Blue Owl caps private credit redemptions after $5.4bn in requests

Investors in Blue Owl’s multi-billion dollar private credit fund have asked to withdraw around a fifth of their money in another dramatic escalation of jitters across Wall Street and the financial ecosystem.

The asset manager’s flagship $36bn fund saw redemption requests hit 21.9 per cent of outstanding shares in the first quarter, while its tech-focused fund was hammered by requests for 40.7 per cent.

The requests amount to a staggering $5.3bn.

In response to the attempted exodus, Blue Owl launched a cap to limit redemptions at just five per cent for both funds. The cap effectively locks fleeing investors in, in a bid to prevent a liquidity crunch and stop a mass sell-off from depleting the funds’ capital.

“We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio,” Blue Owl said in the shareholder letters.

“As public market dislocations and AI-related uncertainty reshape sentiment, dispersion is increasing across the sector, creating opportunities for experienced lenders to deploy capital selectively at improved terms.”

Private credit industry faces jitters

It comes amid rising anxiety in the trillion-dollar industry following Blackstone allowing investors to redeem a record 7.9 per cent of shares from its fund – the equivalent to around $3.8bn.

The financial giant – which has a whopping $82bn in total assets at its Bcred fund – said it would meet the requests through the firm and its employees stepping in with its own capital to bridge a 0.9 per cent gap.

Investors have become increasingly worried that the software and technology firms that make up a large portion of the industry’s loan portfolios are uniquely vulnerable to being disrupted or replaced by artificial intelligence.

A series of financial bigwigs have weighed in on the booming sector, with Goldman Sachs’ boss through the financial crisis warning this week he “smells” signs of another financial crisis.

Billionaire investment banker Lloyd Blankfein, who served at the helm of Goldman from 2006 until 2018, said: “I don’t feel the storm, but the horses are starting to whinny in the corral.”

The banking veteran specifically criticised private credit lenders for their recent moves to encourage retail access – opening complex investments to everyday savers – at a time when market conditions are becoming increasingly unstable.

In Britain, the private credit market is estimated to have grown by 56 per cent since 2015 to $185bn (£138bn) making it the second largest after the US, according to a recent report by the House of Lords.