A shareholder of Blue Owl Capital Corporation (OBDC) has filed a lawsuit against the business development company's investment adviser, Blue Owl Credit Advisors LLC, alleging that the firm collected $414.4 million in fees last year by systematically overvaluing its private credit portfolio. The complaint, lodged April 27 in the U.S. District Court for the Southern District of New York, contends that the adviser breached its fiduciary duty under Section 36(b) of the Investment Company Act of 1940 by charging fees so disproportionate to services rendered that they could not have resulted from arm's-length bargaining.
The suit, brought by Richard Delman on behalf of OBDC, zeroes in on the fee structure. In 2025, OBDC paid $252 million in management fees and $162.4 million in incentive fees, a 47% increase over five years, while the fund's portfolio grew only 30%—from $13.3 billion to $17.2 billion. The plaintiff argues that the fee surge was not matched by any corresponding rise in services or costs incurred by the adviser.
Central to the case is the valuation of OBDC's assets, which are predominantly Level 3 holdings—illiquid securities that lack public market prices. Because the adviser itself determines these marks, Delman alleges a built-in conflict: higher valuations directly inflate the fee base. The filing notes that OBDC shares have traded at a discount of 20% or more to net asset value since at least November 2025, which the plaintiff says signals market skepticism about the adviser's marks.
The complaint cites external analysis from Glendon Capital Management, a $5 billion asset manager, which found that OBDC valued $235 million in junior preferred stock and second-lien debt in Cornerstone OnDemand, Inc. at roughly 90 cents on the dollar at year-end 2025, while the company's most senior debt tranche recently traded at just 78 cents. Similar discrepancies are alleged in loans to Barracuda, Peraton Corp., and Conair Holdings.
Delman also targets payment-in-kind (PIK) interest, which OBDC began recording in the second quarter of 2024. Roughly $26 million of the 2025 management fee was tied to PIK income, and the advisory agreement lacks a clawback provision, meaning the adviser is not required to return those fees even if the PIK interest later proves uncollectible. The filing notes that about half of the 43 publicly traded BDCs it analyzed include such clawback clauses.
The suit further questions OBDC's reported 11.1% exposure to "Internet Software & Services," arguing the real figure is likely 20% to 30% once companies categorized under other labels are included. This matters, the filing says, because Morgan Stanley analysts project above-average default rates of 8% for private credit loans to software companies between the second half of 2026 and the first half of 2027.
Delman seeks damages, disgorgement of fees, a clawback of incentive fees on deferred income not ultimately realized, and rescission of the advisory agreement. A jury trial has been demanded. Blue Owl Credit Advisors has not yet responded to the complaint, and no court ruling has been issued.
The case highlights ongoing scrutiny of private credit valuations, particularly as private markets have swelled to $18 trillion, prompting calls for regulatory overhaul. Separately, LP appetite for private credit has dipped to 29% amid fears of zombie funds, according to a Coller survey.
