Private credit firm Blue Owl Capital capped withdrawals for two of its largest funds after receiving a wave of redemption requests, the company said in letters to shareholders on April 2.

During the first quarter, the New York-based investment firm received redemption requests of almost 22 percent of shares outstanding in its flagship $36 billion Blue Owl Credit Income Corp. fund.

Blue Owl’s tech-driven Blue Owl Technology Income Corp. fund received redemption requests of nearly 41 percent during the January to March span.

The company cited “heightened market concerns around AI-related disruption to software companies” for the higher than normal volume of client requests.

“We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio,” Blue Owl said in the shareholder letters.

“As public market dislocations and AI-related uncertainty reshape sentiment, dispersion is increasing across the sector, creating opportunities for experienced lenders to deploy capital selectively at improved terms.”

The firm chose to limit requests to 5 percent for both funds per quarter, two months after Blue Owl restricted quarterly withdrawals from one of its retail‑focused funds.

Shares of Blue Owl slipped by about 2 percent on the news, to its lowest level since October 2022. Year to date, the stock is down 44 percent.

Mounting Private Credit Stress

The $2 trillion private credit industry, which lends money to small- and medium-sized privately owned businesses, has been in turmoil this year.

A substantial problem is that the investment firms are overexposed to the software sector. Estimates suggest software may account for as much as 20 percent of their portfolios.

“Some of these loans have technological risk,” Scott Stevens, founder and portfolio manager at Grays Peak Capital, told The Epoch Times.

Many big-name tech stocks, such as Microsoft and Salesforce, have been roiled by the “software scare” and “SaaSpocaylpse.” Investors worry that the business models of software firms, referring to software-as-a-service (SaaS), have been extinguished by advancements in artificial intelligence (AI), particularly those of Anthropic’s Claude and its AI coding tool.

“A lot of the software loans and companies—their business models are now changing,” Stevens added. “So that’s a different dynamic, where I think some of the loans were lent on fairly aggressive projections—kind of where software companies or tech companies could go.”

This has produced a liquidity squeeze, exposing a fundamental contradiction: Private credit is premised on delivering high yields, but underlying loans are long-term and difficult to unload quickly.

As a result, private credit firms facing a liquidity squeeze have very few options beyond selling loans at discounts, overhauling the fund, or limiting client redemptions.

Scores of companies have chosen to cap redemptions over the past month. While many have limited withdrawals to 5 percent, a small number of firms have allowed slightly greater drawdowns.

Monitoring the Situation

Industry observers suggest this is a niche problem that will not threaten the financial system in the way that the subprime meltdown did during the global financial crisis.

Lorie Logan, president of the Dallas Federal Reserve, says officials are monitoring the situation, adding that the redemptions are “manageable.”

“As I think about broader financial stability issues, I think it’s a contained set of vulnerabilities, but it’s something that we’re paying quite a bit of attention to,” Logan said at an April 2 conference.

“I see it as manageable at the moment, but something that we need to keep an eye on.”

Private credit jitters have also caught the Treasury Department’s attention.

Officials said they will convene a meeting this month with domestic and international insurance regulators to discuss market events, risks, and the industry’s outlook amid turbulence, they said in an April 1 statement.

On April 2, Bank of England Governor Andrew Bailey said that private credit risks could echo those of the 2008 financial crisis. Although he stopped short of predicting a repeat of the economic collapse, Bailey urged vigilance and warned against dismissing the issue.

“If you then learn there is a lemon—it’s called a failure—you lose confidence ​in the whole system, because you say ’there’s more lemons in there than I thought, more weak companies in there than I thought, and I don’t know where they are,'” ​Bailey said.

“I’m not saying it’s going to happen,” he continued. “But we’ve had this experience before, so we have to watch for this.”

Many investors are not willing to risk conditions spiraling out of control—they are already heading for the exits.

Reuters contributed to this story.