A major private credit investment firm, Blue Owl Capital, has imposed a limit on withdrawals after investors attempted to withdraw $5.4bn from two key funds, marking the latest sign of declining confidence in the unregulated lending market.
The New York-based firm released filings on Thursday revealing a surge in redemption requests, with investors seeking to withdraw 21.9% of the money in Blue Owl's $20bn (£15bn) Credit Income Corp Fund between January and March. Meanwhile, investors requested 40.7% of funds from its $3bn tech lending fund.
This comes amid increasing concerns about potentially risky loans arranged by private credit firms, which lend to companies using investor money outside the traditional regulated banking system and are seen as particularly vulnerable due to the AI spending boom.
However, investors will not be able to retrieve their funds as quickly as they had hoped, with Blue Owl stating it would impose a cap on withdrawals, amounting to 5% of the value of each fund per quarter. “This decision was made in accordance with the fund structure, reflecting our commitment to balancing the interests of both tendering and remaining shareholders,” Blue Owl stated in its letters to investors.
Blue Owl indicated that the withdrawals reflected “a period of heightened negative sentiment toward the asset class,” which it said had “intensified” due to rivals having disclosed details of their own redemption requests.
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But Blue Owl maintained that this spike in withdrawal requests did not indicate any issues related to the loans it issued to clients. “While we believe market perception has driven elevated tender activity, underlying credit fundamentals across our portfolio have remained resilient.”
A spokesperson for the company declined to provide further comments.
There have been rising concerns over potentially weak lending standards in the private credit industry, following a series of company failures involving firms that secured corporate loans in the private market. This includes Tricolor and the US auto parts company First Brands, both of which collapsed last year, as well as Market Financial Solutions (MFS), the mortgage lender that went under in February amid allegations of fraud.
Private credit advocates have portrayed the failures as isolated cases that did not reflect standards across the broader industry. However, others – including JP Morgan chief executive Jamie Dimon – have warned that more “cockroaches” are likely to surface, while the IMF has raised concerns about potential ripple effects that could impact high street banks.
In an interview with Reuters on Wednesday, the governor of the Bank of England, Andrew Bailey, warned against dismissing recent private credit failures as isolated incidents.
“Quite a few people have said to me, it’s fraud, it’s idiosyncratic … don’t read too much into it. Well, that’s a judgment,” he said, adding that a lack of transparency made it difficult to assess overall risks across the sector.
Without transparency, confidence in the wider system could deteriorate. “If you then learn there is a lemon – a failure – you lose confidence in the whole system, because you say ‘there’s more lemons in there than I thought, more weak companies in there than I thought, and I don’t know where they are’” Bailey said, referring to the crisis of confidence that led to the 2008 banking crash.
“I’m not saying it’s going to happen,” he added. “But we’ve had this experience before, so we have to watch for this.”
And although the private credit industry is concentrated in the US, Bailey mentioned there could be spillovers into UK borders due to the interconnected nature of the global financial system.
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