Blue Owl tightens redemptions in private credit funds

Blue Owl Capital’s share price slid after the firm disclosed tighter redemption terms for parts of its private-credit offering, a move that reignited a familiar anxiety: what happens when investors discover that “illiquidity premium” is not a market feature but a contractual trapdoor. The New York Times reports that the episode has stirred broader fears about the fast-growing private-credit ecosystem.

The product at the center of the worry is not a plain-vanilla bond fund. Much of retail-facing private credit has been packaged in structures such as interval funds—registered funds that offer periodic, limited repurchases—or BDC-like vehicles that lend to middle-market borrowers while marketing steady income. The pitch is simple: higher yields than public bonds, lower volatility than equities, and “some” liquidity. The engineering is also simple: borrow short from investors who can ask for cash on a schedule, then lend long into loans that cannot be sold quickly without taking a haircut.

When conditions are benign, the mismatch is invisible. When redemptions spike, managers must either sell loans into a thin secondary market, draw on credit lines, or—most commonly—use the fine print. Interval funds typically cap quarterly repurchases (often 5% of net assets) and can prorate requests. That means the investor, not the manager, is effectively holding the liquidity risk. If too many people head for the exit at once, the fund doesn’t “run” so much as it rations.

That is the shadow-banking resemblance: maturity transformation without the explicit capital and liquidity requirements imposed on banks. Banks that fund long-duration credit with runnable liabilities face regulatory liquidity coverage ratios, stress tests, and capital buffers. Private-credit vehicles face disclosure rules and product-structure constraints, but they largely avoid the hard prudential perimeter. The result is a system where the same economic risk—duration, credit deterioration, and funding stress—exists, but the loss-absorbing capacity is mostly investor patience.

Who actually bears the risk? Borrowers still owe the loans. Fund managers still collect fees (often on AUM that is slow to shrink when redemptions are gated). The marginal risk sits with the investor who believed quarterly liquidity was a feature rather than a marketing compromise.

Regulation helped create the habitat. As banks pulled back from certain corporate lending under post-crisis rules, private credit stepped in—cheered as “market-based finance.” Now, when the market tests the liquidity claim, the escape hatch is not price discovery but paperwork.

If Blue Owl’s tightening becomes a template, it will clarify the real product on offer: not liquid access to private loans, but a managed queue. That may still be a rational trade—if investors are told they are buying a lockup with coupons, not a bond fund with vibes.