Saba Capital’s Tender Offers Price Shares Lower Than Expected, Impacting Investor Returns

Imagine trying to sell your baseball cards, but most buyers only want them if you’ll take much less than they’re worth. That’s kind of what’s happening with some big investment funds right now, and it could mean big changes for investors.

What’s Going On?

Recently, Saba Capital Management—a hedge fund—offered to buy shares from people stuck in certain investment funds, like Blue Owl Capital Corporation II and Starwood Real Estate Income Trust. These are called non-traded funds, which means you can’t just sell your shares anytime you want like you can on the stock market.

Saba said they’d buy these shares, but only if investors agreed to sell at a big discount—up to 35% less than what the shares were supposed to be worth. Not many people took the offer. Most investors decided they’d rather wait than take a big loss.

Why Does This Matter for Investors?

This is important because lots of regular people have money in these private funds. If you can’t get your money out when you need it, or have to take a big loss to do it, that’s a problem. It’s a bit like having your money locked in a piggy bank with no key.

In the first quarter of this year, investors tried to pull $5.4 billion out of two other Blue Owl funds, but the company only let them take out a small portion—capping withdrawals at 5% of the total fund. This shows that even big funds can get squeezed when lots of people want their money back at once.

Bullish Side: Reasons to Be Positive

• Funds are still paying out—slowly: Even if you can’t get all your money out now, these funds are trying to return some cash by selling their assets.
• Big players are stepping up: After Saba’s move, Starwood’s CEO promised to put more money into the fund to help meet investor requests. That’s a sign leaders are watching out for their investors.
• Long-term potential: Private credit has grown a lot. According to Preqin, private debt assets have more than doubled globally since 2015, showing strong demand and growth.

Bearish Side: Reasons to Be Cautious

• Liquidity crunch: It’s tough to get your money out quickly. If lots of people want out at once, funds may freeze withdrawals or force investors to sell at a loss.
• Discounted sales hurt returns: Selling at a 35% discount means big losses for investors who need cash fast.
• Possible stress ahead: Saba says the real trouble may not come until 2027 or 2028, as more investors want liquidity and credit risks pile up.
• Market is huge and vulnerable: Hundreds of billions are in these kinds of funds, and most don’t let investors sell easily. If the market gets shaky, lots of people could get stuck.

Historical Context & Credibility

History shows that when investors can’t get their money out, stress builds up. For example, during the 2008 financial crisis, some funds froze redemptions, leaving investors stranded. According to a SEC report, liquidity problems in funds can lead to bigger shocks in the market. Today’s situation is smaller, but it’s a reminder that liquidity matters.

Investor Takeaway

• Check your fund’s liquidity rules: Before investing, know how and when you can get your money out.
• Don’t chase high yields blindly: Private funds can offer higher returns, but there’s a trade-off—you might get stuck if things go south.
• Diversify your investments: Don’t put all your eggs in one basket, especially in funds that limit withdrawals.
• Stay alert for market changes: Watch for news about redemption limits or discounts—they can signal trouble ahead.
• Plan for the long term: If you invest in non-traded funds, be ready to keep your money tied up longer than you think.

For the full original report, see CNBC