Why did private credit stocks slide, and what's up at Blue Owl?

Shares of major private investment managers slid sharply on Thursday after Blue Owl Capital’s decision to permanently restrict investor withdrawals from one of its retail-focused debt funds reignited concerns about liquidity risks in the fast-growing private credit industry.

The sell-off underscored investor unease that limits on redemptions could spread to other private credit vehicles, particularly those marketed to retail investors and exposed to stressed sectors such as software.

Shares of Apollo Global Management fell more than 6%, while Blackstone dropped over 5%.

TPG slid about 8% and KKR & Co. declined roughly 4%.

Blue Owl itself suffered the steepest fall, with shares of Blue Owl Capital sinking more than 10% in intraday trading.

The sharp reaction followed Blue Owl’s announcement that it would permanently halt redemptions at Blue Owl Capital Corp. II, a private fund investing in middle-market corporate debt that includes retail investors, while selling assets to generate liquidity.

Asset sales aim to return capital

Blue Owl said on Wednesday it plans to sell $1.4 billion of loans held across three credit funds to four large public pension and insurance investors.

The sale follows a turbulent three-month period for Blue Owl.

Just last quarter, the firm scrapped plans to merge two of the funds and walked back a proposal to freeze redemptions in its smallest fund, which were originally set to resume this month.

About $600 million of the loans it plans to sell sit in the Blue Owl Capital Corp. II fund, with the remainder split between its technology income fund and a publicly traded credit vehicle.

The firm said proceeds would be used to return capital to investors and pay down debt.

For Blue Owl Capital Corp. II, the board plans to distribute capital quarterly, replacing the tender offers that had previously allowed limited redemptions.

The fund intends to return roughly 30% of its net asset value in the first quarter, significantly more than the typical 5% cap on redemptions that applied under earlier terms.

Concerns resurface over private credit risks

The decision to permanently prohibit redemptions marked an abrupt shift from earlier expectations that withdrawals would resume this year.

That reversal unsettled investors already wary about private credit, where questions about asset quality, valuation transparency and sector concentration have been building for months.

The loans being sold span 128 portfolio companies across 27 industries, but software and services account for the largest share at 13%, according to the company.

The sector has come under heavy pressure recently, amplifying concerns about potential losses in private credit portfolios.

Former Pimco chief executive Mohamed El-Erian questioned in a post on X whether the episode could prove a “canary in the coal mine” moment, drawing parallels with early warning signs seen before the global financial crisis.

"There’s plenty to think about here, starting with the risks of an investing phenomenon in advanced (not developing) markets that has gone too far overall (short answer: yes), to the approaches being taken by specific firms (lots of differences, yet subject to the “market for lemons” risk)," he said.

"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)."

Company pushes back on redemption fears

Blue Owl sought to reassure investors that the asset sales demonstrated confidence in its lending platform, noting that the loans were sold at 99.7% of par value.

"We're not halting redemptions, we are simply changing the method by which we're providing redemptions," Packer told analysts on a conference call Thursday.

He argued that the quarterly return of capital distributions would provide more meaningful payouts than the limited redemptions previously allowed.

The company had already halted redemptions when it proposed merging the fund with a publicly traded counterpart last year, a plan it later scrapped after investor backlash weighed on its share price.