The crisis affecting the private credit segment in the United States continues to intensify. And one of the leading names in the sector is suffering from a significant increase in the number of redemptions in its two main funds in the first quarter.
This refers to Blue Owl Capital , which experienced redemptions of around US$4.5 billion, according to calculations by the Financial Times (FT) , based on information released by the asset manager on Thursday, April 2nd.
In the first three months of the year, redemption requests in its technology-focused fund, known as Blue Owl Technology Income Corp, surged to 40.7% of the fund's $3 billion value.
Meanwhile, withdrawal requests from the company's main direct lending fund, the $20 billion Blue Owl Credit Income Corp, reached 21.9% of the fund's value. In both vehicles, Blue Owl limited redemptions to 5%.
The news sent Blue Owl's shares tumbling, falling more than 5% at the start of trading in New York. Around 11:52 AM, the shares were down 1.15%, at US$8.61.
After registering strong growth in recent years, reaching over US$1 trillion in assets, the private credit market is shaken by a combination of low interest rates, increased defaults, and excessive lending to software companies in the age of artificial intelligence (AI), resulting in a sharp correction in multiples.
The situation is weighing heavily on asset managers, who are having to deal with the reversal of investor optimism, especially among retail investors. Blue Owl's situation is emblematic. At the end of February, the firm, with approximately US$307 billion under management, suspended withdrawals of funds aimed at retail investors from another fund.
Blue Owl is not alone. KKR announced on Wednesday, April 1st, that it has limited redemptions from one of its over-the-counter funds, following similar measures adopted by competitors such as Ares Management , Apollo Global , and BlackRock 's HPS Investment Partners.
These firms also recorded accounting write-downs due to delays, at a time when investor appetite is also affected by interest rate cuts promoted by the Federal Reserve (Fed, the American central bank), causing a revision in the market value of portfolios.
The problems in the American private credit market are most evident especially in BDCs, vehicles that work with small and medium-sized enterprises and are widely distributed to retail investors and high-net-worth individuals.
These funds came into focus following the bankruptcy of vehicle financing company Tricolor Holdings and auto parts supplier First Brands Group, companies that had been taking out many loans, in September of last year.
The negative sentiment was exacerbated by the high exposure of BDCs to the software segment , around 20%, according to Jefferies estimates.
With many investors seeking an exit strategy, there are concerns that capital outflows will exceed inflows, resulting in a cash flow imbalance.
A survey by investment bank RA Stranger shows that new investments in BDCs fell 40% between December and January, to US$3.2 billion. In the fourth quarter, the funds were largely able to meet redemption requests with incoming resources, limiting the need to resort to other sources to pay outgoing investors.
Amid the concerns, Blue Owl co-chairman Craig Packer sought to reassure investors, highlighting that the current situation is more related to perception than fundamentals.
“Although we believe market perception has driven the increase in withdrawal requests, the underlying credit fundamentals across our portfolio have remained resilient,” he said, according to the FT . “We continue to observe a significant disconnect between public discourse on private credit and underlying trends in our portfolio.”
