RPT-BREAKINGVIEWS-Blue Owl picks private credit’s path of pain

By Jonathan Guilford

NEW YORK, Feb 19 (Reuters Breakingviews) - "The falcon cannot hear the falconer," William Butler Yeats wrote at the beginning of "The Second Coming". In the turbulent world of private credit, it seems Blue Owl OWL.N can no longer hear the owler. The non-bank lender faces a widening gyre of slipping loan yields, concerns that artificial intelligence will consume indebted software companies, and lingering worries of overheated lending. Its answer, for now, is to sell $1.4 billion of loans and wrap up a troubled retail fund. Even brief spells of anarchy among small investors have proven painful before.

Unlisted Blue Owl Capital Corporation II (OBDC II) is a small creature in the flock of lucrative retail investment vehicles operated by buyout barons. With $1.7 billion of investments as of its last quarterly filing, it’s a tiddler alongside Blackstone’s $82 billion credit investor, BCRED. It’s also long been scheduled to be wound down.

The core problem is that the market value of publicly traded loan vehicles has fallen far below their reported asset values. Yet investors in private entities like OBDC II are still able to make quarterly withdrawals at the fund's stated worth, up to a cap of 5%. Blue Owl attempted to merge the fund into a listed sibling last year, before retreating from the plan and restricting redemptions instead.

The company is now attempting to show that it knows better than skittish investors. On Wednesday it announced the sale of loans from three funds, including $600 million from OBDC II. The cash will fund an immediate payout of 30% of the vehicle's worth, with further distributions to follow. Most importantly, Blue Owl sold the loans, including software company debt, at current marks.

An orderly liquidation is probably the best possible outcome. It is only so reassuring, though. Plunging shares of major private credit managers on Thursday underscore the importance of retail credit vehicles. Blue Owl’s listed loan companies generated revenue equivalent to a fifth of its management fees in 2024.

This episode is the second coming of retail investment woes for buyout barons. Back in 2022, non-traded real-estate investment trusts were all the rage. Then, as now, financial shocks fueled suspicions that private appraisals were lagging market valuations. Blackstone’s BREIT, the industry's star, was forced to restrict withdrawals by investors.

Blackstone managed through the crisis. It too sold a key asset to prove the solidity of its portfolio, and BREIT is once again attracting net inflows of funds and letting investors withdraw when they want. But the rest of the private real estate investment trust industry crumbled. Capital raised by unlisted REITs fell from a peak of over $12 billion in the final quarter of 2021 to $1.5 billion in each of the first three quarters of 2025, according to Blue Vault data.

Private credit is a sprawling market whose fate does not depend on a few select funds. For buyout barons hoping to extract lucre from the investing masses, though, an ominous precedent is slouching their way.

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CONTEXT NEWS

Alternative asset manager Blue Owl Capital said on February 18 that it had agreed to sell $1.4 billion of direct lending investments to four “leading North American public pension and insurance investors.”

The loans being sold include $600 million held by Blue Owl Capital Corporation II (OBDC II), a non-traded business development company that terminated a merger with a listed sibling in November 2025. The vehicle intends to use the proceeds to fund a distribution of capital to shareholders equivalent to 30% of its net asset value.

Such funds typically limit withdrawals to 5% per quarter. OBDC II investors will no longer be able to make these quarterly redemptions. Instead, the manager intends to conduct rated distributions in each quarter.