A shareholder class action filed in New York alleges that Blue Owl Technology Finance Corp. misrepresented the value of its investment portfolio in the months leading up to its $4.3 billion merger with a sister fund. The complaint, initially filed in state court on October 5, 2026, and later moved to the U.S. District Court for the Southern District of New York, targets the accuracy of offering materials used to secure shareholder approval for the deal.
The lawsuit names Blue Owl Capital Inc. and several current and former officers and directors as defendants. It claims violations of the Securities Act of 1933, focusing on alleged omissions and untrue statements in the paperwork, rather than fraud. The merger, completed on March 24, 2025, involved the issuance of over 250 million new shares, with former shareholders of the acquired fund receiving 0.9113 shares of the surviving company for each share held.
Blue Owl Technology Finance Corp. is a business development company (BDC) that lends directly to mid-sized software and technology firms. At the time of the merger, neither fund was publicly traded; the surviving entity began trading on the New York Stock Exchange under the ticker “OTF” on June 12, 2025.
Valuation methodology under scrutiny
The core allegation is that the company's pricing of its portfolio violated ASC 820, the accounting standard that requires fair-value estimates based on what a reasonable buyer would pay. As of December 31, 2024, the company held investments valued at approximately $6.4 billion, with 94.4% of assets classified as Level 3 as of December 31, 2023, meaning their values were internally estimated rather than market-observable.
The complaint argues that the company ignored two significant risks that eroded asset values. First, the federal funds rate surged from 0.08% in March 2022 to 5.33% by July 2023, a jump of over five percentage points. With approximately 95.9% of loans carrying floating rates as of September 30, 2024, the higher rates increased borrowing costs for the company's highly leveraged portfolio companies, raising default risk. Despite this, the company allegedly continued to carry many software loans at or near par value.
Second, the complaint points to AI disruption. By 2024, AI-powered competitors were flooding the software market, AI coding tools were reducing startup development costs, and enterprise customers were using AI agents to cut software subscriptions. The offering materials touted “highly recurring and predictable revenue” for portfolio companies, but the company allegedly failed to incorporate these threats into its valuations.
Two loans illustrate the alleged overvaluation
The complaint highlights two specific investments. One is a loan to Acquia Inc., a mid-sized SaaS company acquired via a roughly $1 billion leveraged buyout in 2019. The company carried the loan at exactly face value across multiple periods: $152.1 million as of December 31, 2021 and 2022, and $176.5 million as of December 31, 2023 and September 30, 2024, despite rising borrower costs and AI-related pressure on mid-sized SaaS firms.
The other is a loan to Pluralsight Inc., an IT learning platform. The complaint describes a rapid decline: from approximately $154.3 million (96.8% of face value) in December 2023 to $133.2 million by March 2024, and $75 million by June 2024. By August 2024, Pluralsight could not service its $1.5 billion debt, underwent a restructuring that eliminated its private equity sponsor's stake, and cut debt by roughly $1.3 billion.
Disclosure and conflict-of-interest claims
The complaint also alleges that the offering materials failed to meet SEC disclosure requirements, particularly regarding known risks and trends. The risk factor disclosures are described as “wholly inadequate” and “generalized and vague.” Additionally, the company's external advisor, an affiliate of Blue Owl Capital, was responsible for valuing the portfolio while earning management fees tied to those values, creating a structural conflict that was not adequately disclosed.
Since listing, shares have traded as low as $9.57, roughly 44% below the reported per-share net asset value of $17.06 at the time of the merger and 44.2% below the opening price of $17.15. The case adds to a growing list of legal challenges facing BDCs, as similar allegations of valuation misconduct have emerged elsewhere. For advisors, the case underscores the importance of scrutinizing private asset valuations in client portfolios, especially as demand for private assets grows.
