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Blue Owl's turmoil weakens private credit sector

confidence

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AI advances threaten software companies in private credit

portfolios

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Private credit market faces increased competition and

valuation

concerns

By Saeed Azhar, Saqib Iqbal Ahmed and Matt Tracy

NEW YORK, Feb 27 (Reuters) - The $2 trillion private

credit industry, which has expanded over the past decade from

financing leveraged buyouts to areas banks dominated, is facing

fresh strain from turmoil at Blue Owl Capital, a major private

lender.

Sentiment was already hit by questions about valuation and

transparency, and specific situations such as the bankruptcy of

auto-parts supplier First Brands, which some private credit

players had exposure to.

Concerns have been compounded by troubles at Blue Owl

, which emerged late last year when it moved to limit

withdrawals from a fund. 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

and the fast-growing market for private finance.

Some say the industry's size is working against it. State

Street estimates the addressable market for private credit has

grown to more than $40 trillion, including investment-grade

credit.

"Private credit's golden era is not over yet, but the days

of generating equity-like returns might be," said Kyle Walters,

U.S. private equity analyst at PitchBook. "Moreover, private

credit has reached a certain scale in recent years, leading to

more players entering the asset class and increasing

competition."

BLUE OWL PAIN

Blue Owl's turmoil matters well beyond the firm itself

because of its scale, role in private credit markets, and close

ties with institutional investors, corporate borrowers and

wealthy individuals.

Blue Owl, which managed more than $300 billion in assets as of

December 31, said last week 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 the smallest vehicle, mainly wealthy

individuals, to withdraw some funds every quarter.

Credit rating firm Moody's said Blue Owl's latest decision

to pivot away from traditional quarterly redemptions has

sharpened investor focus on how semi-liquid private credit

vehicles manage redemptions, especially with growing retail

participation.

Blue Owl declined to comment.

"Retail investors tend to be less patient and predictable

than institutional investors," said Johannes Moller, vice

president for Moody's Ratings, in a report on Tuesday.

Moller said rising redemption pressure is showing up across

the private credit market - including at perpetual non-traded

loan vehicles, or BDCs, which offer retail and high-net-worth

investors access to private credit - amid concerns about

valuations and liquidity terms.

As alternative managers push further into the retail

channel, Moody's expects liquidity management, disclosure, and

fund structure design to become more central to investor

decision-making - and potentially a drag on returns.

Blue Owl shares are down 29% year to date, while other major

alternative asset managers are also lower. Shares of Blackstone

are down nearly 27%, Apollo Global Management ( APO ) is

down over 26% and Ares Management ( ARES ) is down almost 31%

this year.

Blackstone and Ares declined to comment, but pointed to

recent comments by senior executives. Apollo did not respond to

a request for comment.

"We enter 2026 in a position of strength," said Ares CEO

Michael Arougheti on the company's earnings call, citing strong

underlying performance across the portfolio, and improving

capital markets and M&A backdrop.

Blackstone CFO Michael Chae said at a financial conference

this month credit quality remains strong, but cautioned about an

increase in defaults for the industry from an extremely low

level.

"The structural advantages will continue to produce superior

results. So, overall, outstanding momentum to our credit

business as we move into 2026," he said.

SOFTWARE EXPOSURE STRESS

Shares of other private equity firms and alternative asset

managers are also facing mounting unease over valuations of

software companies that they own and lend to, as artificial

intelligence threatens to upend business models.

"It's not clear that things have fundamentally changed, but

there's an idea that there's a technology risk that may not have

been fully priced in or contemplated as recently as three, six,

or 12 months ago," said Christian Hoffmann, head of fixed income

at Thornburg Investment Management.

INDUSTRY GROWTH

The private credit industry has evolved from providing

direct loans to middle-market companies to asset-backed finance

- loans backed by collateral such as hard assets.

Banks have also announced their private credit foray with

JPMorgan Chase ( JPM ) setting aside $50 billion for its direct

lending push last year, while others have partnered with

alternative asset managers on private credit strategies.

A recent Moody's report showed U.S. banks had lent nearly

$300 billion to private credit providers as of June 2025. Banks

loaned a further $285 billion to private equity funds and had

$340 billion in unutilized bank lending commitments available to

these borrowers.

Moody's has projected the industry's size to double to $4

trillion by 2030, but cautioned deepening ties between private

credit funds and traditional financial institutions could

heighten contagion risk in a downturn.

JPMorgan ( JPM ) said this week it was watching the private credit

market closely.

"I'm shocked that people are shocked. The reality is in this

environment, as the world gets more volatile, as you get towards

the end of the cycle, this outcome should be expected," Troy

Rohrbaugh, co-CEO of JPMorgan Chase's ( JPM ) commercial and investment

bank, told investors on Monday, referring to private credit

concerns.