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 in Blue Owl Capital fell nearly 6% on Thursday after the private market and alternative assets manager sold $1.4 billion of loan assets held in three of its private debt funds.

The biggest portion of the sale came from a semi-liquid private credit fund marketed to U.S. retail investors called the Blue Owl Capital Corporation II, which will stop offering quarterly redemption options to investors, reigniting debate over whether stress was beginning to resurface in one of Wall Street’s fastest-growing corners.

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

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

“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 said. “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, which are generally direct loans made by non-bank lenders to companies, have ballooned into a roughly $3 trillion market globally.

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

The Fuqua research, which was published last September, showed that institutional ownership of BDC shares has steadily declined over time, falling to about 25% on average by 2023.

“This trend indicates that retail investors are playing an increasingly large role in supplying equity capital to publicly traded BDC,” the researchers pointed out.

In 2025, the eight largest members of the S&P BDC Index offered dividend yields which can go up to 16%, with Blue Owl’s at over 11%. For comparison, the S&P Global’s U.S. high yield corporate bond index 1-year, 3-year and 5-year returns stand at around 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,” said Guy LeBas, chief fixed income strategist at Janney…