What happened
Blue Owl Capital imposed withdrawal caps on two private credit funds on 2 April after facing a record $5.4 billion in redemption requests in the first quarter. Blue Owl’s $36 billion Credit Income Corp saw requests surge to 21.9% of shares, up from 5.2% the prior quarter.
Its smaller Technology Income Corp was hit harder, with requests reaching 40.7% of shares. Blue Owl imposed a 5% quarterly cap on withdrawals. Ares Management also capped redemptions at 5%.
Why it matters: Private credit now represents roughly 30% of the US leveraged finance market, up from 13% a decade ago. This is the sector’s biggest liquidity test since the 2008 financial crisis.
What is driving it
Software companies make up 26% of private credit direct lending exposure. Fear that AI could disrupt the software-as-a-service business model has sent publicly listed SaaS stocks plunging. Investors are now fleeing private credit funds with software exposure.
Blue Owl shares fell as much as 8.6% to record lows. Apollo, Blackstone, KKR, Ares, and Carlisle shares fell 3.6 to 5.5%, with a combined $132 billion in market value lost this year.
The US private credit default rate has already reached 5.8%, the highest in several years.
Systemic risk
Morgan Stanley warns default rates could reach 8% but says this would be “significant but not systemic,” pointing to lower leverage compared with 2008. Fed Chair Jerome Powell said the central bank has not seen anything threatening the financial system as a whole.
Blue Owl itself cited a “meaningful disconnect” between public sentiment and the actual performance of its portfolio.
What happens next
Morgan Stanley anticipates 8% annual defaults between the second half of 2026 and the first half of 2027. The sector faces increased scrutiny around valuation transparency and liquidity risks.