Blue Owl defends debt fund changes as share price slides

Core Viewpoint - The private credit market, valued at US$3.5 trillion, is facing potential systemic risks as Blue Owl announces the sale of US$1.4 billion in assets to manage debt and alter investor withdrawal methods, raising concerns about liquidity in private markets [1][5]. Group 1: Asset Sale Details - Blue Owl is selling debt investment commitments totaling US$1.4 billion, including US$600 million from Blue Owl Capital Corp. II, US$400 million from Blue Owl Technology Income Corp., and US$400 million from Blue Owl Capital Corp [2]. - The assets are being sold at 99.7% of face value to four North American institutional investors, including pension funds and its own insurance firm, Kuvare [3]. - The debt spans 128 portfolio companies across 27 industries, with a significant concentration in the internet software and services sector [4]. Group 2: Impact on Investors - Proceeds from the asset sale will be used to pay down debt and return 30% of the fund's net asset value to shareholders, pending board approval [5]. - Blue Owl is changing the method of capital withdrawal for investors, moving from a set quarterly withdrawal to a more controlled approach, which has raised concerns about liquidity [5][7]. - The CEO of Blue Owl emphasized that the firm is not halting redemptions but rather accelerating them, allowing investors to receive a larger portion of their capital in a shorter timeframe [7][8]. Group 3: Market Context and Reactions - The announcement has sparked fears of broader systemic risks in the private credit market, reminiscent of past financial crises, although the current situation is not expected to reach similar magnitudes [6]. - The private credit sector, particularly firms like Blue Owl, KKR & Co. Inc., and Apollo Global Management, is experiencing volatility due to heightened concerns about technology sector valuations, especially among companies involved in AI [8].