Shares of private credit poster child Blue Owl are falling after a downgrade

Deutsche Bank sees shares of Blue Owl Capital stagnating from here, citing slower fee-related earnings growth, as the private credit poster child’s struggles continue. Analyst Brian Bedell downgraded the stock to hold from buy. He also slashed his price target to $10 from $15, which implies downside of 4%. Shares of Blue Owl have plunged 52% over the past 12 months and 30% this year alone, swept up in an overall private credit sell-off amid fears that the sector could be cracking because of their exposure to software industry loans just as Wall Street tries to open the market up to retail investors. The stock also sank after it permanently restricted withdrawals from one of its retail-focused debt funds amid plans to wind down the portfolio. Blue Owl stock lost 2% on Tuesday morning. OWL 1Y mountain OWL 1Y chart Bedell wrote that his downgrade was driven by reductions in his forecasts for fee-related earnings related to his revised expectations for slower growth in retail private credit products. This, he said, stemmed from lower sales and higher redemption forecasts. “This said, we think the adverse headlines around its private credit business broadly are overdone, including around recent initiatives to deliver liquidity to investors in selected retail private credit products,” he added. “However, we think these headlines and publicity may cause retail wealth redemption requests to rise at least modestly in some private credit products, while also driving slower sales, in at least the near-term and possibly for much of this year.” Bedell noted that management has diversified Blue Owl in the past two to three years, helping to advance its growth outlook even further. But he added that shares of Blue Owl appear fairly valued at their current levels. “While we see both upside and downside risks to this view, we do not see a near-term catalyst to advance the shares, given a likely adverse sentiment overhang until the firm demonstrates sustained positive flows within its retail private credit products, after what could be a closely watched period of net outflow risks over the next 1-2 quarters, in our view,” the analyst wrote.