Boaz Weinstein warns of private credit's “financial alchemy,” says problems are multiplying by the quarter

• Saba and Cox Capital launched a tender offer for 6.9% of Blue Owl Capital Corp. II, which had halted quarterly redemptions and sold $1.4 billion in assets to provide liquidity
• Weinstein identifies Cliffwater as a firm to 'watch most closely,' predicting redemption rates between 10-20% due to its fund-of-funds structure limiting control over fulfilling redemptions
• Despite criticism, Weinstein bought shares in Apollo and Ares, viewing major private credit managers as long-term winners while shorting public credit through derivatives

Market Summary: Weinstein Warns on Private Credit Liquidity Crisis

Key Developments

Boaz Weinstein, founder of Saba Capital Management, warns that problems in private credit are "multiplying by the quarter," citing what he calls "financial alchemy of promising liquidity that isn't there." His firm, alongside Cox Capital Management, launched a tender offer to purchase 6.9% of Blue Owl Capital Corp. II at a discount.

Critical Market Data

• Blue Owl Capital Corp. II halted quarterly redemptions and sold $1.4 billion in direct lending investments to provide liquidity
• Private wealth flows tracked by Jefferies declined 19% in Q1 compared to Q4
• Redemption requests are exceeding the typical 5% quarterly cap across multiple nontraded private credit funds
• Weinstein predicts Cliffwater's upcoming redemption rate could reach 10-20%

Companies in Focus

Blue Owl Capital: Multiple funds facing redemption pressure; Saba/Cox launching tender offers for stakes

Cliffwater: Described as operating a "turducken" model (fund-of-funds structure with 31% exposed to other funds), identified as most concerning by Weinstein. Expected to announce redemption rates imminently.

Other managers: Weinstein disclosed long positions in Ares, Apollo, and KKR stocks, viewing them as potential winners when volatility subsides.

Market Implications

Weinstein is shorting public credit through credit default swaps, arguing it's "incredibly mispriced" while private credit trades at pessimistic levels. He suggests gating of private credit funds will force investors to sell liquid assets, pressuring broader markets. Despite criticism, Weinstein clarified he's bullish on major private credit managers and sees future distressed opportunities as "one of the best opportunities" of his career when the economy slows.