Private equity credit trust crisis continues to spread! Funds under Blue Owl face massive redemptions

The U.S. private credit industry’s trust crisis continues to spread, with Blue Owl Capital sending a letter to shareholders on Thursday local time, saying that two of its private credit funds are facing a surge in redemption requests.

Blue Owl said that its flagship fund OCIC (with assets under management of about $36 billion) received redemption requests totaling about 21.9% of the issued shares in the first quarter; for OTIC, a smaller fund focused on the technology sector, the redemption request ratio was as high as 40.7% over the same period.

For these two funds, Blue Owl has chosen to set an actual redemption cap of 5%. The company attributed the unusually high increase in redemption requests to “growing market worries that artificial intelligence (AI) may disrupt software companies.”

Such large-scale redemptions are dangerous for an asset manager like Blue Owl, because the core driver of its share price will be affected. This would make it harder for the company to attract new investors and weaken the confidence of stock investors who prefer growth.

In its letter to shareholders, Blue Owl said: “We continue to observe that there is a clear disconnect between market sentiment and the fundamentals of our investment portfolio.”

On Thursday’s early trading session, Blue Owl’s stock price fell sharply, with its peers’ shares also weakening in tandem before later rebounding to some extent. As of now, the stock’s cumulative decline this year is more than 40%.

Over the past year, as several high-profile default events have occurred, high-net-worth investors who had hoped to receive stable, high-yield distributions through private credit funds have been gradually exiting this asset class.

In recent months, volatility in the private credit industry has intensified further, driven by market concerns that the industry has too much exposure to the software sector, which is itself facing disruption from artificial intelligence.

According to data from Jefferies, in business development companies, the software sector accounts for about 20% of portfolio exposure. Negative news about default risk in this area has prompted a small number of—but well-capitalized—institutional investors to seek to exit these funds.

Blue Owl has two such non-listed private credit funds, which is relatively uncommon among its peers, and its redemption data disclosures have also been comparatively lagging. The company’s current redemption ratio is clearly higher than the peer level.

Most institutions choose to execute the 5% redemption cap, but some companies, including Cliffwater and Blackstone, allow for slightly higher redemption ratios.

Looking back, Blue Owl’s OTIC technology fund received 17% redemption requests in the fourth quarter and has fully paid them out; the OCIC fund’s redemption requests in that quarter were 5%.

Previously, hedge funds Saba and Cox made offers to the holders of the locked-up shares in these two funds, but the bids were offered at a significant discount to net asset value.

Blue Owl said that in the most recent quarter, redemption demand for its technology funds was amplified, mainly because the investor base has become more concentrated—especially concentrated in certain wealth management channels and regions. As for the flagship fund, the company said that redemptions mainly came from “a small group of investors,” with about 90% of investors not choosing to redeem.

（Source: Caixin/Lianhetech）