UBS analysts played a role in the recent investor exodus from Blue Owl's private credit funds. In a report, UBS advised its high-net-worth clients to reduce their exposure to private credit and reallocate investments into tangible assets such as real estate and infrastructure. This recommendation coincided with a significant wave of redemption requests from Blue Owl's funds, particularly from its software-focused lending fund, OTIC, where redemptions largely came from Asian family offices.
Blue Owl faced substantial withdrawal requests, totaling $4.7 billion across two major funds in the latest quarter. Investors sought to redeem $3.6 billion, or approximately 19% of their money, from Blue Owl's flagship fund, and $1.1 billion, representing about 38%, from its software lending fund, OTIC. While these figures were slightly down from the previous quarter's requests of 22% and 40% respectively, they remain elevated compared to peer funds managed by firms like Apollo and KKR.
Despite the high volume of redemption requests, Blue Owl adhered to an industry-standard cap, honoring only 5% of the withdrawal requests. For instance, in the larger Blue Owl Credit Income Corp. fund, about $988 million in redemptions were honored, leaving approximately $3.2 billion remaining in the fund. In the smaller Blue Owl Technology Income Corp., $179 million was redeemed, with roughly $1 billion of investors' cash retained. This policy has led to more than $14.5 billion of investor capital being trapped across over a dozen funds, with only about $8.6 billion successfully redeemed.
The ongoing redemption pressure is attributed to concerns among investors regarding asset quality, particularly within the artificial intelligence-disrupted software sector, and the limited ability to withdraw funds due to caps. Even as Blue Owl executives traveled globally to engage with clients and address these concerns, redemption requests continued to outpace those of the prior quarter for many funds. However, Blue Owl maintains that its software loans have remained healthy, with none becoming delinquent in the quarter and only 0.2% of OTIC's book categorized as unlikely to be repaid in full.
