Focus Blue Owl Capital OBDC II Gating, Private Credit Systemic Risk
Jurisdiction United States (primary); Singapore (implications)
Asset Class Private Credit / Business Development Companies (BDCs)
Market Size US$1.8 trillion globally (S$2.3 trillion equivalent)
- Executive Summary
In February 2026, Blue Owl Capital — one of the United States’ most prominent private credit managers with over US$230 billion in assets under management — permanently gated OBDC II, a US$1.6 billion Business Development Company (BDC), preventing investors from redeeming their capital as previously allowed on a quarterly basis. The firm concurrently initiated the sale of approximately one-third of the fund’s loan portfolio to return 30 per cent of investor capital within 45 days. This action was preceded by 11 consecutive trading days of share price declines and redemption requests exceeding 15 per cent of net assets from a technology-focused vehicle in the same family.
The episode has become a focal point for systemic concerns about the US$1.8 trillion global private credit market. Analysts have drawn parallels to the structural conditions that preceded the 2008 global financial crisis, citing deteriorating lender covenants, opacity in loan valuations, and a fundamental asset-liability mismatch embedded in semiliquid private credit structures. The contagion effect was immediate: shares of Ares Management, Blackstone, and Apollo Global Management also declined in the wake of Blue Owl’s announcement.
For Singapore, the episode carries material implications. The city-state’s institutional investors — including GIC, Temasek, and a broad ecosystem of family offices and fund managers — have materially increased their allocations to private credit over the past decade. Singapore’s emergence as a leading private markets hub in Asia, combined with the Monetary Authority of Singapore’s evolving regulatory posture toward alternative investments, means that market stress in US private credit reverberates meaningfully across the local financial landscape.
- Background: Blue Owl Capital and the Rise of Private Credit
2.1 Blue Owl Capital: Company Profile
Blue Owl Capital was formed in 2021 through the merger of Owl Rock Capital Group and Dyal Capital Partners and went public through a SPAC transaction. The firm has since grown rapidly, completing numerous acquisitions and expanding from its core middle-market direct lending roots into technology-focused lending, GP stakes, real estate, and digital infrastructure. Key milestones in its AI infrastructure build-out include the following.
Year Action Value
Early 2025 Acquired IPI Partners (digital infrastructure fund) US$1 billion
2025 Acquired Stack Infrastructure data-centre operator Via IPI deal
2025 Partnered with Qatar Investment Authority on digital infra platform US$3 billion in assets
2025 Entered Meta Hyperion data-centre financing (Louisiana) US$27 billion+ in debt
Ongoing Data centre financings with Oracle and OpenAI Undisclosed
2.2 The Structure of Business Development Companies
Business Development Companies are a category of closed-end fund registered under the Investment Company Act of 1940 in the United States. They were originally designed to channel capital into small and mid-size enterprises that lack access to conventional bank financing. Several structural features make BDCs particularly germane to the current episode.
BDCs must distribute at least 90 per cent of taxable income to maintain their regulated investment company (RIC) tax status, limiting retained liquidity buffers.
Non-traded BDCs — the category to which OBDC II belongs — allow periodic (typically quarterly) redemptions subject to caps, usually 5 per cent of net assets per quarter. These caps exist precisely to prevent forced selling but can still create self-reinforcing redemption dynamics.
Loan valuations in BDCs are marked by the fund manager using fair value accounting, not by market prices, creating informational asymmetries between managers and investors.
The assets held are typically senior secured floating-rate loans with maturities of five to seven years. These instruments are highly illiquid: secondary market trading in private credit loans is thin and infrequent.
The mismatch between periodic liquidity offered to investors and the structural illiquidity of underlying assets is the defining vulnerability of the BDC model under stress conditions.
2.3 The Growth of Private Credit
Private credit has grown from approximately US$500 billion in assets under management in 2015 to over US$1.8 trillion globally in 2026. Several structural forces drove this expansion: post-2008 regulatory constraints on bank balance sheets (particularly Basel III capital requirements) created a gap in middle-market lending that non-bank lenders filled. Near-zero interest rates from 2009 to 2022 compressed yields in public fixed income markets, pushing institutional investors toward illiquid alternatives offering premium returns.
The private credit market’s most recent phase of growth has been characterised by two developments that introduce elevated risk. First, the expansion of the investor base beyond sophisticated institutional capital — pensions, endowments, sovereign wealth funds — to retail and high-net-worth investors via semiliquid structures. Second, a dramatic concentration of new lending activity in AI-linked digital infrastructure, a sector characterised by large capital requirements, long payback periods, and highly uncertain demand trajectories.
- The OBDC II Gating: Anatomy of the Event
3.1 Chronology
Date Event
Late 2025 Blue Owl pursues and then abandons a plan to merge OBDC II with another vehicle; investors become gated during the merger process
Jan 2026 Investors withdraw more than 15% of net assets from a Blue Owl tech-focused BDC in a single redemption window
Feb 9–19, 2026 Blue Owl shares fall for 11 consecutive trading sessions — the worst streak since the firm’s 2021 IPO
Feb 19, 2026 Shares fall a further 10% in a single session; Ares, Blackstone, Apollo dragged lower
Feb 20, 2026 Shares fall an additional 4.8%; US Senator Elizabeth Warren calls for greater oversight of private credit
Week of Feb 17, 2026 Blue Owl permanently gates OBDC II, initiates asset sales; plans to return 30% of capital to all investors within 45 days
Feb 23, 2026 Blue Owl shares have declined approximately 60% over the preceding 13 months despite continued revenue growth
3.2 Mechanics of the Gating Decision
Rather than resuming the standard 5 per cent quarterly tender offer — under which only tendering investors would receive a partial return — Blue Owl opted to gate the fund entirely and sell assets to return approximately six times as much capital to all investors simultaneously. The firm characterised this as an acceleration of capital return rather than an impediment. Approximately one-third of OBDC II’s loan portfolio is being liquidated to fund the distributions.
Key Metric: Market Reaction
A move to restrict withdrawals from a US$1.6 billion fund triggered a US$2.4 billion decline in Blue Owl’s total market capitalisation — a 1.5x amplification ratio that reflects the degree to which investors extrapolated systemic concerns from a single fund-level event.
3.3 AI Infrastructure Concentration
Blue Owl’s aggressive positioning in AI infrastructure lending is the primary source of investor anxiety, and it operates through two distinct but related risk channels.
Overbuilding Risk
McKinsey & Company estimates that US$5.2 trillion of cumulative investment in AI computing infrastructure is required through 2030 to meet projected demand. However, prominent investors including Ray Dalio of Bridgewater Associates have characterised AI as being in the early stages of an asset price bubble. If AI compute demand does not materialise at projected scale, data centre assets financed at current valuations may prove substantially overvalued, impairing Blue Owl’s infrastructure lending book.
Displacement Risk
Separately, Blue Owl’s traditional lending portfolio — comprising billions of dollars of loans to incumbent software companies — faces a different but equally serious threat. If AI-native software displaces the established software vendors to which Blue Owl has lent extensively, the creditworthiness of those borrowers deteriorates, increasing expected loss rates across the legacy portfolio even if the infrastructure lending performs as expected.
These two risks are not merely additive; they are partially correlated in adverse scenarios. A world in which AI adoption is both rapid (displacing software incumbents) and concentrated among a small number of hyperscalers (reducing the addressable market for data centre operators serving broader enterprise demand) is plausibly the worst-case outcome for Blue Owl’s combined book.
- Structural Vulnerabilities in Private Credit
4.1 Asset-Liability Mismatch
The fundamental structural vulnerability exposed by the OBDC II gating is an asset-liability mismatch that is endemic to semiliquid private credit vehicles. Investors in non-traded BDCs are offered periodic liquidity windows — typically quarterly, subject to a 5 per cent of NAV cap. Yet the underlying assets are loans with maturities of five to seven years that trade infrequently in thin secondary markets. Under normal conditions, new subscriptions offset redemptions and the mismatch is manageable. Under stress conditions, when redemption demand is elevated and new subscriptions are reduced or absent, the tension between investor-facing liquidity terms and asset-level illiquidity becomes acute.
Morningstar Perspective
Mara Dobrescu, Senior Principal at Morningstar, has noted that this is a classic asset-liability mismatch that can only be resolved if both asset managers and investors make concessions. Semiliquid funds should only be accessible to investors with the financial capacity to sustain illiquidity over extended periods — potentially years. This places an inherent structural ceiling on the democratisation of private assets.
4.2 Valuation Opacity
Private credit loans are valued using fair value accounting methodologies applied by fund managers, not observable market prices. This creates a structural information asymmetry: investors cannot independently verify whether portfolio valuations accurately reflect economic reality, particularly during periods of market stress. The opacity of valuations has two consequences. First, it can mask deterioration in credit quality for extended periods, allowing problems to accumulate before they become visible. Second, when concerns about valuations do emerge, they tend to be generalised rather than specific, causing investors to question entire portfolios rather than individual credits.
4.3 Covenant Deterioration
The Fourier Asset Management CIO’s comparison to 2007 rests substantially on the deterioration in lender protections in private credit documentation over the past several years. Covenant-lite loan structures — which reduce or eliminate financial maintenance covenants that would otherwise provide early warning of borrower distress — have become increasingly prevalent as competition among private credit lenders intensified during the growth phase. The consequence is that lenders may have less visibility into, and fewer contractual tools to address, deteriorating borrower credit profiles before loans become impaired.
4.4 Retailisation and Behavioural Amplification
Perhaps the most significant structural change in private credit over the past several years is the expansion of the investor base to include retail and high-net-worth individuals via registered semiliquid vehicles. Institutional investors — pension funds, sovereign wealth funds, endowments — typically operate with long investment horizons and contractual lock-up commitments that align with the illiquidity of private credit assets. Retail investors, even sophisticated ones, are more behaviourally prone to redemption in periods of market stress, particularly when they observe peers seeking to exit. This creates a potential for self-reinforcing redemption dynamics that institutional-only structures are largely insulated from.
- Singapore: Implications and Exposure
5.1 Singapore as a Private Markets Hub
Singapore has emerged as one of Asia’s foremost centres for private capital over the past decade. The Monetary Authority of Singapore’s Variable Capital Company (VCC) framework, introduced in 2020, has attracted a growing number of private credit fund domiciles and manager registrations. Family offices managed from Singapore — whose numbers grew sharply following the introduction of tax incentive schemes in 2017 and 2019 — are significant allocators to private credit, both through direct fund investments and via platforms offered by global private capital managers with Singapore operations.
5.2 Institutional Investor Exposure
Singapore’s two sovereign wealth funds represent significant indirect exposure to global private credit markets. GIC, which manages Singapore’s foreign reserves, has publicly disclosed a strategic allocation to private credit as part of its fixed income replacement strategy in a higher-yield-seeking environment. Temasek, which invests across asset classes including through its fund-of-funds platform Azalea Investment Management, similarly maintains exposure to private market instruments.
The CPF Board, which manages the retirement savings of Singapore citizens, does not have direct exposure to private credit. However, CPF members investing through the CPF Investment Scheme (CPFIS) in unit trusts that hold private credit instruments may have indirect exposure, depending on the specific fund structures.
5.3 Singapore-Domiciled Family Offices
Singapore’s approximately 1,400 single-family offices (as of 2024 MAS estimates) represent a materially concentrated source of exposure. Many of these offices allocated to private credit during 2021–2023 as a yield enhancement strategy when public bond markets offered compressed returns. Allocations frequently occurred through feeder structures or co-investment vehicles connected to the same managers — Blue Owl, Ares, Blackstone, Apollo — whose share prices have been impacted by the OBDC II episode. The key risk for family offices is not direct OBDC II exposure but rather the repricing of similar semiliquid private credit vehicles they hold, and the potential for broader manager-level reputational contagion to affect redemption terms across other vehicles in the same family.
5.4 AI Infrastructure and Singapore Data Centres
Singapore is itself a significant node in the global AI infrastructure buildout, albeit one with unusual constraints. The moratorium on new data centre construction that MAS and EDB imposed in 2019 and partially lifted in 2022 has left Singapore with a highly constrained data centre supply base. The regional AI infrastructure buildout has consequently shifted in significant part to Johor Bahru in Malaysia and to emerging Southeast Asian markets. Singapore-based investors and fund managers with exposure to regional digital infrastructure funds — including those managed by the same global managers embroiled in the Blue Owl episode — may find themselves exposed to similar overbuilding dynamics in adjacent markets.
5.5 Regulatory and Reputational Considerations
Singapore’s status as a leading private markets hub depends on investor confidence in the regulatory environment and in the quality of fund managers operating from the jurisdiction. The OBDC II episode, to the extent it damages confidence in private credit as an asset class, may affect Singapore’s ability to attract new private credit fund registrations and capital commitments. MAS has been attentive to the growth of alternative investment vehicles accessible to retail investors; the episode may accelerate regulatory attention to liquidity risk management standards for locally distributed semiliquid products.
- Impact Assessment
6.1 Near-Term Market Impacts
Impact Area Description Severity
Share price contagion Ares, Blackstone, Apollo sold off immediately following Blue Owl announcement Moderate
Redemption pressure Other private credit BDCs likely to see elevated redemption requests as retail investors reassess liquidity terms High
Secondary market pricing Forced asset sales from OBDC II will establish market prices for previously opaque credits, potentially revealing valuation gaps High
Fundraising environment New fundraising for private credit BDCs targeting retail investors likely to face headwinds in near term Moderate-High
Cost of capital Borrowers reliant on private credit may face tighter lending conditions as managers become more selective Moderate
6.2 Medium-Term Structural Impacts
The medium-term consequences of the OBDC II episode are likely to be structural rather than transient, reshaping the private credit market in several meaningful ways.
Liquidity term repricing: Managers will face pressure to more accurately price the illiquidity they are offering, potentially extending lock-up periods or reducing the frequency and size of redemption windows. This will effectively reduce the attractiveness of semiliquid private credit to the retail segment of the investor base.
Covenant reinstatement: Institutional investors and regulators are likely to press for stronger lender protections in new loan documentation, reversing the covenant-lite trend of the growth phase.
Valuation standardisation: Regulatory and investor pressure for more standardised, independently verified loan valuations will intensify, reducing but not eliminating the informational asymmetries that characterise the market.
AI infrastructure repricing: The combination of investor anxiety about overbuilding and the actual forced selling of data-centre-linked credits may result in a repricing of AI infrastructure lending terms, increasing yields required by lenders and raising the cost of capital for data centre operators.
Concentration limits: Institutional allocators are likely to impose tighter concentration limits on private credit exposures, both by manager and by sector, reducing the ability of individual managers to achieve the scale in AI infrastructure that Blue Owl pursued.
6.3 Singapore-Specific Impacts
Stakeholder Near-Term Impact Medium-Term Consideration
GIC / Temasek Mark-to-market losses on private credit exposures; NAV compression in portfolios Strategic review of private credit allocation size and liquidity terms
Family Offices Redemption difficulties if holding semiliquid BDC-type vehicles; uncertainty on valuations Shift toward longer-lock or direct lending structures with greater transparency
Private Banks (DBS, UOB, OCBC) Client advisory challenges re: illiquid positions; potential for client complaints Review of private credit products distributed to high-net-worth clients
Fund Managers (SG-based) Investor relations strain; need to reassure LPs on portfolio quality Opportunity to differentiate on governance, transparency, and liquidity management
MAS Monitoring for systemic transmission channels; retail investor protection Potential guidance on liquidity risk for semiliquid funds distributed in Singapore
Data Centre Operators (SG/JB) Financing cost increase if AI infrastructure credit reprices regionally Long-term structural question around feasibility of regional AI buildout at projected scale
- Outlook
7.1 Base Case
In the base case, the OBDC II episode represents a contained, firm-specific stress event that accelerates rather than reverses structural adjustments already underway in private credit. Blue Owl completes its asset sales without severe market dislocation, returning capital to investors within the committed 45-day window. The forced selling establishes reference prices for comparable credits that are modestly below prior manager marks but not catastrophically so, providing some relief to investor uncertainty about valuation gaps. Other private credit managers proactively improve liquidity disclosures and tighten redemption terms in anticipation of regulatory pressure, normalising a more conservative approach to semiliquid fund design.
In this scenario, private credit continues to function as a significant source of financing for the economy, but the period of unconstrained growth and retailisation is effectively over. Institutional-grade private credit, with appropriate lock-up structures and investor sophistication, continues to attract capital. Semiliquid retail-accessible vehicles face a structural repricing of their investor base, with some contraction in assets under management.
7.2 Adverse Case
In an adverse scenario, the OBDC II episode triggers a broader loss of confidence in private credit valuations, leading to a wave of redemption requests across multiple BDC managers simultaneously. Forced selling at scale pushes secondary market prices well below manager marks for a broad range of credits, confirming investor fears about valuation opacity and triggering a reflexive cycle of further redemptions. The parallels to 2007 cited by analysts begin to manifest in credit quality deterioration among borrowers — particularly AI-adjacent software companies — that were extended credit on the assumption of continued AI-driven growth.
In this scenario, the contagion extends beyond private credit to the broader leveraged finance ecosystem, as borrowers that relied on private credit for refinancing find the market constrained. Singapore is affected through its institutional investors’ private credit portfolios, through its family office community’s semiliquid fund holdings, and through tighter financing conditions for regional digital infrastructure projects.
7.3 AI Infrastructure Specific Outlook
The trajectory of AI infrastructure financing is the single most consequential variable for the private credit market over the next three to five years. Three scenarios merit consideration.
Scenario AI Development Path Private Credit Implication
Sustained build-out AI compute demand meets or exceeds McKinsey US$5.2T projections; hyperscaler capex sustained Data centre lending performs; AI displacement of software incumbents is gradual and manageable
Concentration without breadth AI capabilities concentrated among 2–3 hyperscalers; enterprise AI adoption slower than projected Overbuilding in enterprise-grade data centres; software incumbent loans impaired; hyperscaler-adjacent credits perform
Bubble correction AI investment cycle peaks and corrects 2026–2027; data centre valuations decline materially Significant impairment across AI infrastructure lending book; manager-level distress beyond Blue Owl
- Solutions and Recommendations
8.1 For Fund Managers
Conduct and disclose a formal stress test of fund liquidity under redemption scenarios of 10, 20, and 30 per cent of net assets. Publish results to investors and boards on a semi-annual basis.
Establish pre-commitment liquidity reserves — typically 5 to 10 per cent of NAV in liquid instruments — that can be deployed to fund redemptions without forced asset sales. This will modestly dilute returns in normal conditions but materially reduce tail risk.
Engage independent third-party valuers for loan portfolio marks on at least an annual basis, and disclose methodology changes and material valuation adjustments in investor reports.
Align redemption terms more closely with asset liquidity. Non-traded BDCs with predominantly illiquid loan portfolios should consider extending redemption windows from quarterly to semi-annual or annual cycles, with proportionally higher caps, to reduce the risk of a redemption spiral.
Diversify AI infrastructure exposure by borrower, geography, and technology stack. Concentration in a single data centre operator or AI application layer creates correlated risk that is inconsistent with prudent portfolio construction.
8.2 For Investors (Institutional and Family Offices)
Conduct a thorough liquidity audit of all private credit holdings, mapping the contractual liquidity terms offered against the underlying asset liquidity and the investor’s own liquidity needs over a three-to-five-year horizon.
Impose manager-level concentration limits. No single private credit manager should represent more than 10 to 15 per cent of a private credit allocation, regardless of track record, to limit the impact of manager-specific stress events.
Distinguish between locked-up institutional vehicles and semiliquid retail-accessible structures. The former offer better alignment of liquidity terms with asset illiquidity and are generally preferable for investors with sufficiently long investment horizons.
Increase scrutiny of AI sector concentration within private credit portfolios. Investors should request and review manager-level exposure to AI infrastructure and AI-adjacent software lending as a percentage of total portfolio, and evaluate whether this concentration is consistent with their own risk tolerance.
Consider secondaries as a liquidity management tool. The private credit secondary market, while less developed than private equity secondaries, is growing. In scenarios where liquidity becomes constrained, access to secondary buyers may allow partial exits at transparent prices.
8.3 For Regulators (Including MAS)
Issue guidance on minimum liquidity reserve requirements for semiliquid private credit funds distributed to retail and high-net-worth investors in Singapore. A floor of 5 per cent of NAV in liquid instruments, rising to 10 per cent under redemption stress, would align with best practices in the UCITS framework.
Require standardised disclosure of redemption gate usage, liquidity stress testing results, and independent valuation methodologies for private credit funds distributed in Singapore, as a condition of ongoing distribution to non-institutional investors.
Consider extending the Accredited Investor definition review to specifically address whether the current wealth thresholds — established in 2002 and last revised in 2018 — are sufficient to ensure investors in semiliquid private credit vehicles have the financial resilience to sustain illiquidity under stress.
Engage the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) frameworks on private credit systemic risk. Singapore, as a significant private markets hub, has an interest in shaping global standards on private credit liquidity risk management.
Monitor transmission channels between global private credit stress and Singapore’s banking sector. While Singapore banks’ direct lending books are not substantially composed of private credit instruments, their wealth management clients’ holdings in private credit vehicles represent an indirect exposure channel that warrants macro-prudential attention.
8.4 For Borrowers
Companies reliant on private credit for financing — particularly technology companies and data centre operators — should proactively diversify their funding sources. An over-reliance on a single asset class that is currently under stress creates refinancing risk.
AI infrastructure developers should prepare for a potential increase in the cost of private credit financing as lenders demand higher yields to compensate for perceived structural risks. Scenario planning for a 150 to 250 basis point increase in spreads is warranted.
Software companies that are the largest borrowers in traditional private credit BDC portfolios should anticipate increased lender scrutiny of AI-related competitive pressures on their business models, and should proactively address these in lender presentations and covenant negotiations.
- Conclusion
The Blue Owl Capital OBDC II gating is simultaneously a firm-specific event and a symptom of structural tensions that have been accumulating in the private credit market for several years. The asset-liability mismatch embedded in semiliquid private credit structures, the opacity of fair-value loan marks, the deterioration of covenant protections during the growth phase, and the concentration of new lending in AI infrastructure — each of these was a known risk. What the OBDC II episode has done is convert latent structural risk into an observable, market-moving event.
For Singapore, the implications span the institutional, regulatory, and market infrastructure dimensions of the city-state’s identity as a leading private markets hub. The episode does not suggest that Singapore’s financial system faces immediate systemic risk; the exposures, while material, are distributed and manageable. What it does suggest is that the period of easy growth in private credit — during which structural risks were masked by strong returns and investor appetite — has ended, and that the next phase of the market will be defined by greater scrutiny, more conservative structuring, and a more careful alignment between what investors are offered and what the underlying assets can actually deliver.
The recommendations in this case study are directed at fund managers, investors, regulators, and borrowers collectively. The private credit market’s continued evolution as a productive intermediary between capital providers and the real economy depends on each of these constituencies making the structural adjustments that the current episode makes necessary.