Monthly insights: Heron’s response to the Blue Owl private credit events (February 2026)
Recent turmoil at Blue Owl has put private credit back in the headlines, but the real story for investors isn't the one most outlets are telling.
Monthly Insights #11, February 2026
In this issue:
- Blue Owl's challenges — and why Heron is different
- Private markets: Understanding the past and looking to the future
- Fund facts: Heron's Aggressive private credit strategy delivers 11.2% annualized returns after fees*
- Quote of the month: Warren Buffett on risk
Get a diversified private markets portfolio built for market volatility.
When headlines miss the point: What's really happening with Blue Owl
The recent events with Blue Owl reiterate what we’ve been saying for the past year:
Manager selection and diversification aren't just talking points — they're the difference between 3.7% and 9.5% returns — and just as important, 4.2% and 0.5% default rates.
Let’s break down the situation…
Recent headlines surrounding Blue Owl have focused on two developments:
- The liquidation of approximately $1.4 billion of direct lending investments by Blue Owl Capital Corp II (OBDC II) and two other Blue Owl funds.
- A decision by OBDC II to suspend its scheduled quarterly repurchase program and instead return capital to investors in episodic payments as fund assets are sold.
While these events have drawn attention, a key point often overlooked in the headlines is that certain Blue Owl funds had already been experiencing fundamental credit challenges for some time. We view these issues as largely idiosyncratic — rather than indicative of systemic stress across the broader private credit market.
The numbers tell the story
OBDC II reported a total return of 3.7% over the past 12 months. This result materially lags broader private credit benchmarks — and the Heron Private Credit program.
Importantly, OBDC II significantly underperforms relative to the average private credit fund on Heron across several key credit risk metrics:
Data as of 9/30/2025 and Q3 2025. Defaults based on non-accruals at cost, as percentage of total investment portfolio. First lien loan valuation based on fair market value divided by cost. Underperformance based on underlying fund managers’ assessment of investment assets, shown in terms of underperforming assets divided by total assets based on fair market value. PIK income based on payment-in-kind interest income (i.e., interest not actually paid in cash) divided by total investment income. Average data based on mean.
Across every metric — defaults, loan valuations, underperformance, PIK income, and total returns — OBDC II trails meaningfully. And Heron has no exposure to OBDC II.
Why this reinforces our approach
Events like this reinforce why manager selection and diversification matter.
Heron's Private Credit program today provides exposure to approximately 4,000 senior secured loans across a diversified group of highly experienced credit managers — each with multi-decade track records through multiple credit cycles.
Since our inception in 2024, Heron's focus remains unchanged:
We aim to build custom portfolios of high-quality assets with broad diversification across fund managers and industry sectors.
When you look at OBDC II's elevated PIK levels (6.0% vs. 3.1% for Heron funds) and non-accrual rates (4.2% vs. 0.5%), the underperformance isn't a surprise — it's the logical consequence of weaker credit underwriting. This is precisely the type of risk that Heron's rigorous fund selection process is designed to avoid.
For more data on how Heron’s private credit strategies have performed against the industry, take a look at these two past articles:
- How Heron Finance’s private credit strategy performed against industry peers
- What you need to know about private credit BDCs (Heron vs BDCs)
As always, thanks for reading,
Heron Chief Credit Officer
From the Heron Blog
Heron fund facts
Fact: Heron's Aggressive private credit strategy has delivered an 11.2% annualized return after fees since inception — while maintaining a 0.5% default rate across the loans in the portfolio.*
Why that matters: Strong returns don't have to come with elevated credit risk. Heron's approach — broad diversification across experienced fund managers and thousands of senior secured loans across industry sectors and market segments — has produced top-tier returns while keeping defaults and credit stress well below industry averages. See our full performance data.
Quote of the month
"Risk comes from not knowing what you're doing."
– Warren Buffet
Get a diversified private markets portfolio built for market volatility.
*Represents the annualized return of Heron's Aggressive private credit strategy after Heron's 1% management fee, since inception through the last month of completed data. Return represents overall performance, including interest earned and net changes in principal. This is intended for informational purposes only and does not guarantee future performance or results. Investments in private credit funds are subject to market risks, including the potential loss of principal.
