If it blows up, then yes - it's about as black as it appears.
Seems like we've been here before.
Lending troubles at Blue Owl Capital and other so-called private credit behemoths are setting off fears of a “bank run,” as one hedge fund put it.
Blue Owl Capital, a giant Wall Street lender, used to do just about anything for attention. It hosted investment advisers at five-star resorts, advertised on digital billboards, slapped its logo on professional tennis players and hosted a pickleball tournament in Central Park.
But for the past few weeks, Blue Owl has been the talk of Wall Street for an altogether different reason. It has been trying to convince investors that its $300 billion portfolio of investments and loans is actually worth what Blue Owl says.
Despite a blitz of conference calls, media interviews and news releases, Blue Owl appears not to have resolved the miasma surrounding the firm. Rather, its efforts to calm many investor jitters may have contributed to worries that Wall Street is on the precipice of a broad, new credit crisis. On Tuesday, Blue Owl stock was down as much as 9 percent, nearing its lowest point as a public company. The share prices of other large lenders also fell.
The uncertainty centers on whether Blue Owl and other colossal “private credit” lenders have been far too optimistic in their assessments of multiyear, privately traded loans tied to risky companies and industries that may now be threatened by advancements in artificial intelligence. If so, these lenders may soon face the unpleasant reality of having to mark down the value of loans to these vulnerable companies or, worse, sell the loans under duress.
Blue Owl has continued to publicly emphasize that its metrics show only 1 percent of its loans are at risk of default, and that it does not foresee more weakening anytime soon. Craig Packer, Blue Owl’s co-president, said in a statement that its portfolio was “attractive and well-diversified.”
Yet the firm’s hand was essentially forced two weeks ago when investors in one of its funds demanded some of their money back. Partly to satisfy those requests, Blue Owl sold $1.4 billion worth of loans, including some to a closely affiliated insurer that Blue Owl did not initially disclose.
Another lender, New Mountain Capital, followed last week, unloading a set of loans at lower prices than it had valued them previously, freeing up cash to repay backers. And late Monday, the investing colossus Blackstone said that it would pay out record withdrawal requests for its biggest lending fund.
Now Wall Street is engaged in a grim guessing game as just about everyone — private-equity giants, investment bankers, hedge fund managers — speculates about who might be forced to the market next, and at what prices. The conflict in Iran could only complicate the calculus, as market volatility typically reaches the weakest recesses of Wall Street first, and the largest private lenders have relied on money from Middle Eastern governments to grow.
“You’re seeing a crisis of confidence,” said Victor Hong, a former investment banking risk executive.
“Anytime somebody hears that other people are getting out, you don’t want to be last,” said Steve Curley, investor and co-managing principal at 55 North Private Wealth.
What is happening represents the first major test for private credit, a catchall term to describe private equity funds run by Blue Owl, Blackstone, Ares and others that now act as lightly regulated banks that loan directly to companies large and small. Unlike stocks, government bonds or, say, oil, these investments are not traded publicly.
Historically, the money that these funds lend out has come from so-called institutional investors such as pension funds that agree to keep their investments in place for years or even a decade.
As the industry has boomed to more than $3 trillion, however, that spigot is running dry. Private credit lenders have shifted to raising money from individuals via mutual funds and other products with complicated-sounding categories such as “business development companies” and “interval funds.”
They all do basically the same thing: collect money from wealthy investors and invest it en masse in private-credit firms and individual loans for a fee.
The rub is that these newer funds have told their investors that they can ask for their money relatively quickly, as often as every quarter. That wasn’t a problem as long as new investments kept flowing in. But now that it isn’t a guarantee, the funds hold multiyear investments that must be liquidated more quickly to pay skittish individuals who want their money back fast.
If too many such investors try to yank their money at once, the funds may elect not to pay back all of them.
Not all are necessarily alarmed — one private credit investor, Hightower Advisors’s Robert Picard, who spoke at the suggestion of Blue Owl, said he was comfortable because many of the loans in question are long-term.
He called firms like Blue Owl some of the “best money managers and lenders that we have in the current U.S. economy.”
Of course, moments of uncertainty on Wall Street also bring opportunity, and opportunists are now circling private credit for a chance to profit from its troubles.
Boaz Weinstein, a hedge fund manager famous for helping bring down JPMorgan Chase’s infamous “whale” trader 14 years ago, is predicting that Blue Owl’s funds will have such trouble meeting redemption requests that he’s offering as little as 65 cents on the dollar to investors who want their money now.
“All you need is the snowball to start going down the hill, and it's started,” Mr. Weinstein said recently at an investment conference, where he was also trying to raise money for his own hedge fund, which places bets against loans it hopes will drop in value.
Another hedge fund, Rubric Capital, in a private note to investors passed around widely on Wall Street, predicted a cascading series of private credit defaults that would partly result from a “mismatch between assets and liabilities,” according to two people who read the letter.
It called out Cliffwater, the biggest operator of interval funds and an aggressive player in selling private credit to individual investors.
Cliffwater’s largest fund, started in June 2019, has since reported a total of just three negative months of investment performance. It now manages $33 billion. The first opportunity this year for investors to ask for their money back is next week.
The note surmised that Cliffwater could be “a canary in a coal mine.” Rubric, founded by a former deputy of the New York Mets owner Steven A. Cohen, predicts that Cliffwater will be “the first domino in the bank run we foresee.”
Cliffwater declined to answer questions for this article. In a note to its clients after The New York Times reached out for comment, the firm described Rubric’s concerns as “overcited and belabored,” and said Rubric had never contacted the firm before disseminating its analysis.
Stephen Nesbitt, Cliffwater’s chief executive, said in a separate statement that there was no asset-liability mismatch; that the fund had earned an A rating from Standard & Poor’s (the second lowest on the investment-grade scale); and that it had sufficient “liquidity” to pay out more than a year of potential redemption requests.
That liquidity, according to public filings, would be achieved by borrowing more money.
The biggest spotlight remains on Blue Owl, whose executives once liked to describe its business as “boring.” Established in 2016 to lend to “junk” rated companies, which are seen as too risky for traditional banks, it listed its stock publicly in 2021 for $10 a share.
Blue Owl’s shares are now down 60 percent from their peak in January 2025.
Last week, under the spotlight for offloading loans to pay out redeeming investors in one fund, the firm held two packed calls with financial advisers to urge them to stick with the firm.
Mr. Packer of Blue Owl said that the loan sale was conducted as an “arms length transaction” and allowed for investors to be repaid more quickly than would otherwise have been possible.
For Blue Owl’s co-chief executive Doug Ostrover there has been time for levity.
Last year, he and Marc Lipschultz, Blue Owl’s other co-chief executive, used their then-skyrocketed shares in Blue Owl to take out personal loans and purchase a stake in the Tampa Bay Lightning of the National Hockey League.
Mr. Ostrover was in Tampa, Fla., on Saturday with his wife for the latest game, according to a video viewed by The Times. At a local bar beforehand, he posed for pictures with waitresses and others, and in a loud speech to dozens of fans offered to buy everyone a shot of alcohol.
The Lightning lost the game, 6-2.
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