The rapidly expanding $3 trillion private credit market is facing renewed anxiety after Blue Owl moved to restrict investor withdrawals from one of its debt funds ahead of a major merger—intensifying fears that risks are building in the most opaque corners of global credit.
Bankruptcies expose hidden fault lines
Concerns have been mounting after the twin bankruptcies of First Brands and subprime lender Tricolor, which spotlighted the increasingly complex and less transparent structures underpinning private credit. Moody’s analysts warned:
“Structural innovations are reshaping the risk landscape… and introducing new risks around transparency, recoveries, and structural subordination.”
Adding to the unease, U.S. prosecutors are investigating telecom companies after HPS Investment Partners, the private-credit arm of BlackRock, disclosed $400 million in loans allegedly backed by fake receivables. BlackRock and federal prosecutors declined to comment.
A boom too fast for comfort
The sector’s growth has been explosive. Morgan Stanley expects private credit to hit $5 trillion by 2029, up from $3 trillion in 2025 and $2 trillion in 2020. That meteoric rise has drawn scrutiny over the market’s limited oversight, blurred borrower disclosures, and growing interconnections with traditional banks.
JPMorgan CEO Jamie Dimon issued one of the strongest warnings in October:
“When you see one cockroach, there are probably more.”
JPMorgan has already taken a $170 million charge tied to Tricolor.
Bank stocks from London to Tokyo fell in October amid bad-loan disclosures and alleged borrower fraud at two U.S. regional lenders.
Inside Blue Owl’s redemption freeze
Earlier this month, Blue Owl unveiled plans to merge its two debt funds:
- Blue Owl Capital Corp (OBDC) – publicly traded
- Blue Owl Capital Corp II – non-traded BDC
But investors in the non-traded fund cannot redeem capital until Q1 2026, when the merger is expected to close. The Financial Times reported that some investors may take paper losses, as OBDC trades at a ~20% discount to its stated asset value.
Shares of OBDC are down 21.6% year-to-date, while Blue Owl’s own stock has plunged nearly 41% in 2024, hitting its lowest point since December 2023.
A senior executive told FT the share exchange could lock in losses at current prices, though Blue Owl emphasized that investors will begin receiving the higher dividend rate paid by the larger fund.
Blue Owl declined further comment.
Market sentiment vs. reality
Despite falling prices, Blue Owl BDC CEO Craig Packer said:
“Public market sentiment seems disconnected from the realities on the ground. We encourage investors to look beyond the headlines.”
Still, with red flags emerging—from bankruptcies to fraud probes to withdrawal freezes—investors remain on edge. The private credit machine continues to grow at breakneck speed, but the latest developments suggest that its hidden vulnerabilities are becoming harder to ignore.