Blue Owl turmoil adds to strain in $2 trillion US private credit sector

The $2 trillion private credit industry is facing fresh strain from turmoil at Blue Owl Capital, a major private lender, according to Reuters. Sentiment had already been weakened by questions about valuation and transparency, as well as the bankruptcy of auto-parts supplier First Brands, to which some private credit managers had exposure. Blue Owl's difficulties emerged late last year when it moved to limit withdrawals from a fund, and in recent days the firm has worried investors by selling shares of other alternative asset managers. The collapse of UK mortgage provider Market Financial Solutions is adding to wider concerns about lending standards.

Last week Blue Owl said it would sell $1.4 billion of assets across three funds, return part of the proceeds to some investors and pay down debt. It permanently removed an option for investors in its smallest vehicle, mainly wealthy individuals, to withdraw some funds each quarter. Blue Owl declined to comment beyond an earlier statement that it is accelerating the return of capital to investors within the timeframe announced at the offering.

Moody's said the decision to pivot away from traditional quarterly redemptions has sharpened investor focus on how semi-liquid private credit vehicles manage redemptions, especially as retail participation grows. Johannes Moller, vice president at Moody's Ratings, said rising redemption pressure is appearing across the market, including at perpetual non-traded vehicles known as BDCs, and that retail investors "tend to be less patient and predictable than institutional investors." Moody's expects liquidity management, disclosure and fund structure design to become more central to investor decisions, potentially weighing on returns.

Alternative asset managers have broadly underperformed this year. Blackstone, Apollo and Ares have all declined, with Ares CEO Michael Arougheti citing strong underlying performance and an improving capital markets backdrop, and Blackstone CFO Michael Chae saying credit quality remains strong while cautioning about a rise in defaults from an extremely low level. Investors are also weighing whether AI could threaten software companies that private equity firms own and lend to; Christian Hoffmann of Thornburg Investment Management said there may be a technology risk not fully priced in.

Banks are deeply involved in the sector. JPMorgan set aside $50 billion for its direct lending push last year, and Moody's reported U.S. banks had lent nearly $300 billion to private credit providers as of June 2025, plus $285 billion to private equity funds, with $340 billion in unutilized commitments. Moody's projects the industry could reach $4 trillion by 2030 but cautions that these ties could heighten contagion risk in a downturn. JPMorgan's Troy Rohrbaugh said the outcome "should be expected" as the cycle matures.