The private credit industry has been preaching the gospel of steady returns and portfolio diversification for years. But when investors actually try to pull their money out, things get messy fast. Case in point: Blue Owl.
The firm just disclosed that its flagship OCIC fund received redemption requests for 21.9% of shares outstanding in Q1. Its smaller, tech-focused OTIC fund? A staggering 40.7%. Blue Owl responded by capping redemptions at 5% for both funds, a standard gate clause that’s now getting a workout.
The culprit, according to Blue Owl, is heightened market anxiety around AI’s impact on software companies. Private credit has been aggressively lending to software businesses, and now that AI threatens to disrupt the sector, wealthy investors are heading for the exits. Software represents about 20% of BDC portfolio exposure, and the fear is that defaults could spike if AI eats into these companies’ moats.
Blue Owl isn’t alone. Apollo, Blackstone, and other big names have also capped redemptions in recent months, though Blue Owl’s numbers are multiples higher than peers. The firm says the redemptions came from a small minority of investors, with 90% of shareholders choosing not to tender. Still, the optics aren’t great.
Here’s the bigger picture: private credit has ballooned from $300 billion to over $3 trillion in recent years. It’s been marketed as a liquid alternative to traditional fixed income, but the fine print always included those 5% quarterly gates. When everyone wants out at once, the gates slam shut, and you’re stuck waiting in line.
Blue Owl’s funds did see gross inflows during the quarter, which softened the net outflow impact. But the trend is clear — investors are reassessing their exposure to private credit, especially anything tied to software or AI disruption risk.
If you’re holding private credit funds, now’s a good time to check the redemption terms. Liquidity is only liquidity if you can actually get your cash out.
