Saba Capital’s Weinstein Calls Private Credit a ‘London Whale-Type Trade,’ Predicts Rising BDC Redemptions
By Damon Elder
Boaz Weinstein, founder and chief investment officer of Saba Capital Management, said in a television interview aired March 23 that he believes private credit vehicles face the conditions for a large-scale investor exit and characterized the sector as a potential “London Whale-type trade,” a reference to the 2012 JP Morgan derivatives loss from which Saba profited.
Speaking on Fox Business Network, Weinstein said that too many investors in non-traded business development companies and similar semi-liquid vehicles want their money back at the same time, and that reflexive selling could accelerate. “There’s a reflexivity using George Soros’s words of the way that selling can beget selling,” Weinstein said. “Marking down the portfolio leads to more selling, which leads to more markdowns.”
Weinstein said private credit has experienced four portfolio company fraud cases and argued that much of the lending in the sector has been to software companies through unitranche structures – first lien in name but without meaningful subordinate capital beneath them. “It’s first lien, the most secure, but it’s also the most unsecure,” he said.
He pointed to Cliffwater, a major private credit fund-of-funds, as having reported 14% redemption requests, and said he expects Blue Owl Capital Corp II’s upcoming redemption figures – expected to be disclosed around March 31 — to be “very high.” “The redemption period is still open and these things feed on themselves,” he said.
Weinstein also invoked “volatility laundering,” a term coined by Cliff Asness of AQR Capital Management, to describe the valuation practices of private credit funds. “You just mark at a hundred and never really change the mark unless traumatic things happen,” Weinstein said. “Well, investors don’t believe it. They want their money back and too many of them want to get out.”
Saba Capital and Cox Capital Partners have filed a third-party tender offer to purchase up to 8 million shares of Blue Owl Capital Corp II at $3.80 per share, which Saba says represents approximately a 35% discount to the fund’s implied value. Blue Owl’s board has formally recommended shareholders reject the offer, calling it inadequate. No competing bid has emerged.
Weinstein said he remains open to a higher bid from any competing party. “If someone has a higher bid, let them show it,” he said.
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