PE giant's stock price continues to plummet, with "storm center" Blue Owl's stock price halving over the past year, falling below the "initial offering price"

As investor redemption waves intensify and concerns grow over AI technology’s potential impact on software companies, the stock price of Blue Owl Capital, a private credit giant managing over $300 billion in assets, continues to plummet, falling below its IPO price and highlighting the severe liquidity challenges facing the private capital market.

On Tuesday, March 4th, Blue Owl’s stock briefly dropped 9% to $9.73, breaking below its $10 IPO price set in 2021 through a SPAC merger. Over the past 12 months, the company’s stock has declined approximately 50%, with its market value significantly shrinking.

Panic quickly spread across the industry, dragging down the share prices of private equity giants. On Tuesday, Blackstone’s stock fell nearly 9% intraday and closed nearly 4% lower, Apollo Global Management declined 6%, and KKR dropped 4%, all significantly outperforming the broader market. Previously, Blackstone’s $82 billion private credit fund, Bcred, disclosed a net outflow of $1.7 billion over the month ending March 2.

Blue Owl positions itself as “one of the largest lenders supporting private equity-backed software companies.” Its flagship technology fund, Blue Owl Technology Finance (OTIC), allocates up to 56% of its assets to software and tech services firms, far exceeding the average for similar funds.

Amid the AI disruption, the risk of software defaults is rising. As Blue Owl permanently restricts cash withdrawals from its first private retail debt fund, market concerns about heavily tech-focused loans and liquidity restrictions on these investment vehicles are rapidly intensifying.

Redemption waves spread, industry giants face collective pressure

Redemption requests for private credit funds have surged in recent months. Besides Blue Owl, competitors like Blackstone are also affected. The accelerated outflows directly reflect market unease about the valuation of tech company loans in the private, unlisted markets.

According to Apollo, over the past decade, loans to mid-sized tech companies account for nearly one-third of all private loans, with a higher proportion—up to 40%—in private equity transactions. These loans are often supported by private equity groups, but now these software firms face direct threats from AI advancements.

Last week, publicly traded private credit funds managed by KKR, Apollo, and BlackRock also experienced declines. The Financial Times reported that these funds have reported increasing non-performing loans and have been forced to cut dividends to cope with declining interest income and asset impairments.

Liquidity crisis forces Blue Owl to “cut off to survive”

Blue Owl’s crisis first emerged last fall when its retail credit fund, OBDC II, closed redemption channels and planned to merge with a larger listed vehicle. However, this deal was reportedly halted after media exposure, as it would have caused investors to face direct paper losses.

Last month, Blue Owl made a shocking decision to permanently restrict cash withdrawals from the fund, abandoning plans to reopen redemptions this quarter. The company announced it would prioritize liquidity distribution to all shareholders proportionally through quarterly capital allocations.

To address the crisis, Blue Owl conducted a $1.4 billion sale of credit assets across three of its funds, including $600 million from its retail credit fund. Although the company managed to sell about one-third of its fund assets at near par value, this major shift exposed the significant risks faced by individual investors pouring into liquidity-constrained instruments.

Wall Street warns that a “reshuffle” is imminent

Founded by Wall Street veterans Doug Ostrover and Marc Lipschultz, Blue Owl once managed assets soaring to $307 billion. Today, this once-hot firm is seen as a market bellwether. Economist Mohamed El-Erian compared Blue Owl’s crisis to the “canary in the coal mine” before the 2008 financial crisis. Hedge fund Fourier Asset Management CIO Orlando Gemes warned, “The alarms we see in private credit are eerily similar to 2007.”

Amid industry turmoil, Apollo CEO Marc Rowan issued a stern warning at a Bloomberg-hosted conference on Tuesday, predicting an upcoming “reshuffle” in the private markets. He emphasized that future fund manager performance will be highly differentiated.

“Some underwriting mistakes are inevitable,” Rowan said plainly. “But the question is, who are good risk managers, and who are not? If 30% of your portfolio is concentrated in an industry under technological attack, then you are not a good risk manager.”