Two investors just asked private credit an uncomfortable question: who checks the math when a manager grades its own homework?
On June 18, stockholders Martin Siegel and Thomas Kelly sued Blue Owl Technology Credit Advisors in Manhattan federal court. The target is the firm that runs Blue Owl Technology Finance Corp., or OTF - a publicly traded business development company, a BDC, that lends mostly to software firms.
Their tool is Section 36(b) of the Investment Company Act, a 1970 law that bars fund advisors from charging fees with no real tie to the work they do.
The claim is blunt. According to the complaint, the advisor sets the value of OTF's hard-to-price assets, then gets paid based on those values. The plaintiffs allege the advisor "systematically inflated the value of OTF's assets in order to extract windfall fees." Higher marks mean higher fees. The same firm holds the pen and cashes the check.
The numbers carry the story. The filing says fees jumped 191% in five years, from $95 million in 2021 to $276 million in 2025, while assets grew 134%. The plaintiffs say the fee climb blew past both the asset growth and any added work.
Then there's PIK income - payment-in-kind. A borrower pays interest by adding it to the loan balance instead of paying cash. OTF books the income anyway. The complaint alleges the advisor collects cash fees on that paper income, with no clawback if the cash never lands. PIK interest and dividends hit about $43 million in the first quarter of 2026, roughly 25% of net investment income, and cash earnings didn't cover the dividend, the filing says.
Here's why it matters beyond one firm. The case turns on SEC Rule 2a-5, which lets a board hand valuation duties to the adviser, with oversight. The plaintiffs say the oversight was thin. They allege OTF's five independent directors also sit on five other Blue Owl BDC boards and each drew more than $1 million in 2025 across the complex. That overlap, the complaint says, gave the board "further reason to avoid challenging fee and valuation practices."
The timing is sharp. The filing alleges the advisor took its highest compensation in OTF's history just as the fund stumbled - net asset value per share down 4.8%, and what the complaint calls the largest losses in the fund's history, about $391.2 million, in the first quarter of 2026.
The complaint looks outward, too. It references reporting that prosecutors at the US Attorney's Office for the Southern District of New York were examining valuation practices at a different BDC, BlackRock TCP Capital Corp. BlackRock TCP is not a defendant in this case. The filing also cites a recent SEC enforcement action against another advisor over how it priced loans.
The practice takeaway is about conflict design. The plaintiffs don't say private credit is improper. They say a fee structure built on gross assets and accrued income, with no clawback, pays a manager to keep marks high. However the court rules, it's a prompt to review how valuation and pay interact in the funds you handle.
The plaintiffs want the fees returned and the deal rewritten.
The allegations have not been proven in court.
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