Blue Owl Capital's struggles spark liquidity concerns
Arthur Hayes, co-founder of BitMEX and chief investment officer of the Maelstrom Fund, delivered a one-sentence message to Federal Reserve Chairman Jerome Powel last week.
"Warm up that printer Powell," Hayes said in a post on X.
He was reacting to news that Blue Owl Capital (OWL), the world's largest private credit fund, was permanently halting withdrawals from its inaugural private retail debt fund, after having previously said that it would be opening redemptions at some point this quarter.
The firm said that investors in its Blue Owl Capital Corp II fund would no longer be permitted to make quarterly withdrawals, but that it would now return their capital in periodic payments as it begins selling down assets over the coming quarters and years.
According to Blue Owl, it “intends to prioritize delivering liquidity ratably to all shareholders through quarterly return of capital distributions, which are intended to replace future quarterly tender offers and may be funded by earnings, repayments, other asset sale opportunities or strategic transactions."
The decision comes as Blue Owl announced a $1.4 billion sale of credit assets across three of its funds, including $600 million from its private retail debt fund.
"We saw strong demand to purchase these investments at fair value from highly sophisticated institutional investors, with interest far exceeding the value of the investments we ultimately chose to sell," Craig W. Packer, chief executive officer of Blue Owl's BDCs, said in a statement.
"This transaction underscores the confidence that large, experienced buyers have in our direct lending platform and has meaningful benefits for all shareholders of these funds."
But what Hayes was inferring in his message to Powell was that Blue Owl's struggles could be pointing to a looming liquidity crunch across the markets, similar to what happened during the 2008-09 financial crisis.
During that liquidity crisis, Congress authorized the Troubled Asset Relief Program (TARP) that allowed the government to purchase up to $700 billion in assets to stabilize the US financial system.
In other words, the government started "printing" money in order to stop the bleeding.
Mohamed A. El-Erian also raises concerns
And Hayes was not alone in sounding the alarm after Blue Owl halted its redemptions.
In his own post on X, Mohamed A. El-Erian, former CEO and co-CIO of PIMCO, asked whether this was “a ‘canary-in-the-coal-mine’ moment, similar to August 2007?”
The financial crisis of 2008-09 essentially began in August 2007 when two hedge funds managed by Bear Stearns collapsed after suffering heavy losses on subprime mortgage-backed securities. Shortly after, the French bank BNP Paribas froze withdrawals from three of its funds over an inability to properly value US mortgage assets.
Credit markets immediately tightened - quite literally overnight - and liquidity had almost completely dried up.
El-Erian said that the question he was asking "will be on the mind of some investors and policymakers" after Blue Owl's decision to freeze withdrawals from its retail fund.
“There’s plenty to think about here, starting with the risks of an investing phenomenon in advanced (not developing) markets that has gone too far overall (short answer: yes), to the approaches being taken by specific firms (lots of differences, yet subject to the ‘market for lemons’ risk),” El-Erian said. “There’s also the ‘elephant in the room’ question regarding much larger systemic risks.”
He added that the "systemic risks" in the current market is "nowhere near the magnitude of those which fueled the 2008 Global Financial Crisis, but a significant – and necessary – valuation hit is looming for specific assets."
Private credit firms like Blue Owl Capital have generated trillions in revenue by lending to largely risky companies, including many in the software sector. About 20% of loans made to software companies have come from private credit funds.
And now these loans have become even riskier as the software sector suffers steep losses, driven by Wall Street’s growing fears that AI could broadly disrupt the industry.
Blue Owl Capital has pushed back on the doom narrative surrounding the software industry.
During the company's fourth quarter and full year 2025 earnings this month, Blue Owl co-CEO Marc Lipschultz pointed to Nvidia founder and CEO Jensen Huang's recent comments calling the idea that AI will someday overtake software "the most illogical thing in the world."
"And the reason it's ridiculous is because software itself is not a monolith," Lipschultz said. "Software, it's a system of record where you are integrated into the business processes of large companies. Remember, business processes are a big part of how companies operate and software is an enabler."
Blue Owl's stock has crashed more than 53% over the past year.