A major private credit investment firm, Blue Owl Capital, has imposed a cap on withdrawals after investors tried to pull $5.4bn from two key funds, in the latest sign of crumbling confidence in the unregulated lending market.
The New York-headquartered firm released filings on Thursday that showed a surge in redemption requests, with investors asking to take back 21.9% of the cash stored 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.
It comes amid growing jitters over 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 exposed to the AI spending boom.
However, investors will not be able to retrieve their funds as quickly as hoped, with Blue Owl saying it would be imposing a cap on withdrawals, equal 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 said in its letters to investors.
Blue Owl said the withdrawals reflected “a period of heightened negative sentiment toward the asset class,” which it said had “intensified” due to rivals having published details of their own redemption requests.
But Blue Owl insisted that this surge in withdrawal requests did not reflect any problems in relation 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 comment further.
There have been growing concerns over potentially weak lending standards in the private credit industry, after a string of company failures featuring firms that secured corporate loans in the private market. That 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 framed the failures as isolated cases that did not reflect standards across the wider industry. However, others – including JP Morgan chief executive Jamie Dimon – have warned more “cockroaches” were likely to emerge, while the IMF has raised concerns about potential ripple effects that could hit high street banks.
In an interview with Reuters on Wednesday, the governor of the Bank of England, Andrew Bailey, cautioned 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 hard to determine overall risks across the sector.
Without transparency, confidence in the wider system could crumble. “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 was concentrated in the US, Bailey said there could be spillovers into UK borders due to the interconnected nature of the global financial system.