Blue Owl Capital has decided to maintain its 5% quarterly withdrawal limit for two of its primary private credit funds, even as redemption requests saw a slight decrease in the second quarter. Investors sought to withdraw a total of $4.7 billion from these funds, down from $5.4 billion in the prior quarter. This reflects ongoing concerns about risk in the private credit sector, particularly regarding loans to software companies potentially impacted by AI.
The flagship $33.8 billion Blue Owl Credit Income Corp (OCIC) fund experienced redemption requests of 18.8%, a drop from 21.9% in the previous quarter. Similarly, the $4.9 billion technology-focused Blue Owl Technology Income Corp (OTIC) fund saw requests fall to 38.1% from 40.7%. Despite this modest easing, redemptions at OTIC remain significantly higher than those at peer non-traded Business Development Companies (BDCs), which typically range from 9% to 17%.
Analysts like Bill Katz of TD Cowen suggest that the second quarter might mark the peak of these redemption issues, anticipating stabilization in the latter half of 2026. This sentiment led to a 6% jump in Blue Owl's shares. However, executives at the firm still expect elevated redemption requests to continue for some time. Blue Owl has become a barometer for the private credit market due to its early and heavy reliance on wealthy individual investors, who tend to be more reactive to market shifts.
The company emphasized its liquidity, noting that OCIC has $11.6 billion in cash, equivalents, and borrowing capacity, sufficient to cover 12 quarters of payouts at the 5% cap. Both OCIC and OTIC reportedly have ample liquidity to meet tender offers without needing to sell private loans. The concentrated shareholder base and specialized investment mandate, with 64% of OTIC's portfolio in software, were cited as factors influencing redemption patterns, with Asian family offices being a significant source of withdrawals from OTIC.
Compared to its peers, Blue Owl's redemption levels remain higher. For instance, Apollo Global Management recently faced requests for 17% of funds back, up from 11%. This broader trend of elevated withdrawal requests across the industry, affecting firms like Ares Management, Blackstone, and BlackRock, continues to weigh on their stocks amid lingering worries about lending standards and potential defaults in private credit investments.
