(Feb 27): Shares of Blue Owl Capital Inc are on track for their biggest monthly decline in nearly four years, as investor anxiety grows over turbulence in the US$1.8 trillion private credit industry.
Blue Owl’s stock is down 18% so far in February, putting it on pace for the worst monthly performance since June 2022, according to data compiled by Bloomberg. Blue Owl Technology Finance Corp, one of the firm’s business development companies, is down 14% for the same period, headed for its worst month on record.
Concerns over the industry have mounted in the past week, after Blue Owl halted redemptions in one of its funds last week and decided to sell some assets to help pay investors. The move sparked a US$1.2 billion drop in the firm’s market value on the trading day following the news and hit the stocks of other private credit players. Shares of Ares Management Corp, Blackstone Inc and Apollo Global Management Inc are down at least 20% year to date.
“Currently, a lot of investors are afraid of the momentum,” said Raymond James analyst Wilma Burdis. “There are also retail concerns on redemption requests, and then of course you’ve got tons and tons of private credit headlines.”
The volatility was the latest sign of tumult in an industry stricken with worry about overspending on artificial intelligence (AI), the technology’s disruptive power and lending standards more broadly — a backdrop that’s evoked comparisons to the period preceding the 2008 financial crisis. Software companies especially have come under the spotlight, given concerns that many received funding from alternative asset managers at lofty valuations.
See also: S&P 500 falls in retreat from risk as block cuts spur AI anxiety
Blue Owl’s shares are on track for a record seventh straight monthly decline. A representative for the firm declined to comment.
“The AI debate in private credit has been useful, but it’s also become very binary,” said John Cole Scott, president of CEF Advisors. “Either software is the next shale bust, or it’s no problem at all. The truth for a lender like Blue Owl is in the middle.”
There has been no shortage of pessimism. Activist investor Boaz Weinstein — whose Saba Capital is seeking to snap up stakes in three Blue Owl Capital funds at a steep discount to their stated value — warned of the “wheels coming off” in private credit.
See also: Retail traders rush to buy the dip in beaten-down software stocks
Analysts at UBS Group AG, meanwhile, said private credit could see default rates surge as high as 15%, two percentage points more than the firm forecast less than a month ago, if AI triggers an “aggressive” disruption among corporate borrowers.
Others, however, said the ructions are being driven by fear rather than fundamentals.
“The challenge right now is more about sentiment than solvency,” said Bloomberg Intelligence analyst Michael Kaye. “Until there’s clearer evidence of stabilisation in flows, the shares may remain more narrative-driven than fundamentals-driven.”
Some have encouraged investors to capitalise on the shares’ weakness. BofA Securities said the recent stock plunge presents an attractive opportunity to purchase shares of Blue Owl and some of its alternative asset manager peers.
“There is a significant level of misinformation weighing on OWL and the private credit industry,” BofA analyst Craig Siegenthaler wrote in a Feb 23 note. Blue Owl’s “investment performance is solid to strong across all of its strategies.”
Uploaded by Felyx Teoh
