On Wall Street, the center of global finance, the nightmare of the 2008 global financial crisis is creeping back. In the private credit market, which has grown explosively in recent years, a redemption freeze has occurred that blocks retail investors from withdrawing funds.
On the 19th, Blue Owl Capital, a top-tier global alternative investment asset manager with $300 billion in assets under management (AUM), said it would permanently halt quarterly redemptions for Blue Owl Capital Corp II (OBDC II), a private credit fund run for retail investors.
Private credit is a financing method in which asset managers or private equity firms, instead of tightly regulated banks, pool investors' money and lend directly to corporations. Because credit screening is more flexible than at banks, investors can receive higher interest. In return, there is a critical downside: once money is lent to a corporation, it is locked up until maturity (usually several years).
However, large asset managers like Blue Owl promised to attract retail investors by saying, "If you want, we will let you withdraw (redeem) within a 5% cap of the fund's total asset each quarter." As a result, the private credit market, which was $2.2 trillion (about 3,190 trillion won) in 2023, is estimated to grow to $5 trillion (about 7,250 trillion won) in 2029, more than doubling in six years.
Blue Owl's declaration that it would "permanently halt quarterly redemptions" means it has eliminated the promised regular withdrawal window altogether. With loans extended to corporations not immediately recoverable, a flood of investor requests to pull money led to a "liquidity mismatch" that effectively shut the fund's doors.
Behind investors clamoring to pull money first lies fear of the rapidly advancing "artificial intelligence (AI)" technology. As AI corporations such as Anthropic have recently rolled out tools powerful enough to replace people, the market has begun to fear that "incumbent software (SW) corporations could collapse in an instant under pressure from AI." Private credit funds, which must boost returns, have already lent huge sums to these software corporations. One tech-focused fund run by Blue Owl has as much as 46% of its total asset concentrated in software corporations.
Major outlets reported that investor anxiety exploded over the question, "If incumbents fail due to AI innovation, won't the loans we invested in go bad too?," triggering a wave of large-scale fund redemption requests—a fund run. According to the Financial Times (FT), in the fourth quarter of last year alone, redemption requests from large private credit funds of more than $1 billion surged 200% from the prior quarter to $2.9 billion.
Wall Street heavyweights voiced concern in unison over the incident. Critics say the private credit market, which has expanded in a regulatory gray zone without transparency, is revealing its true face. Mohamed El-Erian, an adviser to Allianz who ran PIMCO, the world's largest bond fund, during the financial crisis, wrote on X that day, calling it "a 'canary in the coal mine' moment reminiscent of August 2007."
In August 2007, BNP Paribas, France's largest bank, halted redemptions after saying it could not value three of its funds. The incident looked like a small spark at the time but became the starting point of the global financial crisis (the subprime mortgage meltdown) that devastated the world economy a year later. El-Erian warned that "a much larger systemic risk could be lurking in the private credit sector."
Earlier, JPMorgan Chase Chairman Jamie Dimon also said there is a high chance that "more cockroaches are hiding" in the private credit market, noting that the crisis has not yet surfaced. Former Goldman Sachs CEO Lloyd Blankfein warned that the credit market could be the epicenter of the next crisis for the U.S. economy.
To contain the situation, Blue Owl did not simply block redemptions and walk away; instead, it decided to raise cash by selling $1.4 billion (about 1.9 trillion won) of high-quality loan assets from three operating funds directly to North American pension funds and insurers. Craig Packer, Blue Owl's co-founder, said, "We are not permanently halting redemptions; we are changing how we return cash," adding that within 45 days the firm would make a lump-sum payment of 30% of book value to investors.
Blue Owl emphasized that the sale price for the assets being sold is 99.7% of face value, saying it effectively sold at full price. The company argued this was a win-win transaction in which it sold assets close to book value, not a fire sale of high-quality assets under a liquidity (cash) crunch.
But the fallout is unlikely to subside quickly. As private credit risks surface, U.S. Democratic Sen. Elizabeth Warren urged tougher regulation, saying, "The Trump administration must stop pushing risky investments into Americans' retirement accounts." She meant that private credit also needs bank-level capital buffers and stress tests.
As a sense of crisis mounted, shares of major private equity firms running private credit programs also plunged. On the 19th in New York trading, Blue Owl's stock tumbled nearly 10% intraday to a two-and-a-half-year low. Other private equity firms that dominate Wall Street—Apollo Global Management, Blackstone and Ares—also slumped in tandem by 5% to 6%.