Shares of Blue Owl Capital dropped about 10% to a two-and-a-half-year low after the firm halted quarterly redemptions in one of its private credit vehicles, reigniting debate about liquidity risks embedded in the fast-growing asset class. The move affects Blue Owl Capital Corp II (OBDC II), a non-traded business development company that had already seen redemption requests exceed its 5% quarterly cap.

The decision reverberated beyond a single fund. Shares of major alternative managers including Ares Management, Apollo Global Management, Blackstone, KKR and TPG also declined, underscoring broader investor sensitivity around private credit valuations and liquidity structures.

Liquidity Mechanics Under Pressure

Blue Owl said OBDC II will no longer offer standard quarterly redemptions. Instead, capital will be returned through periodic distributions funded by loan repayments, asset sales, or other transactions. The firm disclosed it had sold approximately $1.4 billion of directly originated loans across three funds to provide promised liquidity, with sales executed at 99.7% of par value.

Co-founder Craig Packer framed the asset sales as a validation of portfolio quality amid skepticism over valuation marks. By monetizing loans near face value, Blue Owl aimed to counter concerns that private credit assets may be overstated in an environment of rising default risk and tighter financial conditions.

Still, redemption requests in recent quarters had surpassed allowable thresholds not only at OBDC II but also at other non-traded vehicles. The tech-focused Blue Owl Technology Income Corp reportedly saw redemption requests reach roughly 15% of net asset value, highlighting mounting retail investor pressure.

Structural Tension in a $1.8 Trillion Market

The episode draws attention to the structural mismatch in certain private credit funds: investors are offered periodic liquidity, yet underlying assets — directly originated middle-market loans — are inherently illiquid. When withdrawal requests surge, managers must either gate redemptions or sell assets that typically do not trade frequently.

OBDC II had already faced scrutiny after a proposed merger with a publicly traded vehicle that could have crystallized losses for some investors. The current strategy aims to wind down the legacy structure more gradually, with management indicating it could return up to half of investor capital by year-end.

Prominent voices in markets, including Mohamed El-Erian, questioned whether the event could represent a “canary in the coal mine” moment for private credit. Although Blue Owl’s ability to sell assets near par suggests institutional demand remains intact — particularly from pension funds and insurers — the redemption halt signals that liquidity assumptions may be tested more frequently as economic growth slows.

What Investors Should Watch Next

Private credit has expanded rapidly over the past decade as banks retreated from middle-market lending. In the U.S. and increasingly in global markets, including Israel’s institutional portfolios, private debt allocations have grown as investors seek higher yields.

The key risk now lies not necessarily in immediate credit deterioration, but in confidence and liquidity dynamics. If redemptions accelerate across non-traded vehicles, managers may face pressure to gate funds or sell assets at discounts, potentially challenging valuation stability.

For now, Blue Owl argues that proactive asset sales strengthen balance sheets and increase diversification. Whether markets interpret this as prudent risk management or early stress signaling will shape sentiment toward the broader private credit ecosystem in the months ahead.