By Arasu Kannagi Basil and Pritam Biswas
Oct 2 (Reuters) – Blue Owl Capital’s flagship private credit fund had withdrawal requests further slow down in the third quarter, as redemption pressure eases across the broader industry.
Investors sought to withdraw $4.2 billion from two Blue Owl funds in the quarter, down from $4.7 billion in the prior quarter, according to shareholder letters released on Friday. The funds will repurchase 5% of shares, the customary threshold for such vehicles.
Shares of the New York-based firm rose 1%. The stock has plunged roughly 45% over the last year through Thursday’s close.
The developments add to signs that private credit is potentially moving past the worst of redemption pressures as investor sentiment improves and asset managers work through the backlog of unfulfilled withdrawal requests.
Market participants say the direction of withdrawal requests is encouraging even as some of the largest funds navigate persisting redemption backlogs.
Private credit funds have grappled with record-breaking redemption pressures this year arising from concerns over lending standards and the potential impact of AI on software companies, a key borrower base for direct lenders.
Asset management executives argue they have been treated too harshly, saying redemption pressures have been driven by perceived concerns around private credit, rather than the underlying performance of the funds.
EASING PRESSURE AT OCIC
Withdrawal requests at the flagship $35.1 billion Blue Owl Credit Income Corp (OCIC) fell to 16.8% in the third quarter from 18.8% in the previous quarter.
OCIC, the second-largest non-traded business development company (BDC), said new tender participation remained limited, with most requests reflecting investors resubmitting previously unfulfilled tenders.
Major private credit funds have enforced the customary 5% redemption cap this year, keeping withdrawal requests elevated as investors resubmit unfulfilled requests in subsequent tender offers.
Blue Owl executives previously said strong performance of the company’s products helped bring down the number of redemption requests at its non-traded funds. Third-quarter tender offers for Blue Owl funds ended on September 30.
Funds such as OCIC are also well-positioned to benefit from a tightening interest-rate environment as their portfolios largely consist of floating-rate assets.
Blue Owl was at the center of this year’s private credit turmoil as negative headlines around its handling of private credit funds fueled intense anxiety.
The company has come to symbolize for private credit funds grappling with elevated redemption pressures, with withdrawal requests across its two funds hitting a record $5.4 billion in the first quarter when demand peaked.
“The more prolonged issue facing non-traded BDCs is the slowdown in new subscriptions,” Evercore analyst Glenn Schorr said. Direct lending will take some time to regain popularity among clients and advisors but “it appears that the industry has successfully isolated the direct lending wound and OWL’s other products in the wealth channel continue seeing success,” Schorr added.
OTIC LEADS REDEMPTION REQUESTS
Withdrawal requests at OTIC remain well above the broader industry, reflecting the fund’s concentrated shareholder base and specialized investment mandate. Software represents a major chunk of the vehicle’s portfolio.
Investors in technology-focused Blue Owl Technology Income Corp (OTIC) sought to pull $1.1 billion, or 39% of shares in the quarter. That compares with $1.1 billion, or 38.1% in the prior quarter.
Vast majority of the tender requests at the $5 billion fund were also investors resubmitting previously unfulfilled tenders, OTIC said.
Bulk of Blue Owl’s wealth products are US-focused, with OTIC the exception. The vehicle’s launch timing led to narrower distribution, resulting in concentration in Asia.
At 39%, OTIC’s repurchase requests were much higher than the 10% to 17% at the largest non-traded BDC managers in third-quarter tender offers.
Blue Owl, formed in 2021 by combining Owl Rock Capital and the Dyal Capital Partners division of Neuberger Berman, currently manages five BDCs across strategies and had $319 billion in assets as of June 30.
(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru; Editing by Joyjeet Das)
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