The company’s shares are down more than 7% after a private credit fund it owns, bearing the same name, announced that it will no longer allow quarterly redemptions, as it had up to now.
As the fund stated, investors’ capital will be returned gradually, for example through asset sales or the repayment of receivables.
This clearly signals potential liquidity problems at the fund. The decision to suspend withdrawals came one day after the fund announced the sale of an investment portfolio for $1.4 billion. Are the company’s potential troubles merely a structural mismatch between financial products and clients, or is this the first crack in a market lacking adequate oversight?
At present, there is no evidence that this episode is truly the beginning of a larger crisis. The company declares that the package of investments sold was disposed of at 99.7% of its par value. This suggests that asset valuations are justified and liquidity is being maintained, even if it has likely declined.
The private credit/private equity market has been at the centre of many analysts’ attention for several quarters as a potential trigger for the next financial crisis. Some investors appear, at least in part, to share this sentiment, given the rising and already record-high rate of capital outflows from funds of this type, as reported, among others, by The Wall Street Journal.
For now, the “private” market still shows no signs of panic, but tensions are clearly rising. Due to a higher risk profile, financial leverage, and an almost complete lack of transparency and oversight, these tensions may turn into a breakdown faster than in any other market segment.
Blue Owl Capital’s decision clearly highlights some weakness in a single company, which will not affect the broader market. However, if similar announcements begin to come from several other entities within a short period of time, it may no longer be merely a problem, it could be the start of a catastrophe.
OBDC.US (D1)
Source: xStation5
Today’s declines are a continuation of the company’s long-term valuation downtrend.
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