Black and Blue Owl

One thing to start: Engie has agreed to buy UK Power Networks, Britain’s biggest electricity distribution company, for £10.5bn, as the French utility expands its role in supplying power to households and businesses.

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Blue Owl faces its biggest test

A few years ago billionaire dealmaker Michael Rees floated a bold plan among the highest ranks of the private capital universe.

His pitch, “Project Rushmore”, was to form a Blackstone-esque private capital giant by merging credit investor HPS, infrastructure investor Stonepeak, and private equity groups including Vista Equity Partners and HIG Capital.

Some, given the opportunity to be memorialised on private equity’s Mount Rushmore, rejected the concept, believing such a multi-headed firm would lead to clashes of culture.

As evidence, they pointed to the tensions among top executives at Rees’s own firm: Blue Owl.

The New York-based juggernaut is one of private capital’s biggest growth stories, but its recent stumbles are sending shockwaves through the industry, DD’s Eric Platt and Antoine Gara report in a deep dive.

Unlike many large Wall Street private capital firms that trace their lineage to the 1980s, Blue Owl is just five years old.

It was formed by its own merger of two private capital groups. One was Owl Rock, a credit investment shop specialising in business development companies, co-founded by Doug Ostrover, Craig Packer and Marc Lipschultz. The other was Rees’s Dyal Capital, which pioneered buying minority equity stakes in private capital firms.

Blue Owl has been one of the main beneficiaries of the boom in private lending that followed the 2008 financial crisis as banks retreated. Its assets have surged more than sixfold since 2021, surpassing $300bn and turning its co-founders into billionaires.

Column chart of Assets under management, by strategy ($bn) showing Blue Owl: a giant in private markets

But the lender, known on Wall Street as one of the largest financiers to novel software takeovers and large data centre projects, has recently run into challenges.

Shares in Blue Owl have shed about half their value over the past year and now sit barely above its IPO price.

The slide began last year as investors grew nervous about private credit returns, continuing over the summer amid concerns about potential “cockroaches” — bad loans in credit markets.

Then late last year, a Blue Owl retail fund called OBDC II saw a sudden increase in redemption requests.

To handle the demand for liquidity without gating or winding down the fund, Blue Owl in November attempted to merge it with another of its larger publicly traded funds. But Blue Owl abandoned the merger after the FT detailed how the combination risked haircutting investors’ holdings.

Blue Owl had said it would resume redemption features, used by investors to exit at the fund’s stated value, in the first quarter of 2026.

But last week the firm announced it was permanently halting redemptions from OBDC II and began liquidating the fund. It sold a broad slice of $600mn in OBDC II’s higher-quality loans at 99.8 per cent of their face value, and disclosed a plan to distribute up to 30 per cent of the fund’s net assets to investors.

Many analysts cheered the news as a validation of the fund’s marks. But the block on redemptions stoked broader industry fears over retail investors’ growing uneasiness about private credit.

Line chart of Share prices rebased showing The rise and retreat of the biggest private investment groups

Rivals have been watching the events at Blue Owl closely, hoping that its troubles won’t infect their funds.

One entity buying OBDC II’s loans was a collateralised loan obligation called Loantaka, which is a region of New Jersey once populated by the Lenape tribe.

The CLO, managed by Blue Owl, according to public documents, was purchased by insurer Kuvare, which is affiliated with the firm given Blue Owl acquired its asset manager in 2024 and gave it $250mn in “financial capital support” through a preferred equity investment.

Loantaka translates to “place of cold winter” — a fitting description of the firm’s recent challenges.

How Deutsche Bank managed its prized Epstein account

Caterpillar Trust. Butterfly Trust. Comfort Corporation.

These are just three entities in the sprawling nexus through which Deutsche Bank sent millions of dollars on behalf of Jeffrey Epstein.

Deutsche has long acknowledged its mistake in taking on Epstein as a client in 2013, after he’d registered as a sex offender, and then managing his millions over a half decade during which he allegedly ran a vast trafficking operation.

But a new FT report, based on tens of thousands of documents released by the US Department of Justice, paints a vivid picture of how Germany’s largest lender rolled out the red carpet for the serial sex abuser.

It features familiar characters, from Leon Black to Andrew Mountbatten-Windsor. The details of how the financier’s relationship bankers downplayed alarming compliance alerts also makes for sobering reading.

Deutsche wired thousands of dollars to Comfort Corporation after being told it was covering someone’s “intensive Chinese” classes. The bank later told prosecutors the funds had been sent to a Russian model, just one payment in nearly $875,000 sent to “ostensible foreign models” on behalf of Epstein.

Deutsche, meanwhile, rushed through opening a new account for the Caterpillar Trust — even though one of its own trustees was unclear on its purpose.

The now-notorious Butterfly Trust was a source of regular compliance alerts, including a 2014 warning that Ghislaine Maxwell — a beneficiary of the trust — was an alleged “co-conspirator in Epstein’s illegal activities”. Bankers were unmoved.

But in 2018 the same trust was crucial to Deutsche’s decision to finally call time on its relationship with Epstein.

A senior risk manager noted a Daily Mail article documenting a “steady stream” of models going in and out of Epstein’s New York townhouse, several of whom were beneficiaries of the trust. She asked bluntly: “What do they do for Jeffrey Epstein?”

It was clearly a question even Deutsche’s pliable bankers could find no good answer to.

Kirkland gets caught in the Drahi-creditor crossfire

How powerful is the Apollo/Ares/BlackRock/Oaktree creditor bloc at Patrick Drahi’s Optimum Communications?

Apparently powerful enough to bully the world’s biggest law firm into submission, as Optimum just alleged in a blockbuster lawsuit that the FT has been closely following.

DD readers will recall that Optimum, formerly called Altice USA, sued a group of its creditors in November. It alleged they had formed an “illegal cartel” with an agreement that prevented any bondholder or lender from individually negotiating a balance-sheet restructuring with teetering Optimum.

Some big dominoes have fallen since the suit was filed.

Earlier this year Kirkland & Ellis resigned as transaction counsel to Optimum under pressure from its private capital clients — some of whom also happened to be defendants in the “illegal cartel” lawsuit. Shortly thereafter, Kirkland’s star debt finance lawyer David Nemecek — who was perceived as the architect of the lawsuit, though he was not formally involved — took his talents to rival Simpson Thacher & Bartlett.

For Optimum, all the drama was reason enough to amend their original lawsuit. On Wednesday, the company refiled its complaint, citing the Kirkland shuffling as further evidence of an antitrust conspiracy among the buyside.

“Indeed, Kirkland’s withdrawal sent shockwaves through the Leveraged-Finance Market, signaling to other debtors that they could no longer count on Kirkland to stand up to creditor threats . . . if not even the world’s richest law firm can withstand the Cooperative’s threats, leveraged debtors like Optimum stand little chance,” Optimum’s lawyers at Kellogg Hansen wrote.

The creditor group, represented by Sullivan & Cromwell, are seeking to get the suit quickly dismissed, citing what they say are the pro-competition benefits of creditor solidarity.

The Kirkland machinations have already transfixed Big Law. Now, the messy details could be coming to federal court.

Job moves

JPMorgan Chase’s healthcare investment banking team has hired Roy Wouters as co-head of Emea and John Arbuckle as co-head of North America biopharma M&A alongside Andy Ham. Wouters and Arbuckle both previously worked at Bank of America. JPMorgan has also named James Mitford a vice-chair of investment banking.

Simpson Thacher has hired John Anselmi as a banking and credit partner in New York. He joins from Sullivan & Cromwell.

Deutsche Bank has hired Christopher Fincken as a managing director, UK investment banking. He was most recently a managing director at HSBC.

Covington has hired John Fisher and Tomas Rua as M&A partners in Palo Alto and New York, respectively. Both join from Freshfields.

Smart reads

Beating the market An economist put his nearly $350,000 in savings into prediction market bets against the so-called Department of Government Efficiency’s ability to lower government spending, The Wall Street Journal reports. Well-played: he made a 37 per cent profit.

Dying business Kinderhook’s hospice deal this week has the private equity group wading into sensitive territory, Lex writes, not to mention the challenge of finding growth in the indebted, struggling company.

Tell-all In a new memoir, former Goldman chief Lloyd Blankfein gives an inside look at the bank as he steered it through the financial crisis and beyond. But his account of a chummy and highly ethical institution is a little bit too rosy, FT columnist John Gapper writes in a review.

News round-up

EG Group to sell French forecourts to billionaire co-founder Zuber Issa (FT)

Elliott assures UK over future of LSE (FT)

Revolut wins FCA backing for stablecoin testing despite licence limbo (FT)

Diageo slides after new chief slashes dividend and signals price cuts (FT)

HSBC shares hit record as bank accelerates cost savings and lifts target (FT)

Kalshi fines former gubernatorial candidate, MrBeast employee (WSJ)

Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, Alexandra Heal and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard, Kaye Wiggins, Oliver Barnes, Tabby Kinder and Julia Rock in New York, George Hammond in San Francisco and Arjun Neil Alim in Hong Kong. Please send feedback to due.diligence@ft.com