A fresh bout of anxiety has gripped the $3 trillion private credit market after alternative asset manager Blue Owl moved to limit withdrawals from one of its funds ahead of a planned merger.
The twin bankruptcies of auto-parts maker First Brands and subprime lender Tricolor have sharpened scrutiny of the rapid growth in private credit, a market that has attracted heavy institutional inflows and taken on a growing share of corporate lending in recent years.
“As private credit rapidly evolves, debt structures are of ever-greater complexity, with structural innovations reshaping the risk landscape,” analysts at Moody’s Ratings said in a report this week.
“These innovations also introduce new risks—particularly around transparency, recoveries, and structural subordination.”
Meanwhile, US prosecutors are probing a group of telecom firms, the Financial Times reported on Monday, after HPS Investment Partners—the private-credit arm of BlackRock—said it lent them more than $400 million backed by receivables that appear to be fake.
BlackRock and the US Attorney’s Office for the Eastern District of New York declined to comment on the report.
Alternative asset managers have been raising more money from wealthy individuals in recent years to supplement the large institutions that can traditionally park their money in a fund for a long period of time without needing to withdraw it.
Credit market flashpoints
A spate of credit issues in recent months has turned the spotlight on the multi-trillion-dollar global credit market, with risks emerging across major Wall Street financial firms, U.S. regional lenders and other large institutions globally.
Morgan Stanley estimates that the private credit market will reach about $5 trillion by 2029, up from roughly $3 trillion at the start of 2025 and about $2 trillion in 2020.
The sector’s swift ascent has spurred worries about risks accumulating in a market with limited oversight and less visibility than conventional lending.
“The interconnectedness of private credit and other traditional lenders can also transfer or amplify risk in novel ways,” Moody’s said.
JPMorgan CEO Jamie Dimon’s warning of trouble in the debt markets in October added a fresh layer of concern for investors.
“When you see one cockroach, there are probably more, and so everyone should be forewarned of this one,” Dimon, one of Wall Street’s most influential voices, said at the time. The top U.S. lender disclosed a $170 million charge in the third quarter related to Tricolor.
Though several top asset managers with a presence in the private credit market have since argued that the issues tied to First Brands and Tricolor are specific and do not point to any systemic stress, investors have remained on edge.
Bank stocks from London to Tokyo took a hit in October after two regional U.S. lenders disclosed a set of bad loans and alleged borrower fraud.
Blue Owl’s funds to merge
Earlier this month, Blue Owl had unveiled a plan to merge its two debt funds, the publicly traded Blue Owl Capital Corp with the non-traded business development company (BDC) Blue Owl Capital Corp II.
But investors in the non-traded fund would not be able to redeem their capital until the merger closes, which is expected in the first quarter of 2026.
The Financial Times on Sunday reported that investors in the private fund could potentially take paper losses on some of their investments at current prices. Shares of OBDC are down 21.6% year-to-date.
This is because investors are being asked to exchange their shares for the value of the larger fund, which currently trades at a discount of about 20% to the stated value of its assets, the report said, citing a senior executive.
Blue Owl said in a separate statement on Monday holders of the smaller fund would start to receive the higher dividend rate paid by the larger fund.
A Blue Owl spokesperson declined to comment beyond Monday’s filings.
Blue Owl‘s shares, which have fallen nearly 41% so far this year, were last down about 1% before the bell. The stock closed roughly 6% down on Monday, its lowest since December 2023.
“Public market sentiment with respect to BDCs seems to be disconnected from the realities on the ground,” Blue Owl BDC’s CEO Craig Packer said at a post-earnings conference call earlier this month.
“We encourage investors to look beyond the headlines.”
Reuters
