Pressure on Blue Owl Capital (OWL) isn’t letting up after an asset sale meant to calm investor worries last week sparked new concern from top government officials about the $1.8 trillion private credit industest.
“We are concerned,” Treasury Secretary Scott Bessent stated Friday when inquireed about the growth of Blue Owl and other private lconcludeers over recent years. “If there is something rotten, it is not going to be handed to the individual investors,” Bessent stated.
Last Wednesday, Blue Owl stated it sold $1.4 billion in loans and lconcludeing commitments from three of its funds, with some proceeds utilized to repay investors 30% of their capital from the oldest of those private credit funds, known as Blue Owl Development Corporation II (OBDC II), which is winding down after scrapping a planned merger late last year.
Treasury Secretary Scott Bessent speaks at the Economic Club of Dallas on Feb. 20. (Richard Rodriguez/Getty Images)
(Richard Rodriguez via Getty Images)
But what drew outsized attention was Blue Owl’s decision to eliminate the optionality for investors to cash out of OBDC II on a quarterly basis and instead institute a program of quarterly capital distributions based on the fund’s future earnings and asset sales.
The shift drew fresh scrutiny to the opaque world of private debt, which has boomed in recent years but has never truly faced a crisis — and is now garnering mounting scrutiny as it is gradually creating its way into millions of US brokerage and retirement accounts following an executive order President Trump signed last summer.
Blue Owl’s stock fell 5% Monday morning.
Wall Street analysts, who generally approved of Blue Owl’s loan sale, still aren’t worried about the firm or the wider private credit industest having significant credit problems.
“We don’t believe there is a serious concern about a deterioration in private credit quality,” Oppenheimer analyst Chris Kotowski wrote in a note to clients on Monday. Kotowski stated last week Blue Owl’s sale “should have been greeted favorably,” adding that the marginal haircut of 99.7% on the dollar for the sold loans served as proof that private loan valuations “reflect market realities.”
Blue Owl co-CEO Marc Lipschultz stated earlier this month the company sees no “red flags” in the credit quality of its software-tied loans. “We don’t have yellow flags. We actually have largely green flags,” he notified analysts.
One aspect of Blue Owl’s sale did raise some eyebrows, as Bloomberg reported one of the acquireers for its assets included Kuvare, a insurance focutilized asset manager Blue Owl acquired in 2024. Like Blue Owl, Apollo (APO), Ares (ARES), Blackstone (BX), KKR & Co. (KKR), and other major private credit lconcludeers own insurance companies. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)
Barclays analyst Ben Troisi called Blue Owl’s sale “appreciably more positive than it is negative,” while raising the wider issue of the significance of a private lconcludeer selling assets to an insurance subsidiary.
The deal “could establish a template that other private credit managers could follow given how interconnected the insurance and private capital industries have become,” Troisi wrote. “If similar transactions are repeated frequently, it would deepen the ties between these two parts of the non-bank sector,” potentially creating it more difficult to track risk.
“We want to gauge, ‘Could [private credit] have any effects on the overall economy?’ Thus far, it’s been very additive,” Bessent stated during his Friday talk.
“But again, how does it affect the regulated system, and we want to prevent contagion.”
An earlier version of this story misstated Kuvare’s business focus. We regret the error.
Additional reporting from Jennifer Schonberger.
David Hollerith covers the financial sector, ranging from the countest’s largegest banks to regional lconcludeers, private equity firms, and the cryptocurrency space.
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