Blue Owl Capital’s share price slump deepened on Friday, as investors digested news from earlier this week that the alternative asset manager planned to restrict redemptions from one of its funds, raising fears of wider systemic risks.
The New York-based firm’s shares fell by nearly 5% on Friday, extending the previous session’s slide, which saw its shares drop by nearly 6%, Reuters reported. The company’s stock has now lost more than half its value over the past 12 months.
Other private credit companies’ stocks tumbled too, as investors were spooked by the possibility of a wider issue in the US$3.5-trillion private-lending market.
Blue Owl announced on Wednesday that it was selling US$1.4 billion in assets from three private credit funds to pay down debt and return capital to investors. It also said it was changing the way investors could withdraw their money from one of the funds.
Specifically, the firm said it was selling debt investment commitments of US$600 million from Blue Owl Capital Corp. II (OBDC II), US$400 million from Blue Owl Technology Income Corp., and US$400 million from Blue Owl Capital Corp.
Blue Owl said it entered into separate agreements with four North American institutional investors to sell the funds’ assets at 99.7% of face value. The buyers include its own insurance firm, Chicago-based insurer Kuvare, and three pension funds, the California Public Employees’ Retirement System, Ontario Municipal Employees Retirement System and British Columbia Investment Management Corp., Bloomberg reported.
The debt it’s selling spans 128 distinct portfolio companies across 27 industries, with the largest concentration being in the internet software and services sector.
It said proceeds from the sale of assets would help it pay down debt.
The firm also intends to use the proceeds from the sale of OBDC II assets to return 30% of the fund’s net asset value to shareholders, subject to board approval. Moving forward, Blue Owl said it will decide how much the fund, which is marketed to retail investors, pays investors — instead of letting them ask to withdraw a set amount of their capital each quarter.
The announcement stoked fears of wider systemic risks and reignited the debate around liquidity in private markets.
On Thursday, economist Mohamed El-Erian questioned on social media whether this pointed to a “‘canary-in-the-coalmine’ moment, similar to August 2007?”
The former CEO of PIMCO added: “There’s also the ‘elephant in the room’ question regarding much larger systemic risks (nowhere near the magnitude of those which fueled the 2008 Global Financial Crisis, but a significant — and necessary — valuation hit is looming for specific assets).”
But in an earnings call Thursday, Blue Owl’s CEO, Craig William Packer, said it would manage the OBDC II fund in a way that benefits investors.
He also called media reports referring to this as a case of yet another private-market fund halting redemptions “a complete mischaracterization.”
Instead, Packer framed it as Blue Owl “accelerating redemptions,” with investors of OBDC II set to receive “30% of their capital at book value in the next 45 days,” which is six times the amount of capital in cash at book value they would’ve received before the change.
“So, we are not halting redemptions,” he said. “We are simply changing the method by which we are providing redemptions.”
The changes also come at a time of elevated fears about valuations in the technology sector, particularly in companies participating in the AI race. Private-credit firms, including Blue Owl, KKR & Co. Inc. and Apollo Global Management, Inc., which are major lenders to the tech sector, have experienced volatility as a result.