Blue Owl Slams Brakes on Redemptions at Two Funds as Private Credit Worries Mount

Thursday delivered a “Troubled Trifecta” of high oil, falling stocks and a gated exit. 

Alternative asset manager Blue Owl said two of its private credit funds had been slammed with elevated redemption requests totaling $5.4 billion, forcing it to cap withdrawals. The blame, the firm said, rests with a wave of misplaced investor anxiety.

Who Gives a Hoot (Jittery Investors Do)

The $1.8 trillion private credit industry has been under intense scrutiny amid a string of failures by companies that secured loans on the less-regulated market. Last year, there were subprime auto lender Tricolor and auto parts company First Brands, and in February, there was mortgage lender Market Financial Solutions. Some have argued these are isolated cases that don’t reflect the broader sector, but a parade of prominent Wall Street voices, led by JPMorgan’s Jamie Dimon, have warned that more “cockroaches” are out there.

Adding to the pressure are fears that private credit has too much exposure to the software industry, where firms are getting squeezed by doomsday hypotheses of AI rendering their services as passé as a Blackberry keyboard. According to an iCapital analysis of SEC filings, the average software exposure of business development companies, widely considered a publicly traded proxy for the private credit market, is 15% to 20%. As a result, jittery investors have begun yanking their cash at levels that have overwhelmed fund managers. This has compelled firms including Apollo, Ares, BlackRock and KKR to limit redemptions in recent weeks. On Thursday, Blue Owl revealed in an SEC disclosure that two of its key funds were the latest to cap investor payouts:

• Investors asked to yank 21.9% from Blue Owl’s $36 billion Credit Income Corp. fund between January and March and a gargantuan 40.7% from its $6.2 billion tech-focused Blue Owl Technology Income Corp fund. Insisting there’s a “meaningful disconnect” between market sentiment and the funds’ performance, the firm said it would fulfill only 5% of the requests.
• Blue Owl suggested the redemption caps disclosed by its peers in recent weeks have intensified the anxiety over private credit, creating a “heightened negative sentiment toward the asset class.” Furthermore, the firm justified the redemption cap by insisting investor fears are misplaced because the “underlying credit fundamentals across our portfolio have remained resilient.”

More Than This: It’s not just massive redemption requests that are weighing on private credit. Using regulatory filings, Bloomberg calculated last week that Blue Owl’s Credit Income Corp. fund fell 0.86% in February, while noting that BlackRock’s HPS Investment Partners reported its HPS Corporate Lending Fund fell 0.3%. That proved the worst performance for both since 2022.