Blue Owl Anxiety Rattles $1.8 Trillion Private Credit Market

Worry in the private credit market continued Monday after Blue Owl last week permanently closed one of its tech-focused funds — preventing investors from withdrawing their cash every three months as they’d previously been allowed. The firm began selling assets to return investor capital. It’s the latest sign of tumult in a $1.8 trillion market stricken with worry about overspending on artificial intelligence, the technology’s disruptive power and lending standards more broadly. And it’s evoking comparisons to the run-up to the 2008 financial crisis. Bloomberg News Senior Editor for Credit James Crombie joins Bloomberg Businessweek Daily to discuss. He speaks with Carol Massar and Emily Graffeo. Blue Owl Capital Inc.’s co-chief reeled off all the times he'd seen this type of fear before. Covid. Silicon Valley Bank's collapse. Liberation Day.

Marc Lipschultz was addressing analysts on the 11th straight day of losses for the firm’s shares, the worst streak since Blue Owl went public almost five years ago. Just weeks earlier, investors yanked more than 15% of net assets from one of the money manager’s tech-focused funds.

But as Lipschultz saw it, this was par for the course when markets get jittery. Some clients in private credit funds like theirs ask for their cash back in times like these. The firm was handling this latest bout of worry just as it had in the past.

It appears different now. Blue Owl last week permanently shut the gates on one of those funds — preventing investors from withdrawing their cash every three months as they’d previously been allowed — and began selling assets to return investor capital.

It’s the latest sign of tumult in a $1.8 trillion market stricken with worry about overspending on artificial intelligence, the technology’s disruptive power and lending standards more broadly. And it’s evoking comparisons to the run-up to the 2008 financial crisis.

“The red flags we are seeing in private credit today are strikingly familiar to those of 2007,” said Orlando Gemes, chief investment officer of Fourier Asset Management. He pointed to worsening lender protections and convoluted liquidity terms that “obscure the mismatch between what investors believe they own and what they can actually exit.”

Investors reacted fast. Shares of Blue Owl tumbled as much as 10% on Thursday and triggered a broad decline in the stocks of money managers with fingers in the private credit pie. Ares Management Corp., Blackstone Inc. and Apollo Global Management Inc. were among those dragged down. Blue Owl's shares have now plunged about 60% in the past 13 months, even as the firm's revenue continued to climb in that period. That a move to limit withdrawals from a $1.6 billion fund drove a $2.4 billion drop in Blue Owl's market value shows shareholders' skittishness. Investors in the fund, known as OBDC II, have been gated for months as the firm pursued and then abandoned a plan to merge it with another of its vehicles. Blue Owl is now selling roughly one-third of OBDC II's loans and handing 30% of investors' money back to them, a move the firm says is accelerating, not slowing, the overall return of capital. When redemptions were allowed, Blue Owl had the option to limit withdrawals every quarter to 5% of net assets to prevent any forced selling.

“Instead of resuming a five percent a quarter tender, where only tendering investors get a small portion of their capital back, we are returning six times as much capital and returning it to all shareholders over the next 45 days,” the firm said in an emailed statement.

Since Blue Owl agreed to return 30% of investors’ capital in the fund the vehicle shouldn’t be deemed gated, Bank of America Corp. analysts led by Craig Siegenthaler said in a note Monday. They added that Blue Owl was also forced to call off the previous plan to return cash through a merger because of “misinformation.” At the time, the attempted merger could have forced some investors to incur losses of about 20%.

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