SharePoint Update Group Owner only accepts users as Owners
KBS100168
PRODUCTIssue
When you attempt to execute the Update Group method for the SharePoint Group SmartObject, you cannot specify a group as the Owner property.Symptoms
When you attempt to execute the Update Group method for the SharePoint Group SmartObject, and you specify a group as the Owner property, the method fails with an error like:
"The specified user [Group Name] could not be found".
This error can occur whether you provide a group name, principal ID or group FQN.