Anxiety over giant AI data centre lender is rattling the $2.3 trillion private credit market

LONDON - Blue Owl Capital’s co-chief executive reeled off all the times he had seen this type of fear before: Covid-19, Silicon Valley Bank’s collapse, Liberation Day.

Mr Marc Lipschultz was addressing analysts on the 11th straight day of losses for the firm’s shares, the worst streak since Blue Owl went public almost five years ago.

Just weeks earlier, investors yanked more than 15 per cent of net assets from one of the money manager’s tech-focused funds.

But as Mr Lipschultz saw it, this was par for the course when markets get jittery. Some clients in private credit funds like theirs ask for their cash back in times like these. The firm was handling this latest bout of worry just as it had in the past.

It appears different now. Blue Owl last week permanently shut the gates on one of those funds – preventing investors from withdrawing their cash every three months as they had previously been allowed – and began selling assets to return investor capital. 

It is the latest sign of tumult in a US$1.8 trillion (S$2.3 trillion) market stricken with worry about overspending on artificial intelligence, the technology’s disruptive power and lending standards more broadly. And it is evoking comparisons with the run-up to the 2008 financial crisis.

“The red flags we are seeing in private credit today are strikingly familiar to those of 2007,” said Mr Orlando Gemes, chief investment officer of Fourier Asset Management. He pointed to worsening lender protections and convoluted liquidity terms that “obscure the mismatch between what investors believe they own and what they can actually exit”.

Investors reacted fast. Shares of Blue Owl tumbled as much as 10 per cent on Feb 19 and another 4.8 per cent on Feb 20, triggering a slump in the stocks of money managers with fingers in the private credit pie.

Ares Management, Blackstone and Apollo Global Management were among those dragged down. Blue Owl’s shares have now plunged almost 60 per cent in the past 13 months, even as its revenue continued to climb in that period.

That a move to limit withdrawals from a US$1.6 billion fund drove a US$2.4 billion drop in Blue Owl’s market value shows shareholders’ skittishness. Investors in the fund, known as OBDC II, have been gated for months as the firm pursued, then abandoned, a plan to merge it with another of its vehicles.

Blue Owl is now selling roughly one-third of OBDC II’s loans and handing 30 per cent of investors’ money back to them, a move the firm says is accelerating, not slowing, the overall return of capital. When redemptions were allowed, Blue Owl had the option to limit withdrawals every quarter to 5 per cent of net assets to prevent any forced selling.

“Instead of resuming a 5 per cent a quarter tender, where only tendering investors get a small portion of their capital back, we are returning six times as much capital and returning it to all shareholders over the next 45 days,” the firm said in an e-mailed statement.

After years of unfettered growth, the once-niche world of private credit has become a linchpin of global finance.

Its players are now backing everything from mammoth data centre operations to multibillion-dollar buyouts of software makers and healthcare companies – far from the industry’s roots funding middling businesses that fell through the cracks of the banking system.

That is bringing ever-more scrutiny to a market that has always had its naysayers.

Despite years of solid returns and remarkably few blow-ups so far, direct lenders like Blue Owl cannot seem to shake off fears about the business model as a whole.

Chatter about disparate valuations across lending books stalks executives at every turn. Concerns over the opacity of the market – where debt changes hands infrequently and outside of public view – have dogged the industry for years.

And for Blue Owl in particular, a years-long streak of acquisitions, aggressive dealmaking and raising funds that cater to individual investors has placed it directly at the centre of everything investors worry about most. It is placing big bets on AI infrastructure that rely on fast growth to make sense.

And if AI use does explode, investors fear that the traditional software firms that Blue Owl has lent billions to may be at risk of extinction.

US Senator Elizabeth Warren, a Massachusetts Democrat, took the opportunity on Dec 19 to slam the sector.

“A shadowy private credit firm is suddenly blocking investors from withdrawing their money,” Ms Warren, the ranking member of the Senate Banking Committee, said in a statement.

She called for more oversight and transparency of the industry. “The Trump administration needs to wake up. Stop pushing these risky investments into Americans’ retirement accounts.”

AI exposure

Blue Owl led the charge among private capital firms into the AI infrastructure boom, splashing out billions to stake its claim. 

The firm bought digital infrastructure fund IPI Partners in early 2025 for US$1 billion. The deal brought with it more than US$10 billion of fresh assets and control of Stack Infrastructure, a significant data centre operator.

More recently, it struck a deal with the Qatar Investment Authority to create a permanent capital platform for digital infrastructure backed by US$3 billion of data-centre assets. It also has fought its way into massive data centre financings with the likes of Oracle and OpenAI.

In 2025, it entered a deal to help Facebook parent Meta Platforms develop a stretch of land in rural Louisiana to house Hyperion, set to become the largest of the technology giant’s 29 data centres worldwide. Hyperion involves more than US$27 billion of debt on its own.  

It all feeds into what McKinsey & Co estimated is a US$5.2 trillion spending need through 2030 to keep up with the demand for AI computing power.

But prominent financiers have not been shy about the potential for froth in AI-linked financing.

Mr Ray Dalio, founder of Bridgewater Associates, has said AI is in the early stages of a bubble. 

The Blue Owl representative said that the firm’s clients “are very interested in carefully constructed investment opportunities that will benefit from the growth in the build-out of AI infrastructure”.

Fallout from Blue Owl’s move to restrict redemptions is still unfolding.

Mr Boaz Weinstein, whose Saba Capital Management offered to buy shares in some private credit funds managed by Blue Owl, said AI disruption fears are not going away any time soon.

“Private credit was once sold as financial nirvana – effortless double-digit returns in a rising market – but that era is quickly ending,” he said in e-mailed comments. “Even in good times, the market is now breaking down which signals it is in a spot of great vulnerability.”

To be sure, the funds under pressure at Blue Owl make up a relatively small share of the firm’s assets.

These so-called business development companies, however, are the most visible piece of the private credit market. They lay out the names of the companies they lend to and their loan valuations, offering the clearest sight into the health of the overall industry for outsiders.

That also makes them more vulnerable to investor stampedes than vehicles designed for long-term capital commitments. They are, in many cases, accessible to more everyday investors than the institutional-grade funds that draw big cheques from pensions and sovereign wealth funds. 

But as those sources of capital reach their limits, private credit’s most aggressive players will be increasingly forced to reckon with the flightiness of retail investors. 

“This is a classic asset-liability mismatch that can only be solved if both asset managers and investors make concessions,” said Ms Mara Dobrescu, a senior principal at Morningstar. “Semi-liquid funds should only be used by investors with the financial ability to weather long stretches – years – without needing their money back. This puts an inherent limit on the ‘democratisation’ of private assets.” BLOOMBERG