The Canary in the Private Credit Mine: From Blue Owl to the Illusion of Semi-Liquidity Products

On February 18, the world’s leading alternative asset management firm Blue Owl announced that its retail private credit fund OBDCII will permanently cease quarterly redemption arrangements. Instead, it will return capital to investors gradually through loan recoveries, asset sales, and special dividends. Additionally, to provide promised liquidity to investors and repay debts, Blue Owl announced the sale of approximately $1.4 billion in direct loan assets across three BDC entities (OBDCII, publicly listed BDC fund OBDC, and the tech income fund OTIC), with about $600 million from OBDCII, accounting for roughly 34% of its portfolio.

In response to this news, the market reacted strongly. On February 19, Blue Owl’s stock price fell nearly 10 intraday, hitting its lowest point in two and a half years, and ultimately closed down 5.9%. Panic quickly spread across the entire alternative asset management sector, with peers like Ares, Apollo, Blackstone, and KKR generally declining 3%-6%. European CVC and Partners Group also saw declines.

More impactful was the event on February 21, when hedge fund Saba proposed to buy Blue Owl-related BDC shares at a 20%-35% discount to the latest net asset value, publicly challenging the fairness of the fund’s book valuation. Although this offer is non-binding, its symbolic significance lies in the fact that the liquidity price willing to be paid in the secondary market has already diverged significantly from the NAV disclosed by the manager. Meanwhile, structured notes linked to Blue Owl saw their prices plunge, with one note issued by Citigroup falling below 50% of face value.

Overall, the Blue Owl incident is far from a simple liquidity management failure of a single company. It directly exposes the illusion of liquidity in the $3 trillion private credit market over recent years, where semi-liquid products have been widely used. This event may serve as a “canary in the coal mine” for the private credit sector, potentially foreshadowing a replay of the August 2007 BNP Paribas fund freeze—an early sign of the upcoming financial crisis.

Crisis of Trust in Semi-Liquid Product Models

The Blue Owl incident touches on the most fragile part of private credit: the sustainability of semi-liquid product models. These products promise retail investors regular redemptions (such as quarterly), but the underlying assets are 5-10 year non-public loans. The core issue is: