Blue Owl flagship fund withdrawal requests slow as private credit turmoil eases

Oct 2 — Blue Owl Capital's flagship private credit fund had withdrawal requests further slow down in the third quarter, according to shareholder ​letters released on Friday, as redemption pressure eases across the broader industry.

Investors sought to withdraw $4.2 billion from two Blue Owl funds in the latest tender offers, down from $4.7 billion in the prior quarter. The funds will repurchase 5% of shares, the ‌customary threshold for such vehicles.

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 ⁠their 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.

Top 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 of the 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.

OTIC REDEMPTION REQUESTS STILL ABOVE INDUSTRY LEVELS

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.

The vast majority of the tender requests at the $5 billion OTIC were also investors resubmitting previously unfulfilled tenders, the fund said.

The bulk of Blue Owl's wealth products are US-focused, with OTIC the exception. The timing of the vehicle's launch 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.

Its stock has plunged roughly 45% over the last year through Thursday's close.

(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru; ​Editing by Joyjeet Das)

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