Blue Owl liquidity curbs fuel fears private credit bubble

The private credit boom is facing a new test after Blue Owl Capital permanently restricted withdrawals from one of its retail-focused debt funds.

Shares of Blue Owl Capital fell nearly 6% on Thursday after the private markets and alternative asset manager sold $1.4 billion in credit assets held in three private debt funds.

The bulk of the selling came from a semi-liquid private loan fund called Blue Owl Capital Corporation II, marketed to US retail investors. Offering investors quarterly repayment options has reignited debate about whether stress is returning to one of Wall Street’s fastest-growing corners.

“This is a canary in the coal mine,” Dan Rasmussen, founder and advisor at Verdad Capital, told CNBC. “The private market bubble is finally starting to burst.”

The broader concern, market watchers said, is that years of ultra-low interest rates and weak yield spreads are encouraging lenders to make riskier moves, financing smaller, more leveraged companies at yields that look attractive compared with public markets.

“Years of ultra-low interest rates and ultra-low spreads and a very small number of bankruptcies have caused investors to move further and further out of the risk spectrum in credit,” Rasmussen said. “This is a classic case of ‘fool’s return’; high returns do not mean high returns because borrowers are too risky.”

Private loans, which are direct loans to companies often made by nonbank lenders, have reached a market of nearly $3 trillion globally.

Publicly traded business development companies, or BDCs, investment vehicles that provide loans to small- and medium-sized private companies and are a key part of the private lending market, are increasingly funded by retail investors rather than institutions, according to Duke University’s Fuqua School of Business.

Fuqua research published last September showed institutional ownership of BDC shares has steadily declined over time, falling to an average of 25% by 2023.

“This trend suggests that retail investors are playing an increasingly larger role in providing equity capital to publicly traded BDC,” the researchers said.

Top eight members in 2025 S&P BDC Index It offered dividend yields as high as 16%, while Blue Owl’s was over 11%. For comparison, the 1-year, 3-year and 5-year yields of S&P Global’s U.S. high-yield corporate bond index are around 7.7%, 9% and 4%, respectively.

“The majority of loans in private loan funds owned by individual investors are high-yield loans. They are inherently somewhat risky,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

“Over the cycle, you can anticipate some material defaults on these funds,” he added.

Private credit concerns have recently resurfaced after investors became uneasy that AI tools could disrupt traditional enterprise software models, a key group of borrowers in the industry, on top of existing concerns about the possibility that rising leverage, uncertain valuations and isolated borrower stress could reveal deeper systemic weaknesses.