Blue Owl Caps Redemptions After 41% Withdrawal Request

Blue Owl Capital announced Thursday that it will cap redemptions at 5% in two of its private credit funds after investors requested withdrawals of 22% and 41% of shares outstanding. The firm is not alone. BlackRock, Morgan Stanley, and Ares have all restricted exits from private credit vehicles in recent weeks. The $1.8 trillion market is under the kind of pressure it has never faced at this scale.

The details are stark. Blue Owl’s flagship OCIC fund, with roughly $36 billion in assets, received redemption requests of about 21.9% of shares outstanding during the first quarter. Its smaller, tech-focused OTIC fund saw requests hit 40.7%. In both cases, the firm honored only 5%, the maximum allowed under its quarterly tender offer structure.

That means the vast majority of investors who wanted out are still in. OCIC redeemed roughly $988 million, leaving about $3.2 billion in queued but unfulfilled requests. OTIC redeemed about $179 million under similar constraints.

Blue Owl shares fell as much as 8.7% to an intraday low of $8.62 on Thursday. The stock is now down roughly 65% over the past year.

Why Are Investors Running for the Exits?

Blue Owl attributed the surge to “heightened market concerns around AI-related disruption to software companies.” That sounds like corporate framing, but it points to a real vulnerability.

Private credit funds have loaded up on loans to software companies over the past several years. Software exposure in direct lending is estimated at roughly 26% of the sector. The thesis was straightforward: software companies have recurring revenue, high margins, and predictable cash flows. They looked like ideal borrowers.

Then the AI cycle accelerated. Investors began questioning whether legacy software businesses could sustain their margins and market positions as AI tools replaced or commoditized their core products. Morgan Stanley recently warned that default rates in private credit direct lending could surge to 8%, well above the historical average of 2% to 2.5%, with pressure concentrated in AI-vulnerable sectors.

When the loans backing a credit fund start looking riskier, investors do what they always do: they try to leave.

Blue Owl Is Not the Only One Gating

This is not an isolated event. The gating pattern has spread across the industry over the past month.

BlackRock restricted withdrawals from its $26 billion HPS Corporate Lending Fund after redemption requests surged to 9.3% of shares. Morgan Stanley curbed redemptions from its North Haven Private Income Fund after investors sought to withdraw nearly 11%, honoring only 45.8% of those requests. Ares Management capped its own $10.7 billion fund at 5% after requests reached 11.6%.

In total, investors sought to pull roughly $13 billion from over a dozen private credit funds in the first quarter. More than $4.6 billion remains trapped behind redemption gates.

The U.S. House Financial Services Committee has demanded detailed disclosures from Apollo, KKR, Carlyle, BlackRock, and Blue Owl regarding sales practices, leverage, fees, and risk management. Congressional scrutiny at this stage is not routine. It signals that regulators view the situation as potentially systemic.

Why Does This Matter Beyond Private Credit?

Private credit grew from a niche corner of finance to a $1.8 trillion market by doing something banks used to do: lending to mid-sized companies. As banks pulled back after the 2008 financial crisis and again after the 2023 regional banking turmoil, private credit funds stepped in, offering higher yields to investors and flexible financing to borrowers.

The problem is liquidity mismatch. These funds hold illiquid loans, often to private companies, but many offer quarterly redemption windows to investors. When everyone heads for the exit at once, the fund cannot sell its assets fast enough to meet demands. Gates are the pressure valve.

The interconnections run deeper than the funds themselves. Banks like Goldman Sachs and Morgan Stanley provide NAV loans and subscription lines to private credit managers, using the fund assets as collateral. JPMorgan has already reduced the valuations it assigns to software loans held as collateral, lowering the borrowing capacity of private credit firms. If asset values continue to decline, the financing that supports these funds tightens further.

The European Central Bank and the Bank of England have launched emergency “exploratory scenarios” to map contagion risk between private credit and the banking system.

What Should Investors Know?

Blue Owl’s management said its funds are in a “strong position” to meet the 5% redemption level, pointing to $11.3 billion in OCIC liquidity and $1.3 billion in OTIC across cash, available borrowing, and liquid assets. Both funds have returned more than 9% annualized since inception. The underlying loans are, in Blue Owl’s framing, performing.

The firm put it plainly: “We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio.”

That may be true. But when 41% of your investors want out and you can only let 5% leave, the disconnect that matters most is between what investors want and what the fund structure allows. The broader question is whether this is a temporary panic driven by AI fear, or whether private credit’s liquidity framework is fundamentally mismatched with investor expectations.

History suggests these situations resolve in one of two ways: either the underlying assets hold up and the panic subsides, or the gates become self-reinforcing as trapped investors lose confidence and queue even larger redemptions next quarter.

We are still in the early chapters.

Related reading: Fee-Only vs. Commission-Based Advisors explains why understanding how your advisor gets paid matters, especially when products like gated private credit funds are part of the conversation.

Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice. Ferrante Capital does not hold a position in OWL, BLK, MS, ARES, APO, KKR, or CG. Past performance is not indicative of future results. Forward-looking statements in this article reflect the views of the author at the time of writing and may not materialize. The private credit market involves risks including illiquidity, credit default, and loss of principal. Readers should consult a qualified financial professional before making investment decisions.