Boaz Weinstein doesn’t do charity work. The founder of Saba Capital has spent his career making money off other people’s disasters. He famously profited from JPMorgan’s “London Whale” trade in 2012, one of the most celebrated contrarian bets in modern finance. So when Weinstein quietly approached investors in Blue Owl Capital’s private credit funds in February, offering to buy their shares at 65 to 80 cents on the dollar, he wasn’t doing them a favor. He was telling them something. When a man like Weinstein offers you a lifeline at a 20-35% haircut, it’s because he thinks the alternative is worse.
He was right.
From the Wall Street Journal today:
Blue Owl Investors Seek to Pull $5.4 Billion From Two Private-Credit Funds
Investors in two of Blue Owl Capital’s biggest private-credit funds asked to pull out some $5.4 billion in the first quarter, adding to the growing stream of capital leaving the once-hot corner of Wall Street.
The redemptions amounted to 22% of Blue Owl Capital’s giant $36 billion private-credit fund and 41% of a separate technology-focused fund.
Such large redemptions are dangerous for investment firms like Blue Owl because they threaten the key driver of their share prices: the amount of money they manage and collect fees on. The firms built their funds to withstand prolonged bear markets, but outflows may continue for months or even years.
That would make it harder for the firms to attract new investors, turning off stock pickers who want to see growth. Lower valuations can have painful consequences for senior executives at the firms, many of whom took out loans backed by their equity stakes and may be forced to put up more collateral as prices fall. That amplifies the task founders Doug Ostrover and Marc Lipschultz face in trying to reverse the slide.
Blue Owl opted to cap redemptions in both funds at 5%, a reversal from its decision in January allowing shareholders to redeem 15% from the technology fund. The about-face highlights the growing squeeze on fund managers who must balance mounting requests from clients who want out against the interests of investors left in the funds.
Blue Owl’s stock price dropped sharply early Thursday, as did those of rivals, before recovering. The shares are now down more than 40% this year.
Following a handful of high-profile defaults in the past year, wealthy individuals who poured money into private-credit funds expecting to collect lucrative regular payouts are retreating across the sector.
Smelling weakness, some hedge-fund managers are trying to make money off Blue Owl’s misfortunes. Saba Capital founder Boaz Weinstein made an offer in February to buy out shareholders in Blue Owl funds at prices between 65% and 80% of net asset value. The offer would allow shareholders to sell the shares they weren’t able to redeem, albeit at a loss.
Something of a startup on Wall Street, Blue Owl has become a poster child for private credit, and its troubles raise new questions about how fund managers can weather prolonged outflows. The larger fund, called Blue Owl Credit Income, is one of the biggest in the industry, and its redemption requests exceeded what most competitors faced.
Curbing investor withdrawals comes at a delicate time because investment firms and the Trump administration are pushing to include private credit and private equity in 401(k) savings plans. The Treasury Department said Wednesday it is calling a meeting with regulators to discuss the risks and market for the sector.
“Tender activity was elevated across the [private-credit] industry in the first quarter of 2026, reflecting a period of heightened negative sentiment toward the asset class that has intensified as peers have reported tender results,” Blue Owl said in a letter to investors. Investors in the larger fund asked to withdraw about 5% in the previous quarter.
A schism is growing between private-credit fund managers. Some firms, like Blackstone and Cliffwater, have paid out 7% to 8% redemptions, hoping the show of good faith will soothe investor anxiety. Others, including Apollo Global Management, Ares Management and BlackRock, have kept withdrawals to 5% of shares outstanding, following the limits set up in the terms of the funds.
Private-credit firms have become among the biggest lenders to companies with junk credit ratings, many of which took on the debt to finance buyouts by private-equity funds. The bonanza slowed starting in the autumn because of concerns about corporate defaults, then stalled this year amid worries about overlending to software companies. Investors pulled more than $11 billion out of private-credit funds over the past two quarters.
Under the 5% limit, the larger Blue Owl fund will pay out redemptions of $988 million. It received $872 million of new investments, resulting in a net outflow of $116 million.
And Blue Owl looked to project stability, saying Credit Income has $11.3 billion of cash, credit lines and easy-to-sell investments it can use to meet future payouts. The fund could pay out at least two years of 5% quarterly redemptions without having to sell any of the loans it holds, a person familiar with the fund said.
“We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio,” the firm wrote in the letter to investors.
Most of the funds have built-in guidelines limiting redemptions to 5% because their assets are primarily bespoke loans that would be hard to sell to meet withdrawal requests. When fund managers pay out more than that, they typically use borrowed money or cash in the fund, increasing risk for shareholders who remain invested.
Still, if redemptions stay too large for too long, the funds run the risk of having to sell loans at a loss to pay people out. Corporate-loan prices held steady for most of 2025 but started to slip this year over fears about disruption in software companies caused by artificial intelligence and rising inflation triggered by the U.S. and Israeli attack on Iran.
The Exits Window Is Smaller Than You Think
Weinstein’s instincts were correct, and the investors who turned down his offer are now finding out why. When you ask for 22-41% of your money back and the fund hands you 5%, that’s not a redemption policy. That’s a gate. And the mechanics of why gates go up are worth understanding, because once you see them you can’t unsee them.
Private credit funds hold bespoke, illiquid loans, which are custom-built lending arrangements that can’t be quickly sold without taking a loss. The moment a fund starts liquidating assets to meet withdrawals, prices fall, which triggers more redemptions, which forces more liquidations. The spiral is self-reinforcing. Weinstein saw it forming back in February. Most investors didn’t. That gap in perception is exactly how Saba Capital makes its money.
This isn’t a new movie. In 2008 the asset class was mortgage-backed securities…
Today it’s private credit loans. The product changes. The structure, and the ending won’t. What Weinstein recognized in February was the same thing sharp money recognized in 2007: the underlying assets are shakier than advertised, the investor base is more skittish than the fund managers want to admit, and the exits were never built to handle a crowd.
Now consider who’s next in line.
The Trump administration and Wall Street have been actively lobbying to bring private credit into 401(k) plans, putting this asset class within reach of Main Street savers who have even less understanding of liquidity risk than the wealthy investors currently getting gated. If this is how fund managers treat sophisticated investors with lawyers on speed dial, imagine what happens when a teacher in Ohio tries to access her retirement savings and discovers she’s capped at 5% per quarter.
The deeper story is the same one it always is. Years of artificially low interest rates created a yield desert. Investors, desperate for returns, piled into anything that promised income. Private credit promised plenty. Fund managers collected enormous fees on the way in, executives borrowed against their equity stakes, and the whole edifice was built on the assumption that the underlying loans were sound and the exits would always be orderly.
Weinstein knew better. That’s why he showed up in February with a lowball offer and a smile.
When this unravels fully, and a $1.7 trillion sector with illiquid underlying loans doesn’t quietly stabilize after $11 billion in outflows…It won’t stay contained. Private credit funds are among the biggest lenders to leveraged buyout companies. Those companies have employees, suppliers, and creditors of their own. The chain runs long.
The 2008 crisis started in a corner of finance most Americans had never heard of. The sharks showed up early that time too.
Yet, most people didn’t notice until the exits were already closed.
