Blue Owl redemption halt sparks jitters, but Asian private credit seen largely shielded

[SINGAPORE] The decision by alternative asset manager Blue Owl to halt quarterly redemptions for its unlisted fund Blue Owl Capital Corp II (OBDC II) has rattled markets, but industry players say the fallout is unlikely to spread to Asia.

Shares of Blue Owl have fallen 29.4 per cent or US$4.50 to US$10.81 since the start of 2026, as at Friday (Feb 20). The manager has since said that it would sell US$600 million of OBDC II’s assets to return capital to investors.

This represents about US$2.35 per share or 30 per cent of OBDC II’s net asset value. The fund will also be returning capital via quarterly distributions rather than redemptions, which will be funded by earnings, repayments, other asset-sale opportunities or strategic transactions.

Blue Owl is one of the largest managers of business development companies (BDCs), which are US-regulated investment vehicles that provide financing to small and mid-sized private enterprises often underserved by traditional bank lending. BDCs are a major channel for private credit and have increasingly drawn retail investors in recent years, as they tend to offer higher returns.

Last week, investor jitters over artificial intelligence (AI)-driven capital expenditure sparked a sell-off in alternative asset managers in the US, dragging down Blue Owl alongside its peers. As investor redemptions picked up, the firm suspended quarterly withdrawals in one of its BDCs, adding to concerns about liquidity risks in private credit.

Luca Blasi, head of private markets and regulatory solutions, S&P Global Market Intelligence, said: “The assets in the Blue Owl private-credit funds are very sensitive to the baseline interest rates in the US, particularly the possible reduction of interest rates and sign of frothiness of equity markets in the software sector (where many private borrowers operate) that are making investors jittery.”

Citi recently announced that Blue Owl was one of the new fund providers for its Citigold Private Clients in Asia. The Business Times has reached out to Citi with queries.

Default risks under scrutiny

There is some heightened default risk around mid-market companies in private-credit portfolios, said Eric Yeo, partner for financial services assurance, at PwC Singapore.

Deteriorating macroeconomic factors including geopolitical developments, supply-chain disruptions, tighter monetary policy and a more challenging economic environment have raised default risk.

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“Defaults typically increase when borrowers struggle with refinancing debt or face worsening business fundamentals, which can take time to become apparent in financial results,” he told BT.

At the same time, market sentiment has turned cautious on software companies in private-credit portfolios in particular, amid worries that AI could disrupt business models and erode valuations.

Blocking redemptions is a liquidity management tool available to private-credit funds but poses a disadvantage for those investing in private assets, versus more liquid assets, said Blasi. Also, investors might be deprived of access to their capital when they need it most.

“This lack of liquidity is partly linked to the superior premium that investors receive to hold this type of assets,” he added.

Still, Blue Owl’s gating of redemptions is not necessarily negative, as the pricing of assets is not just about fundamentals but also the sentiment, noted Andrew Tan, CEO, Asia-Pacific, at private-credit provider Muzinich & Co. “If you are seen as having weak hands and force-selling your assets, the market will offer low prices for your assets.”

He added: “They’re going to be selling these assets at prices that are a poor reflection of what they should be, and then it becomes unfair to the other investors who are not looking to redeem.”

In that context, he said, the mechanism has worked as intended, allowing Blue Owl to sell its assets in a rational manner to return capital.

A note by independent financial adviser Cliffwater highlighted that OBDC II had historically delivered strong loan performance. The fund returned an annualised 9.1 per cent through to Sep 30, 2025, almost matching the 9.2 per cent of the Cliffwater Direct Lending Index for the same period.

The Cliffwater Direct Lending Index measures private-loan performance and indexes private middle-market loans.

The difference in Asia

In Asia-Pacific, private-credit funds are closed-end with longer lock-up periods with limited or no redemption options prior to maturity. This structure reduces the risk of sudden liquidity pressures that can trigger a sell-off, said PwC’s Yeo.

“Additionally, the collateral profiles and covenant packages in Asia may differ from those seen in the West, potentially allowing for more substantial recoveries in default scenarios – even though enforcement can be more complex due to jurisdictional and legal challenges,” he added.

Muzinich’s Tan pointed out that, with the market here having only closed-end funds, there is no systemic risk with regard to portfolios or deal flows. For institutional investors, this is a “non-event”, he added, and is just “noise”.

“So the winners and the losers will probably start shaking out in the next couple of months,” he said.

That said, private credit in Asia is not without vulnerabilities.

Private-credit risks in Asia include payment-in-kind, a feature where borrowers can defer instalment payments and mask or put off default risk, said Yeo. This can potentially delay credit issues to a later date as cash payments are put off.

Investors should also note that liquidity is conditional and not guaranteed even in semi-liquid funds, especially under market stress.

“Information asymmetry in less-transparent Asian credit markets – with fewer comparable data points and less-frequent market pricing – can increase underwriting risk and make portfolio valuations more challenging,” highlighted Yeo.

Regardless, industry observers said that the coming months will likely separate stronger managers from the rest, with private-credit providers with disciplined credit writing, a diversified portfolio and managed leverage levels expected to prove more resilient as market conditions tighten.