The private credit market has soared to nearly $2 trillion in assets under management (AUM) over the last decade, following the global financial crisis and more recent global banking crisis of 2023. The asset class has emerged as an attractive alternative to traditional syndicated lending, posting strong returns and offering greater lending flexibility and speed.
In a shift of momentum, however, recent market events in the private credit space have left investors on edge. In mid-February, fears arose after Blue Owl announced it permanently suspended redemptions for its Blue Owl Capital Corp II Fund (OBDC II), sending shock waves and resulting in an accelerated wind-down.
Below, we explore the recent volatility in private credit, leveraging perspectives from industry experts and broker research to understand how AI-driven disruption served as a catalyst in this particular event, and assess how to navigate turbulence in the sector and risk-optimize portfolios.
Deconstructing Recent Events
In the second half of February, Blue Owl announced it was ending quarterly redemptions in its Blue Owl Capital Corp II (OBDC II) fund, instead transitioning to an accelerated wind-down phase. Following a $1.4 billion asset sale executed at 99.7% par value, the fund announced a 30% special distribution to all shareholders, effectively front-loading years of 5% quarterly capital payouts into a single immediate payout.
Despite negative media headlines, Blue Owl's management pushed back against the notion that they "halted" redemptions in the OBDC II fund, characterizing the move instead as an intentional transition to an accelerated wind-down phase.
On its February earnings call, Blue Owl’s Co-President Craig William Packer clarified: “...Instead of resuming 5% a quarter, we are, in fact, accelerating redemptions. And we're going to return to this investor group 30% of their capital at book value in the next 45 days.”
The Market Response
Even with explosive growth in the space over the last several years, investors are increasingly bearish following a string of record retentions in recent quarters, topped off by the Blue Owl event.
Research from AlphaSense illustrates that elevated redemption requests occurring in late 2025 were not isolated to a single firm but affected several large players, including Apollo, Ares, and Blackstone.
Source: AlphaSense Generative Search
Broker research from AlphaSense indicates that a good portion of the "agita" surrounding Blue Owl stems from its heavy weighting in the software sector, which experienced a sell-off due to fears that AI could disrupt traditional enterprise software business models. Analysts estimate that nearly 40% of private credit-backed loans originate in the software industry, exacerbating the fear of AI-driven disruption across enterprises.
Analysts note that the “big 3” experienced “sharp” declines as a result of the Blue Owl event, including Blackstone (-17%), Apollo (-13%), and KKR (-16%). Despite this volatility, Bank of America announced a $25 billion commitment to private credit.
Beyond AI-driven disruption, there have been concerns about the opacity of private valuations, potential liquidity mismatch in retail-facing funds, and underlying credit quality.
Expert Context
Analysts note that the OBDC II gating was likely a result of a failed merger and a mismatch between quarterly redemption requests and the fund's illiquid asset base.
In recent times, institutional sentiment has shifted toward high yield (HY) credit at the expense of private credit, with 46% of investors expecting HY to outperform total returns this year. Approximately three-quarters of global investors expect the spread premium between private and public credit markets will tighten, reducing the "illiquidity premium" that typically attracts capital to the asset class.
According to a former Director at MetLife, institutional investors understand the inherent risks of private credit, and the exposure is typically part of a diversified portfolio. Less sophisticated investors that are attracted to the higher returns without fully appreciating the risk are more likely to absorb the short-term shocks of the asset class volatility.
For institutional “buy-and-hold” players, the illiquid nature of private credit aligns well with their portfolio strategy:
Life insurers have a long-term liability book. They can afford to invest in long-term assets. They are buy-and-hold investors. While for many investors, the illiquid nature of private credit is a downside, because life insurers are by their very nature buy-and-hold investors, it actually matches very nicely to their liability book. I would say that's the second reason why private credit works well for life insurers and annuity providers.
Separating Noise from Fact
While recent events are emblematic of a changing landscape in private credit and the growing need for transparency and regulation, experts are far from sounding the alarm. Instead, they view the current environment as a reaction to isolated events rather than systematic failure.
Despite the "liquidity agita," analysts argue that the disconnect between perception (headline fear) and reality (portfolio performance) has never been wider with private credit. Many analysts and industry experts view the media headlines as “overblown,” citing the Blue Owl event and recent periods of high redemption as “a bump in the road.”
An Executive Director at Morgan Stanley sees growth potential in private credit amidst increasing transparency, noting that the SEC has made private credit a priority area of focus, evaluating valuation transparency and the suitability of retail-facing credit funds. In response, major platforms are proactively tightening disclosures and restructuring product terms to show they are "retail ready."
Navigate the Market with Confidence
When critical market shifts occur, having sound intelligence and grounded insights from seasoned industry experts is essential to separate noise from fact.
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