It opened on Wall Street another wound, after the sufferings that have struck the software sector and transport: now the stocks that are suffering a hard blow are private equity after the case of Blue Owl Capital which has also dragged down its competitors. As with the other cases, the background is investments in artificial intelligence, this time expressed in terms of excessive financial leverage.
Private equity firm Blue Owl Capital is located in face an ever-widening vortex falling loan yields, concerns that artificial intelligence could eat away at indebted software companies, and lingering fears of overheated lending. His answer, for now, is to sell: The company said it is selling $1,4 billion in assets from three of its credit funds to return capital to investors and repay debt. It has also permanently halted redemptions in one of the funds, as direct lending and software shares are under pressure.
Its shares closed down about 6% on Wall Street on Thursday, dragging down the shares of its larger rivals as well: Apollo Global Management fell by almost 6%, Ares e Blackstone down more than 6%, KKR & Co. down nearly 4% and Carlyle Group fell by more than 5%.
The pressure on Blue Owl, which funds chip companies, reflects growing concern about the returns on investments in artificial intelligence and, analysts say, has highlighted excessive leverage used to finance some capital expenditures for artificial intelligence. Chipmakers, which are generating exorbitant profits from the development of artificial intelligence, have so far remained immune from recent sell-offs in the software sector and other sectors considered at risk of crisis. But the Blue Owl Capital case has shone a light on this sector as well.
A Canary in the Coal Mine
These events recall the early days of the financial crisis of 2008, although they do not have the same scope, it reminds theeconomist Mohamed El-Erian. “Is this a ‘canary in the coal mine’ moment, similar to August 2007?” El-Erian wrote on X. “This question will be on the minds of some investors and policymakers as they weigh the news that Blue Owl is blocking some redemptions.” He also said it raises questions about the major systemic risks of the entire sector and that “a significant – and necessary – decline in valuations for specific assets is looming.”
The failed attempt to merge two funds
The asset sale comes just over three months after Blue Owl abandoned plans to merge two of its three funds into one and temporarily suspend redemptions in the smaller fund, which was expected to resume this quarter.
I doubts on credit quality and onexposure to software titles have plagued the sector for months. The U-turn on buybacks—just when investors thought they would recover—triggered a shareholder revolt, sending Blue Owl down as much as 9,8% in trading yesterday.
The hasty sale of assets to repay debts
Blue Owl now he has decided to sell shares in 128 different companies portfolio in 27 sectors, but the highest concentration, 13%, is in the struggling sector of software and servicesThe company said. The S&P 500 Software & Services Index has lost about $2.000 trillion in value since its October peak, with about half of the losses recorded this month.
The loans are held through three credit funds: $600 million in Blue Owl Capital Corp II, $400 million in Blue Owl Technology Income Corp and $400 million in Blue Owl Capital Corp.
The proceeds will be used in part to pay investors in Obcd II, which the company unsuccessfully attempted to merge with the publicly traded fund last year, and to repay debt, the company said. The other two funds will use the cash to repay debt. The company also stated that it will permanently prohibit redemptions of the Obcd II fund in the future. "The Obcd II Board of Directors intends to give priority to the distribution of liquidity so proportional to all shareholders through quarterly capital return distributions, which are intended to replace future quarterly tender offers and may be funded from earnings, redemptions, other asset sale opportunities, or strategic transactions,” the company said.
Blue Owl Co-President, Craig PackerHe added that the company hopes to quickly return capital to investors in its Obdc II fund. "We're not stopping redemptions, we're simply changing the method by which we provide them," Packer told analysts during a conference call Thursday. He added that the expected payout to fund holders would be 30% of the fund's value, more than the 5% limit they would have been limited to for redemptions.
Packer also said that executives have begun talking to potential buyers to find a way to return capital to shareholders. Blue Owl declined to name the buyers, describing them only as "leading North American investors in insurance and public pension funds." The sale will allow Obdc II to return to investors up to 30% of its current net asset value, or $2,35 per share. Based on the latest published share count, this indicates a total payout of approximately $268 million.
