Pressure on Blue Owl Capital (OWL) isn't letting up after an asset sale meant to calm investor worries last week sparked new concern from top government officials about the $1.8 trillion private credit industry.
"We are concerned," Treasury Secretary Scott Bessent said Friday when asked about the growth of Blue Owl and other private lenders over recent years. "If there is something rotten, it is not going to be handed to the individual investors," Bessent said.
Last Wednesday, Blue Owl said it sold $1.4 billion in loans and lending commitments from three of its funds, with some proceeds used to repay investors 30% of their capital from the oldest of those private credit funds, known as Blue Owl Development Corporation II (OBDC II), which is winding down after scrapping a planned merger late last year.
But what drew outsized attention was Blue Owl's decision to eliminate the optionality for investors to cash out of OBDC II on a quarterly basis and instead institute a program of quarterly capital distributions based on the fund's future earnings and asset sales.
The move drew fresh scrutiny to the opaque world of private debt, which has boomed in recent years but has never truly faced a crisis — and is now garnering mounting scrutiny as it is gradually making its way into millions of US brokerage and retirement accounts following an executive order President Trump signed last summer.
Blue Owl's stock fell 5% Monday morning.
Wall Street analysts, who generally approved of Blue Owl's loan sale, still aren't worried about the firm or the wider private credit industry having significant credit problems.
We don't believe there is a serious concern about a deterioration in private credit quality," Oppenheimer analyst Chris Kotowski wrote in a note to clients on Monday. Kotowski said last week Blue Owl's sale "should have been greeted favorably," adding that the marginal haircut of 99.7% on the dollar for the sold loans served as proof that private loan valuations "reflect market realities."
Blue Owl co-CEO Marc Lipschultz said earlier this month the company sees no "red flags" in the credit quality of its software-tied loans. "We don't have yellow flags. We actually have largely green flags," he told analysts.
One aspect of Blue Owl's sale did raise some eyebrows, as Bloomberg reported one of the buyers for its assets included Kuvare, a insurance focused asset manager Blue Owl acquired in 2024. Like Blue Owl, Apollo (APO), Ares (ARES), Blackstone (BX), KKR & Co. (KKR), and other major private credit lenders own insurance companies.
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