By Bill Alpert

In a June quarter when investors sought to cash out of about 15% of the shares of big nontraded credit funds, Blue Owl Capital saw more redemption requests than its peers.

Investors tendered 19% of all shares for redemption at the $36 billion Blue Owl Credit Income fund, and 38% of the $5 billion Blue Owl Technology Income fund, the firm said in Thursday letters to shareholders. Like other managers, Blue Owl will cap its redemptions at 5% of each fund and has the cash to make those share repurchases.

"At first blush, the tenders are high and keep alive adverse headline risk," wrote TD Securities Bill Katz in a Thursday note. But he pointed out that June exit requests at Blue Owl had declined from March quarter levels, while other managers saw a quarter-over-quarter rise.

Katz thinks that private credit redemptions have peaked. So, apparently, did investors in the funds' manager Blue Owl Capital. The firm's stock was up 5% in Thursday afternoon trading, to $9.10. Year-to-date, Blue Owl is down almost 40%.

Loans continued to perform well at the funds, with a trailing three month return of 2.5% on Blue Owl Credit Income's portfolio. Base interest rates appear to be on the rise, and there's been a widening of the spreads above those rates that funds can charge for their lending.

Still, redemption demand across the sector will likely remain elevated through the year, as funds mop up the backlog of exit requests that exceed the funds' quarterly 5% caps. June quarter tenders were 16.8% at the Apollo Debt Solutions BDC, 14.4% at the Ares Strategic Income Fund, 13.3% at BlackRock's HPS Corporate Lending Fund, and 10% at the Blackstone Private Credit Fund.

Many of the fund managers say that redemption requests come mainly from overseas family offices and feeder funds that saw private credit as a semiliquid alternative to money-market funds. To discourage that short-term parking behavior, Raymond James analyst Wilma Burdis says Ares Management may restrict redemptions by such clients in the future.

Clever observers have urged investors to cash out of nontraded credit funds and put the money into the publicly traded business-development companies run by the same managers. For a year, most public BDCs have traded at deep discounts to the net asset value of their portfolios.

But that discount has continued to deepen, notes UBS analyst Michael Brown.

As of June 30, the price-to-NAV of externally-managed public BDCs moved to 0.70, from 0.73 at May's end. That's nearly as low as in the depths of the Covid pandemic.

Write to Bill Alpert at william.alpert@barrons.com

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