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

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

Blue Owl said its flagship fund, OCIC (with roughly $36 billion in assets under management), received redemption requests accounting for about 21.9% of the issued shares in the first quarter; the smaller OTIC fund, which focuses on the technology sector, saw redemption requests as high as 40.7% over the same period.

For these two funds, Blue Owl opted to cap the actual redemption ratio at 5%. The company attributed the abnormal increase in redemption requests to “growing concerns in the market that artificial intelligence (AI) may disrupt software companies.”

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

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, Blue Owl’s stock price fell sharply, and its peers’ shares moved lower in tandem before recovering somewhat. As of now, the stock’s cumulative decline for the year-to-date has exceeded 40%.

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

In recent months, volatility in the private credit industry has been intensifying, as market concerns have grown that the industry is overexposed to the software sector—while the software sector is facing disruption from artificial intelligence.

According to Jefferies data, 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 but well-capitalized group of institutional investors to seek exits from these funds.

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

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

Looking back, Blue Owl’s OTIC technology fund received 17% redemption requests in the fourth quarter and settled them all; for the OCIC fund, redemption requests that quarter were 5%.

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

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

（Source: Caixin Finance Network）