friendly fee structure. With a catch-up fee, the fund manager receives a larger share of profits.
Entities affiliated with or related to the Adviser, together with investment professionals and other employees, have committed $25M to OCIC. Additionally, Blue Owl seeded OCIC with a $50M promissory note through Owl Rock Feeder FIC LLC, an affiliate of the Adviser. The promissory note was subsequently upsized to $250M as of 3/31/22. This is a loan from Blue Owl to OCIC which is funded by partner capital. As of 6/22/22 the promissory note has been terminated.
AVERAGE
| Total Net Returns (as of July 31, 2023) | Distribution Rate | ||||
| 1-YEAR | 3-YEAR | 5-YEAR | INCEPTION TO DATE | ANNUALIZED DISTRIBUTION PER NAV | |
| Class S | 8.81% | – | – | 6.21% | 8.84% |
The Blue Owl Credit Income Corp. has performed average since its inception, delivering a 6.21% return (April 22, 2020). It does have a relatively high distribution rate of nearly 9% for Class S shares.
It is important to note that the Class S performance includes a 3.5% sales load fee. After one year, if the distribution rate remains the same, or even increases, the nominal performance numbers should start to increase over time as the sales load is a one-time fee.
As of March 31, 2023, virtually 100% of the debt investments were performing loans. This includes $10 billion of performing loans and only $3.7 million as non-accrual debt or only 0.03% of investments were non-performing. A loan is considered non-performing when the borrower has failed to make scheduled interest or principal payments for a specific period.
AVERAGE
This fund has several risk factors that investors should consider before making an investment.
Market Risk – This credit fund has a below average amount of market risk. Performance going forward may be affected by inflation risk. Higher than average inflation in the US is likely to continue in the near to medium-term. US short term interest rates may remain volatile in the near-term. Distribution payouts will be affected by interest rate volatility which has been elevated for the past year.
Business Risk – The business risk for OCIC is considered low. OCIC is part of Blue Owl’s credit platform which focuses on direct lending. Blue Owl (NYSE: OWL) is an established firm and market leader in direct lending with a proven track record and over $71 billion of AUM. Blue Owl has multiple direct lending credit funds. Blue Owl is a scaled direct lender with the ability to commit to deals as large as $1B. While we could not source the default rate for this fund, this fund is extremely large and well diversified. Even if low to moderate default rates increase, with the higher interest rates, they have low risk given their size and diversification. While Blue Owl has been around for decades, investors should keep in mind that OCIC is a new fund.
OCIC does use leverage to make investments. Their target leverage ratio is 0.9x – 1.25x. As of the end of May 2023, OCIC’s debt-to-equity ratio was 0.95x. This is in line with their target ratio and on the lower end of it. This fund uses leverage to make more loans which can create possible issues for the fund if portfolio companies default. The debt risk is average since the fund is so highly diversified.
Liquidity Risk – With monthly distributions, this offering may be appealing for investors looking for regular and stable income. The Fund is meant to be a long-term investment and investors need to take this into consideration before investing in the fund. Investors need to understand that this is an illiquid fund with quarterly 5% repurchases as the only available liquidity events. These quarterly repurchases are not guaranteed and could potentially be gated, however, Blue Owl has never gated any share repurchases.
The fund does not intend to list its shares on any exchange and does not expect a secondary market in its shares to develop. Investors may be unable to reduce their exposure in any market downturn. If investors are able to sell their shares before a liquidity event, if any, is completed, they will likely receive less than their purchase price. This all gives OCIC a below average rating for liquidity risk.
HIGH
The amount of transparency that Blue Owl offers for its funds, including OCIC, is high. Their prospectus, fact sheet, key terms, and other materials were all available on the website and were easy to find. All of their information is updated regularly on their website.
Also, all their materials have been updated with the latest name changes which just went into effect this past June. Contacting Blue Owl’s sales team was not difficult at all.
Peer Group
 |
 |
 |
|
|---|---|---|---|
| Vehicle name | Blue Owl Credit Income Corp. (Class S) |
Blackstone Private Credit Fund (Class S) |
Apollo Debt Solutions BDC (Class S) |
| Minimum investment | $25,000 | $2,500 | $2,500 |
| Holding period | Permanent capital | Permanent capital | Permanent capital |
| Annual management fee | 1.25% | 1.25% | 1.25% |
| Distribution and Servicing Fee | 0.85% | 0.85% | 0.85% |
| Sales Load | Up to 3.5% | Up to 3.5% | Up to 3.5% |
| Inception Date | April 22, 2020 | Jan. 7, 2021 | July 1, 2022 |
| 1-Year Net Returns (With Upfront Placement Fee) | 8.81% | 5.50% | 8.30% |
| Net Returns Since Inception (Annualized) (With Upfront Placement Fee) | 6.21% | 6.90% | 2.94% |
| Annualized Distribution Rate | 8.8% | 9.70% | 7.99% |
| NOYACK® Score | - |
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