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Shares of the biggest private investment managers on Wall Street tumbled on Thursday after Blue Owl permanently restricted investors from exiting a debt fund for retail investors, sending shivers through the industry.
The sell-off is the latest to rock the fast-growing private credit market, which has drawn in hundreds of billions of dollars of investor capital in recent years and minted new power players on Wall Street.
Ares Management, Apollo Global Management, KKR, Blackstone, TPG all closed lower on Thursday, in a sign that investors were recalibrating expectations of profitability for the fast-growing private credit business. Shares of Blue Owl, which announced its restriction on Wednesday, dropped by almost 6 per cent.
The fund that halted investor redemptions, known as Blue Owl Capital Corp II, called off a merger last year with a larger publicly traded credit fund managed by Blue Owl. That deal had drawn critical investor attention after the FT reported that investors in the fund faced losses of 20 per cent based on the acquiring fund’s trading price at the time.
Private investment groups have been buffeted by mounting pressures in recent months, including an uptick in redemption requests at many of their flagship credit funds.
News that a BlackRock private credit fund had slashed the value of some of its investment holdings last month, as well as concerns that AI could threaten the business models of many of the companies private credit firms had lent to, has stymied investor enthusiasm for the industry.
Mohamed El-Erian, the former chief executive of bond giant Pimco, questioned whether Blue Owl’s move could further erode investor confidence in credit vehicles. The industry’s so-called redemption features allow investors to pull their money at regular quarterly intervals, meaning that funds holding relatively hard-to-sell loans are vulnerable to changes in investor confidence.
Many large credit funds have already seen investors begin pulling money at greater levels, the FT has reported, signalling mounting concern. Blue Owl has seen significant net redemptions at its Blue Owl Capital Corp II vehicle and a separate “Technology Income” fund. However, most credit funds continue to draw net new assets.
“Is this a ‘canary-in-the-coal mine’ moment?” El-Erian asked in a post on X.
While El-Erian warned a “significant — and necessary — valuation hit is looming for specific assets”, analysts covering Blue Owl were less concerned.
Blue Owl’s decision to end redemptions at its OBDC II fund came as it sold off $600mn of its assets, or about a third of the fund, to new buyers near their par value and distributed the cash to fund investors. The asset sale was part of a broader divestiture in which Blue Owl sold $1.4bn in total loans at 99.7 per cent of their stated value.
Analysts covering Blue Owl took those asset sales as a sign of confidence in the values of its loan portfolio.
“As the loans were purchased at fair value/marks of 99.7, we see the news as reinforcing the quality of marks across the OWL platform and perhaps reassuring investors that there are no ‘cockroaches’ lurking in the portfolio,” said William Katz, an analyst at TD Cowen, in a client note.
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