Blue Owl Capital shares experienced a significant downturn following the decision to restrict withdrawals from one of its private credit funds, sparking renewed concerns about underlying risks in the substantial $US1.8 trillion private credit market. Shares of the alternative asset manager plummeted approximately 10 per cent on Thursday, reaching their lowest level in two and a half years. Blue Owl Capital is a New York-based firm that manages alternative assets, providing investment solutions across credit, real estate, and GP capital solutions. The company aims to partner with leading organisations to deliver capital and generate consistent returns.
The New York-based firm announced on Wednesday that investors in Blue Owl Capital Corp II, known as OBDC II, would no longer be able to redeem shares quarterly. The fund will now return capital through periodic distributions funded by loan repayments, asset sales, or other transactions. To address investor liquidity, the firm stated it had sold approximately $US1.4 billion in direct-lending investments across three funds.
This move underscores the potential risks for retail investors venturing into the rapidly expanding private credit market. While investors typically have the option to redeem a portion of their capital each quarter, payouts can be limited if withdrawal requests surpass established thresholds. The news has also revived concerns within the industry, which has faced increased scrutiny recently regarding market valuations and the quality of lending to firms with substantial debt and limited operating history.
The repercussions extended beyond Blue Owl, as shares of competing alternative asset managers, including Ares Management, Apollo Global Management, Blackstone, KKR, and TPG, also declined. Mohamed El-Erian, former chief executive officer at Pacific Investment Management Co, has raised concerns that the news could signal a looming crisis for the private credit sector.
