Geopolitical fragmentation drives new arbitrage opportunities
The guest argued that geopolitical fragmentation and private-market expansion are creating significant price discrepancies, reviving opportunities for arbitrageurs.
The argument
This trend is illustrated by the valuation gap between private Business Development Companies (BDCs) and their publicly traded counterparts, which sometimes trade at a 20% discount. To exploit this, the guest noted that investors can redeem private assets at net asset value and purchase discounted public equivalents.
The thesis, stress-tested
✓ What validates it
- ✓An increase in redemptions at private BDCs like Blue Owl
- ✓Narrowing of the 20% discount on publicly traded BDCs relative to private NAV
▸ Risks discussed
- ▸Redemption gates or limits on private assets
- ▸Arbitrage spreads widening further before closing
- ▸Arbitrageurs taking on excessive proprietary risk to sustain yields
Hear it yourself
"So frequently, these vehicles trade at a discount to net asset value, and that reflects the market clearing price for those for that bundle of assets. The privately traded business development companies, they trade by appointment. The provider acts as the intermediary, and they will trade often on a quarterly basis, but net asset value. And so Blue Isle's got a kind of problem. It's got some, vehicles out there which trade at a discount, some which trade at, net asset value. It saw a big surge in redemption requests for its privately traded business development company, company called Blue Owl Capital Corp two."
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE