Shares of asset managers plummet: Blue Owl has restricted withdrawals from its fund

Shares of companies managing alternative assets fell sharply in trading on Thursday, February 19. The reason was the decision of Blue Owl to indefinitely suspend regular withdrawal of money from one of its funds. It heightened concerns about the state of the private credit sector, which has grown rapidly in recent years, and emphasized the risk for investors.

Shares of Blue Owl itself fell by 6% at the end of trading on February 19 - to $11.58, although during the day the fall reached 10%. Against this background, the company's competitors were also under pressure: Apollo Global Management fell by 5.2%, Blackstone lost 5.4%, TPG shares fell by 5.8%, and KKR & Co - by 1.2%.

Blue Owl on Wednesday, February 18 permanently restricted quarterly investor withdrawals (redemptions) from its private credit fund focused on retail market participants, Blue Owl Capital Corp II. In addition, the company announced the sale of assets in three of its credit funds totaling $1.4 billion in an effort to return capital to investors and pay down debt. The $600 million worth of assets come from just OBDC II and make up about a third of it, the Financial Times noted. The buyers will be four leading North American pension and insurance investors, Blue Owl noted in a press release.

The company planned to merge OBDC II with its other fund, and by that time the regular withdrawal of funds from OBDC II had already been stopped, Reuters writes. However, the merger caused discontent among market participants, after which Blue Owl abandoned the plan. It claimed that distributions would resume in the current quarter, Reuters added.

Now the company has decided that OBDC II will no longer hold the usual quarterly tenders. Instead, shareholders have been promised regular dividend payments as assets are sold off. Blue Owl is not stopping the payouts, it is "just changing the method" of providing them, co-president Craig Parker told Reuters in a statement. The asset sales will return up to 30% of the current value of the fund's assets to investors, the agency wrote.

The Blue Owl decision was a new blow to the private lending sector, Bloomberg writes. In recent weeks, investors have been concerned that new AI tools pose a threat to software companies and their lenders, Bloomberg writes. The decline in quotes shows that investors are revising expectations on the profitability of this fast-growing business, says the Financial Times.

In addition, the company's actions underscore the risks faced by retail investors who have hundreds of billions of dollars invested in funds with limited withdrawal rights, the FT noted. Such funds have less liquidity and can discourage investors from withdrawing money, Bloomberg explained.

Bloomberg Intelligence analyst David Havens said Blue Owl's actions appear responsible from a credit perspective, but at the same time they reflect market tensions. In a "perfect world," Blue Owl would not have sold its assets or restricted withdrawals from the funds, Havens added.

Raymond James analyst Wilma Berdis called the stock's reaction "excessive," pointing out that restrictions on the OBDC II fund have been in place since November, which means that nothing has fundamentally changed. Berdis' note is quoted by Bloomberg.

Economist Mohamed El-Erian believes that the actions of the Blue Owl resemble the early days of the financial crisis of 2008, although not even close to comparable in scale, writes Reuters. According to the economist, the situation raises questions about the larger systemic risks in the industry and the "significant - and necessary - blow to value threatening certain assets."

This article was AI-translated and verified by a human editor