\n<\/p>\n
Concerned about an AI bubble? Sign up for The Daily Upside for smart and actionable market news, built for investors<\/b>.<\/p>\n
Thursday delivered a \u201cTroubled Trifecta\u201d of high oil, falling stocks and a gated exit.<\/p>\n
Alternative asset manager Blue Owl said two of its private credit funds had been slammed with elevated redemption requests totaling $5.4 billion, forcing it to cap withdrawals. The blame, the firm said, rests with a wave of misplaced investor anxiety.<\/p>\n
Sign up for The Daily Upside at no cost for premium analysis on all your favorite stocks.<\/b><\/p>\n
READ ALSO:\u00a0<\/b>Looming \u201cOil Cliff\u201d Pinches Airline Profits, Traveler Wallets<\/b>\u00a0and\u00a0<\/b>New Labor Data Rings Death Knell for the \u2018Great Resignation\u2019<\/b><\/p>\n
The $1.8 trillion private credit industry has been under intense scrutiny amid a string of failures by companies that secured loans on the less-regulated market. Last year, there were subprime auto lender Tricolor and auto parts company First Brands, and in February, there was mortgage lender Market Financial Solutions. Some have argued these are isolated cases that don\u2019t reflect the broader sector, but a parade of prominent Wall Street voices, led by JPMorgan\u2019s Jamie Dimon, have warned that more \u201ccockroaches\u201d are out there.<\/p>\n
Adding to the pressure are fears that private credit has too much exposure to the software industry, where firms are getting squeezed by doomsday hypotheses of AI rendering their services as pass\u00e9\u00a0<\/em><\/strong>as a Blackberry keyboard. According to an iCapital analysis of SEC filings, the average software exposure of business development companies, widely considered a publicly traded proxy for the private credit market, is 15% to 20%. As a result, jittery investors have begun yanking their cash at levels that have overwhelmed fund managers. This has compelled firms including Apollo, Ares, BlackRock and KKR to limit redemptions in recent weeks. On Thursday, Blue Owl revealed in an SEC disclosure that two of its key funds were the latest to cap investor payouts:<\/p>\n Investors asked to yank 21.9% from Blue Owl\u2019s $36 billion Credit Income Corp. fund between January and March and a gargantuan 40.7% from its $6.2 billion tech-focused Blue Owl Technology Income Corp fund. Insisting there\u2019s a \u201cmeaningful disconnect\u201d between market sentiment and the funds\u2019 performance, the firm said it would fulfill only 5% of the requests.<\/p>\n<\/li>\n Blue Owl suggested the redemption caps disclosed by its peers in recent weeks have intensified the anxiety over private credit, creating a \u201cheightened negative sentiment toward the asset class.\u201d Furthermore, the firm justified the redemption cap by insisting investor fears are misplaced because the \u201cunderlying credit fundamentals across our portfolio have remained resilient.\u201d<\/p>\n<\/li>\n<\/ul><\/div>\n More Than This: <\/strong>It\u2019s not just massive redemption requests that are weighing on private credit. Using regulatory filings, Bloomberg calculated last week that Blue Owl\u2019s Credit Income Corp. fund fell 0.86% in February, while noting that BlackRock\u2019s HPS Investment Partners reported its HPS Corporate Lending Fund fell 0.3%. That proved the worst performance for both since 2022.<\/p>\n This post first appeared on The Daily Upside. To receive razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter.<\/p>\n<\/p><\/div>\n\n