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Until recently, the name Blue Owl Capital was synonymous with Wall Street and the booming private equity business, a lightly regulated financial space where non-banks lend to risky companies. Recently, its name has included the weakness of the $1.8 trillion industry.
Blue Owl has shed 40% of its market value this year, and its stock (OWL) sank again on Thursday after it revealed a sharp increase in requests from investors who want to withdraw their money, forcing the firm to withdraw funds. Blue Owl said in a statement that it has received bids for 41% of its $6 billion technology-focused fund (up from 15.4% in the previous quarter) and 22% of its $36 billion fund (up from just 5%). The lender honors only a fraction of those requests, paying 5% from each fund.
Shares of Blue Owl fell 9% early Thursday before recovering to end the day down 1.5%. Shares of other major players in private equity, such as Apollo Global and Ares Management, also fell.
Blue Owl executives said in investor letters seen by CNN on Thursday that they believe “market sentiment” has led to more redemption requests but stressed that “credit fundamentals across our portfolio remain strong.” They also cited “strong market concerns about AI-related disruption.”
A spokeswoman for Blue Owl declined to comment beyond the shareholder letter.
Major private equity lenders have reported a similar rush of redemption requests from investors, and many have responded with similar copies of redemption requests.
Supporters of private debt see the sudden exodus as a sign of growing pains rather than systemic weakness. Investors have flocked to the private equity markets in large numbers in recent years, lured by the promise of higher returns than they could earn in the public bond market.
But the concerns of investors about this sector did not just appear, and the nature of the recent financial markets means that confusion in one corner can quickly spread to others.
Private credit has been around for decades, but has gone from a small niche asset class to a $2 trillion behemoth after the 2008 financial crisis, when traditional banks were forced to tighten lending standards.
“When you see a certain part of the financial sector come out of nowhere and grow rapidly, that’s a sign that there’s probably increasing risk,” said Itay Goldstein, professor of finance at the University of Pennsylvania’s Wharton School.
That rapid growth combined with the industry’s lack of visibility — private lending targets, as the name suggests, not public — has long made the sector a concern for policymakers and academics, Goldstein says.
Concerns rose on Wall Street this fall with the collapse of First Brands and Tricolor, both of which had significant private equity funding.
At the same time, concerns that artificial intelligence could end up torpedoing software companies have fueled concerns about private equity, which has played a strong role in mid-market technology companies. While many fund managers have sought to reduce the department’s exposure to software, the Wall Street Journal reported this week that the four largest funds, including Blue Owl, have more use of software than public offerings.
Blue Owl’s Credit Income Corp. fund, for example, said 11.6% of its portfolio was made up of loans to software and services companies at the end of the fourth quarter. But the Journal’s own analysis found that the use of fund software was about 21%.
The risk to everyday consumers may not be immediate, but it is not zero. Major US banks that offer consumer loans also work with private lenders. If banks are hit with large losses due to exposure to private debt, they will likely tighten credit across the board, making it harder for businesses and consumers to borrow.
“We shouldn’t underestimate what the impact of these small problems can be, because once the uncertainty starts, and you don’t know for sure which bank is holding what, then there is a kind of general panic that takes over the financial system,” Goldstein said.
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