In recent posts (for example, here), we have documented growing problems in the private credit industry. As we have also discussed (most recently here), in many instances these problems have translated into corporate litigation. Among the growing numbers of private credit market-related lawsuit filings has been a series of lawsuits against filed Blue Owl Capital and related entities.

In the latest development in this series, last week a plaintiff investor filed a derivative lawsuit on behalf of one of the Blue Owl funds against the fund’s investment manager and advisor, alleging that he advisor’s conflicted valuations of the fund’s private credit assets resulted in the payment of improper and excessive fees to the advisor. The new lawsuit has several interesting features and suggests the possibility of further litigation in the private credit space. A copy of the June 5, 2026, lawsuit can be found here.

Background

Blue Owl Technology Finance Corp. (OTF) is an investment fund sponsored, controlled, and managed by Blue Owl Capital. Blue Owl Technology Credit Advisors LLC (the Advisor) is OTF’s investment manager and administrator. OTF is primarily focused on making loans to, and making debt and equity investments in, technology-related companies, primarily in the United States.

OTF does not have employees, and services for OTF’s business are provided by employees of the Advisor or its affiliates. According to the complaint, OTF has paid the Advisor hundreds of millions of dollars in fees for acting as OTF’s investment manager.

The plaintiff’s complaint alleges that the Advisor’s management fee is based on OTF’s gross assets and its incentive fee is based on income and capital gains. Both of these fees, the complaint alleges, “incentivize the Advisor to increase the value of OTF’s assets and to keep those assets at an inflated value.”

The problems arise because many of OTF’s investments are, according to the complaint, “illiquid or not freely traded.” OTF’s board of directors has designated the Advisor as OTF’s “valuation designee” – that is, the entity that provides a value for these assets that do not trade on active markets.

The complaint alleges that by designating the Advisor as the valuation designee, OTF’s board “essentially turned over to Defendant the ability to set its own fees.” The complaint alleges that “as could be expected with these incentives,” the Advisor has “inflated the value of OTF’s assets by hundreds of millions of dollars, substantially increasing the fees it received.”

The complaint alleges that there is a further problem with the Advisor’s fee arrangements. The complaint alleges that it is a standard investment industry practice that as a fund’s size grows, the percentage of assets an advisor charges in fees generally diminish. However, in this instance, the complaint alleges, the Advisor has not lowered its fees as OTF has grown. To the contrary the Advisor’s fees have also grown. Indeed, the complaint alleges that the Advisor’s fees have actually grown at a greater rate than the fund itself.

The Lawsuit

On June 5, 2026, an OTF investor filed a shareholder derivative lawsuit in the District of Maryland against the Advisor on behalf of OTF, which is named as nominal defendant.

The complaint alleges that the Advisor’s fees are “so disproportionately large” that they bear “no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.”

The complaint alleges that the defendant Advisor breached its fiduciary duties, and seeks to recover damages resulting from the breaches, including “the amount of the excessive compensation and payments received by Defendant,” pursuant to Section 36(b)(3) of the Investment Company Act of 1940.

Discussion

There are a number of interesting things about this new lawsuit. For starters, the complaint suggests the possibility of a whole new range of potential excessive fee litigation. As readers know, there has in recent years been a plethora of excessive fee litigation in the employee benefit plan space. Indeed, this type of excessive fee litigation has become something of an industry of its own. Could excessive fee litigation become a new area of litigation in the private credit fund manager space? As discussed further below, this latest lawsuit is not the first case involving allegedly excessive private credit industry-related advisory fees. Nor, for reasons discussed below, is it likely to be the last.

But the more important thing about this litigation is its connection to the private credit space. The nub of the alleged problem with the Advisor’s fees here is that the fees depend on the valuation of the private credit assets. As the complaint points out, there is no market mechanism setting the price for these private credit assets (which primarily involve loans and other debt instruments). It is the very murkiness of the valuation of these assets that, allegedly, allowed the Advisor to charge what the complaint characterizes as “improper and excessive fees.”

This aspect – that is, the murkiness of the valuation of private credit assets – has been a significant component of much of the recently filed private credit industry-related litigation.

For example, valuation issues were at the center of the securities class action lawsuit filed in May 2026 against FSS KKR Capital Corp. (as discussed here). Similarly, the complaint in the February 2026 securities class action lawsuit filed in February 2026 against BlackRock TCP Capital Corp. (discussed here) is based on allegations relating to the valuation of the defendants’s private credit assets.

Indeed, private credit asset valuation issues were at the heart of a prior derivative lawsuit filed in April 2026 against a separate Blue Owl-affiliated advisory firm (here), a lawsuit that, like this one, alleged violations of and sought damages under Section 36(b) of the Investment Company Act.

As Sarah Abrams noted in a post on this site discussing the prior lawsuit involving the separate Blue Owl-affiliated advisory firm, private credit portfolios frequently consist of illiquid assets lacking observable market prices, meaning valuations depend heavily on internal models and judgment, an inherent problem that becomes even murkier when valuations depend on structures and relationships between affiliates operating under a common corporate umbrella.

The problem for the private credit industry is that both the murky valuations and the structural issues are not uncommon in the industry. With all the concerns surrounding the private credit industry in general — relating to issues involving liquidity, rights of redemption, and valuations — it seems likely that questions about fees will continue to bubble up. And in some instances, these questions will translate into litigation of the type involved here. At this point, it seems likely that there will be more of this type of litigation to come, as well as other litigation involving the private credit industry generally.

The circumstances involved in this latest lawsuit also suggest additional ways these kinds of structural relationships could lead to further allegations and potential sources of liability. For example, this latest complaint contains allegations concerning the Board of Directors of OTF. The complaint alleges that OTF’s Board, by selecting the Advisor as the “valuation designee,” essentially “turned over to Defendant the ability to set its own fees,” which created an incentive for the Advisor to inflate valuations. Though the complaint raises these claims against OTF’s board, the complaint does not separately assert substantive claims against OTF’s board. But the allegations certainly suggest the possibility of those kinds of claims. Plaintiffs could well allege that boards failed to exercise adequate oversight or failed to manage disclosed conflicts.

And as Sarah Abrams noted in her prior post to which I linked above, the allegations in these asset valuation lawsuits riase could also raise E&O claims against the advisory service providers, as they implicate the advisor’s professional services in valuing and managing portfolio assets, potentially giving rise to claims that valuations were unreasonable, biased, or inconsistent with prevailing credit market conditions.

One final note. Some readers may have noted that late last week the U.S. Supreme Court issued an opinion in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. (here), in which the court held that there is no implied private right of action under Section 47(b) of the Investment Company Act of 1940 (ICA).  Readers may well wonder whether this decision has any relevance to the plaintiff’s recently filed lawsuit, in which the plaintiff seeks to recover damages under Section 36(b) of the ICA. The short answer is that the new Supreme Court decision has no relevance because the private right of action under Section 36(b) is not an implied right of action, it is rather expressly granted in the statute itself.