This fund that now says it'll never open up for withdrawals has El-Erian making Bear Stearns parallels

By Steve Goldstein and Christine Idzelis

Shares of Blue Owl, the investment manager of private credit funds, were tumbling Thursday

A fund that invests in the debt of middle-market companies has abandoned plans to ever let investors withdraw their money.

A $1.6 billion fund at the center of concerns over private debt is now abandoning plans to let investors withdraw their money, sending shares of its investment manager Blue Owl Capital tumbling.

Blue Owl Capital Corp. II, which invests in middle-market corporate debt and is halting redemptions, intends to make quarterly returns of capital distributions, the firm said Wednesday. That's after its investment manager, Blue Owl Capital, agreed to sell $1.4 billion of loans to four big public pension and insurance investors, some $600 million of which were in the Blue Owl Capital Corp. II fund.

"This was not a forced sale," Barclays analysts said in a note Thursday. Blue Owl's sale of the $1.4 billion of private credit assets, including some software loans, "effectively at par is positive for the credit of its BDCs," they said. BDC's, or business development companies, lend to midmarket companies.

Still, shares of Blue Owl Capital (OWL) were tumbling about 10% on Thursday afternoon, deepening their losses so far this year to more than 25%, according to FactSet data, at last check.

Former Pimco CEO Mohamed El-Erian, in a post on X, raised the question of whether Blue Owl's halting of of redemption from the firm's private debt fund was a "canary in the coal mine" moment, similar to the collapse of two Bear Stearns funds in 2007.

"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)," he said.

He did say the magnitude of systemic risk is nowhere near that which fueled the 2008 global financial crisis.

Blue Owl highlighted that the loan sales were for 99.7% of par value, which it said was evidence of the confidence that large, experienced buyers have in its direct lending platform. It's planning to return 30% of the net asset value of the frozen fund in the first quarter.

The Blue Owl Capital Corp. II is not listed on an exchange, but does have retail investors.

Blue Owl's publicly traded funds, the $16.5 billion Blue Owl Capital Corporation (OBDC) and the $6.2 billion Blue Owl Technology Finance (OTF), each sold $400 million in loans as part of the transaction.

In November, plans to merge Blue Owl Capital Corp. and Blue Owl Capital Corp. II were abandoned. At the time, it said it would reinstate withdrawals in the first quarter.

The OBDC fund was trading at 81% of its net asset value, while Blue Owl Technology Finance traded at 73% of its net asset value. Both BDCs have lent heavily to software companies, a sector where investors have grown skeptical of their growth prospects due to advancements in artificial intelligence.

-Steve Goldstein -Christine Idzelis

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02-19-26 1403ET