By Arasu Kannagi Basil and Isla Binnie
July 2 (Reuters) – Blue Owl Capital maintained a 5% quarterly withdrawal limit for two of its private credit funds as redemption requests remained substantially above the cap despite falling by a few percentage points in the second quarter, sending the asset manager’s shares up 8%.
In shareholder letters released on Thursday, the New York-based firm said investors sought to withdraw $4.7 billion from the two funds in the second quarter, compared with $5.4 billion in the prior quarter.
Wealthy investors have pulled billions of dollars out of such non-traded private credit vehicles in recent months over worries about lending standards, and fears of AI-driven disruption at software companies that have borrowed from direct lenders.
While market participants expect withdrawal requests to remain above 5% for a few more quarters, some Wall Street analysts say underlying redemption trends suggest the second quarter may mark the peak.
Withdrawal requests at the $4.9-billion technology-focused Blue Owl Technology Income Corp (OTIC) fund fell to 38.1% in the second quarter from 40.7% in the prior quarter.
The flagship $33.8-billion Blue Owl Credit Income Corp (OCIC) fund saw redemption requests fall to 18.8% in the quarter from 21.9% in the previous quarter.
Blue Owl’s OCIC, the second-largest non-traded business development company, saw “modestly lower” tender requests, broadly from different types of investors in different parts of the world.
Most of the requests for OCIC came from a minority of investors, according to a person familiar with the matter.
Roughly 90% of investors remained invested in OCIC, the fund said, adding that the shareholder base that sought redemptions remained largely unchanged, with a “limited” number of investors making repurchase requests for the first time.
“We believe OCIC’s strong performance over the past three months has reflected the quality of portfolio fundamentals and contributed to improved investor sentiment,” the fund said in the shareholder letter.
Non-traded BDCs give investors access to private credit assets and typically offer liquidity through quarterly tender offers of up to 5% of shares.
OTIC REDEMPTION REQUESTS REMAIN ABOVE INDUSTRY LEVELS
Blue Owl has become emblematic of the redemption pressures facing private credit funds.
Tender levels at OTIC have remained well above the broader industry, which Blue Owl attributed to the fund’s concentrated shareholder base and specialized investment mandate. Software represents 64% of the fund’s portfolio.
While the bulk of Blue Owl’s wealth products are U.S. focused, OTIC has concentration in Asia, executives have said.
At 38.1%, OTIC’s repurchase requests were much higher than the 9% to 17% seen at the largest non-traded BDC managers that have reported second-quarter tender offer results.
Funds managed by Oaktree and Goldman Sachs were among the vehicles that bucked the broader trend in the second quarter, posting lower repurchase requests.
New investments in OTIC were light, the person cited above said.
OCIC saw $660 million of net outflows in the last three months, while OTIC saw $100 million of net outflows, the person said.
Both OTIC and OCIC have enough liquidity and don’t need to sell private loans to satisfy tender offers, the funds said in the letter.
Blue Owl, which was formed from a 2021 merger between Owl Rock Partners and the Dyal Capital division of Neuberger Berman, currently manages five BDCs across its strategies. It had $315 billion in assets under management as of March 31.
The firm had decided to merge two of its private credit funds late last year, but later abandoned the plan as it stoked anxiety around private credit and the company’s stock tumbled.
The stock has plunged roughly 56% over the past 12 months through the last close.
(Reporting by Arasu Kannagi Basil in Bengaluru and Isla Binnie; Editing by Leroy Leo)
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