Blue Owl signage exterior the Seagram Building at 375 Park Avenue within the Midtown East neighborhood of New York, US, on Tuesday, Jan. 20, 2026.
Bing Guan | Bloomberg | Getty Images
The non-public credit score increase is going through a brand new check after Blue Owl Capital completely restricted withdrawals from one in every of its retail-focused debt funds.
Shares in Blue Owl Capital fell almost 6% on Thursday after the non-public market and various belongings supervisor sold $1.4 billion of loan assets held in three of its private debt funds.
The greatest portion of the sale got here from a semi-liquid non-public credit score fund marketed to U.S. retail buyers known as the Blue Owl Capital Corporation II, which is able to cease providing quarterly redemption choices to buyers, reigniting debate over whether or not stress was starting to resurface in one in every of Wall Street’s fastest-growing corners.
“This is a canary in the coal mine,” Dan Rasmussen, founder and adviser at Verdad Capital informed CNBC. “The private markets bubble is finally starting to burst.”
The broader concern is that years of ultra-low rates of interest and skinny yield spreads inspired lenders to make riskier strikes, financing smaller, extra leveraged firms at yields that appeared engaging in contrast with public markets, market watchers stated.
“Years of ultra-low rates and ultra-low spreads and very few bankruptcies led investors to go further and further out the risk spectrum in credit,” Rasmussen stated. “This is a classic case of ‘fool’s yield,’ high yield that doesn’t translate into high returns because the borrowers were too risky.”
Private credit score, that are usually direct loans made by non-bank lenders to firms, have ballooned right into a roughly $3 trillion market globally.
When instances are good, cashflows cowl regular redemption requests. When instances are unhealthy, requests surge and it turns into a race to the underside.
Publicly traded enterprise improvement firms, or BDCs, that are funding autos that lend to small and mid-sized non-public firms and are a significant a part of the non-public credit score market, are more and more funded by retail buyers slightly than establishments, in response to Duke University’s Fuqua School of Business.
The Fuqua analysis, which was revealed final September, confirmed that institutional possession of BDC shares has steadily declined over time, falling to about 25% on common by 2023.
“This trend indicates that retail investors are playing an increasingly large role in supplying equity capital to publicly traded BDC,” the researchers identified.
In 2025, the eight largest members of the S&P BDC Index supplied dividend yields which might go as much as 16%, with Blue Owl’s at over 11%. For comparability, the S&P Global’s U.S. excessive yield company bond index 1-year, 3-year and 5-year returns stand at round 7.7%, 9% and 4%, respectively.
“The majority of loans in private credit funds that individual investors tend to own, they’re high yield loans. They are, by their nature, somewhat risky,” stated Guy LeBas, chief fastened revenue strategist at Janney Montgomery Scott.
“Over the course of the cycle, you can anticipate some material defaults across these funds,” he added.
Rising dangers?
Private credit concerns recently resurfaced after buyers grew uneasy that AI instruments may disrupt conventional enterprise software program fashions, a significant borrower group of the business, including to current considerations in over rising leverage, murky valuations and the chance that remoted borrower stress may reveal deeper systemic weaknesses.
The First Brands Group collapse final September delivered to fore dangers in non-public credit score after the closely leveraged auto-parts maker bumped into misery, highlighting how aggressive debt constructions had constructed up quietly throughout years of straightforward financing.
The episode heightened fears that related dangers could possibly be lurking throughout the market, prompting JPMorgan CEO Jamie Dimon to warn that personal credit score dangers had been “hiding in plain sight,” warning that “cockroaches” will probably emerge as soon as financial situations deteriorate.
The basic drawback non-public market offers have is multi-year commitments that do not line up with quarterly redemptions, stated Michael Shum, CEO of Cascade Debt, which builds infrastructure software program for personal credit score and asset-based lenders.
“When times are good, cashflows cover normal redemption requests. When times are bad, requests surge and it becomes a race to the bottom,” he stated.
Blue Owl didn’t instantly reply to CNBC’s request for remark.
