Blue Owl’s $1.4 billion problem

Blue Owl is back in the headlines. Shocking, we know.

The alternative asset manager is liquidating $1.4 billion in assets to generate cash for investors sprinting for the exit. Most of the assets come from Blue Owl Capital Corporation II, a semi-liquid private credit fund sold to US retail investors, which is now suspending quarterly redemptions.

It’s the latest bad news for Blue Owl, which scrapped a plan last year to merge a private fund into Blue Owl Capital Corp, a move that could have crystallized investor losses of around 20%—something shareholders couldn’t tolerate.

The retail shift

Private credit has traditionally relied on institutional capital that locks up money for years. That structure matches the long-dated loans these funds originate, and reduces the risk of forced asset sales.

Retail investors, however, expect more liquidity, and their presence in private credit markets is growing. Research from Duke’s Fuqua School of Business shows institutional ownership of business development companies (BDCs) falling to roughly 25% by 2023, signaling a steady shift toward individual investors that has only continued over the last few years as private funds try to entice public money.

Bubble watch

That’s partly why private credit has swelled into a roughly $3 trillion global market. Years of ultra-low rates, tight spreads, and minimal defaults pushed investors steadily further out on the risk curve.

But that backdrop is starting to shift as demand slows. Fitch reports semi-liquid BDC inflows are down about 15% in recent months, while redemption requests have surged, with investors seeking nearly $3 billion in Q4 alone—a 200% increase from the prior quarter.

Markets are taking notice. Blue Owl Capital sank another 4.8% today, extending its slide from the prior session, and continuing to drag down peers like Apollo Global Management and Blackstone.

But the ripple effects stretch beyond asset managers, as buyers of Blue Owl’s loan portfolio include major pension funds and its own insurance arm. Analysts caution that as more assets migrate between funds and insurance vehicles, tracking risk across the non-bank financial system becomes more complex.

So yeah, Blue Owl is back in the headlines for all the wrong reasons. And somehow, this story still feels unfinished. See you at the next update.—SY