Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Private credit group Blue Owl will permanently restrict investors from withdrawing their cash from its inaugural private retail debt fund, backtracking from an earlier plan to reopen to redemptions this quarter.
The New York investment group on Wednesday said investors in Blue Owl Capital Corp II would no longer be able to redeem their investments in quarterly intervals but that the company would instead return investors’ capital in episodic payments as it sells down assets in coming quarters and years.
The decision underlines the risks facing retail investors, who have ploughed hundreds of billions of dollars into funds with limited liquidity rights.
The company said the fund “intends to prioritise 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”.
Blue Owl’s announcement came as part of a $1.4bn sale of credit assets across three of its funds, including $600mn for its retail credit fund. The sale amounts to 30 per cent of its total assets, which will be distributed to investors.
Blue Owl Capital Corp II, also known as OBDC II, has been closed to redemptions since November after it abandoned efforts to merge it with a larger publicly traded credit fund managed by Blue Owl.
That deal drew scrutiny after an FT report showed investors in OBDC II would face a 20 per cent hit based on the acquiring fund’s trading price at the time. Blue Owl called off the fund merger days later.
Because OBDC II is not publicly traded it had instead offered investors the ability to redeem cash every quarter at the fund’s stated value, generally up to 5 per cent of net assets.
The company believed that if it had reopened the tender, the 5 per cent threshold would have been hit, meaning it would have had to limit redemptions, a person familiar with the matter said. That prompted Blue Owl to launch a sale process for a portion of OBDC II’s loan book.
Blue Owl’s abandoned fund merger came as redemptions climbed in 2025 to a level where it would eventually have been forced to restrict investor withdrawals.
Investors in OBDC II pulled $150mn from the fund through the first nine months of 2025, a 20 per cent increase from the prior year, according to securities filings. Redemptions in the third quarter of 2025 nearly doubled to $60mn, or 6 per cent of its net asset value.
The company said it had also agreed to $800mn worth of loan sales from two other funds, including its non-traded technology-focused fund Blue Owl Technology Income Corp and its listed $16.5bn vehicle Blue Owl Capital Corporation, known by the ticker OBDC.
It said pension funds and insurance companies would buy the loans at an average of 99.8 per cent of their carrying value using new vehicles to be managed by Blue Owl.
Wednesday’s deal comes amid heightened scrutiny into the quality of private credit loans after a number of high-profile defaults and rising fears over the exposures portfolios have to software companies vulnerable to AI disruption.
Blue Owl characterised the asset sale as a validation of the quality of its portfolio and pointed to the prices it was able to secure in the sale. The company said its funds would maintain significant stakes in the loans after the $1.4bn worth of sales are completed.
The deal “reflects the rigour of Blue Owl Credit’s underwriting, portfolio construction and valuation processes”, it said.
The $1.4bn portfolio includes loans to 128 companies across 27 industries, with 13 per cent of the loans made to internet and software businesses.
