A blue owl sign outside the Seagram Building at 375 Park Avenue in the Midtown East neighborhood of New York City, USA, on Tuesday, January 20, 2026.
Bing An | Bloomberg | Getty Images
The private credit boom faces a new test after Blue Owl Capital permanently restricted withdrawals from one of its retail bond funds.
Blue Owl Capital shares fell nearly 6% on Thursday after the private markets and alternative asset manager sold $1.4 billion in loan assets held in three private debt funds.
The biggest chunk of the sale came from a semi-liquid private credit fund marketed to retail investors in the United States called Blue Owl Capital Corp. II, which plans to stop offering quarterly redemption options to investors, reigniting debate about whether stress is starting to flare up in one of Wall Street’s fastest-growing corners.
“This is a canary in the coal mine,” Verdad Capital founder and advisor Dan Rasmussen told CNBC. “The private market bubble is finally bursting.”
A broader concern is that years of ultra-low interest rates and narrow yield spreads have encouraged financial institutions to take riskier actions, lending money to smaller, more leveraged companies at yields that look attractive compared to public markets, market participants said.
“Years of ultra-low interest rates, ultra-low spreads, and a low number of bankruptcies have led investors to increasingly step outside the credit risk spectrum,” Rasmussen said. “This is a classic case of ‘fool’s yield,’ where high yields did not translate into high returns because the risk to the borrower was too high.”
Private credit, which is generally direct lending to businesses by financial institutions other than banks, has grown to a market of about $3 trillion worldwide.
When times are good, cash flow covers normal redemption demands. When the economy is bad, requests increase rapidly and it becomes a race to the bottom.
Publicly traded business development companies (BDCs) are investment vehicles that lend to small and medium-sized businesses and make up a major part of the private credit market, but increasingly they are being funded by individual investors rather than institutional investors, according to Duke University’s Fuqua School of Business.
Fuqua research released last September showed that institutional ownership of BDC stocks will steadily decline over time, dropping to an average of about 25% by 2023.
“This trend indicates that retail investors are playing an increasingly larger role in providing capital to listed BDCs,” the researchers noted.
In 2025, the eight largest members of the S&P BDC Index had dividend yields of up to 16%, and Blue Owl’s dividend yield was over 11%. For comparison, S&P Global’s U.S. High Yield Corporate Bond Index has one-, three-, and five-year returns of approximately 7.7%, 9%, and 4%, respectively.
“The vast majority of private credit fund loans that individual investors tend to own are high-yield loans, which inherently carry some risk,” said Guy Lebas, chief fixed income strategist at Janney Montgomery Scott.
“Over the course of the cycle, we could see significant defaults across these funds,” he added.
Increased risk?
Concerns about private credit have recently resurfaced as investors grow nervous that AI tools could disrupt the industry’s main group of borrowers, the traditional enterprise software model, adding to existing concerns that rising leverage, opaque valuations, and the stress of isolated borrowers could reveal deeper systemic weaknesses.
The collapse of First Brands Group last September left the highly leveraged auto parts maker in crisis, highlighting the risks to private credit and highlighting how an aggressive debt structure had quietly built up over years of easy financing.
The incident raised concerns that similar risks could be lurking across the market, with JPMorgan CEO Jamie Dimon warning that private credit risk was “hiding in plain sight” and that “cockroaches” were likely to emerge as economic conditions worsened.
The fundamental problem with private market deals is that they are multi-year contracts that don’t match quarterly amortization, said Michael Shum, CEO of Cascade Debt, which develops infrastructure software for private credit and asset-based lenders.
“When the economy is good, cash flow can cover normal redemption requests. When the economy is bad, the demands spike and it’s a race to the bottom,” he said.
Blue Owl did not immediately respond to CNBC’s request for comment.
