Shadow bank hit with £4bn redemption as financial crisis fears grow

A leading Wall Street shadow bank has been hit with a surge in withdrawal requests of more than $5bn (£3.8bn) from spooked investors amid warnings of a 2008-style financial meltdown.

Blue Owl Capital said on Thursday it would block some redemptions from two major funds after it was swamped by demands from its financial backers to withdraw their cash.

The private credit firm’s marquee fund, the Blue Owl Credit Income Corp, saw redemption requests rise to 22pc of its $20bn value last quarter – up from 5pc previously.

Blue Owl Technology Income Corp, its tech-lending fund, also saw requests to redeem 41pc of the fund’s $3bn value in the first quarter of the year, up from 15pc.

The company said it would limit redemptions to 5pc, trapping billions of pounds of savers’ cash inside the funds.

The unprecedented rush for the exits has fuelled fears on Wall Street about the health of the private credit sector.

After Blue Owl revealed the scale of the redemptions, major shadow banks saw their share prices plunge on Wall Street.

Fears over private credit have been mounting for months as concerns grow over the size of the industry and the risks to financial stability.

Unlike traditional banks, shadow banks are largely unregulated and have replaced high street lenders as a major source of financing for companies globally.

Shares in Apollo Global, Blackstone ‌and ‌Ares ⁠Management were down 4.8pc, 4.2pc and 3.4pc, respectively, wiping nearly $10bn off the value of the sector.Shadow banking summary

It comes as Andrew Bailey, the Governor of the Bank of England, warned that the private credit sector’s “opaque” structure could magnify shocks in ways that are reminiscent of the 2008 financial crisis.

Mr Bailey ​on Wednesday said a key feature of private credit was that it was “fairly opaque”, and if investors began to suspect problems were more widespread than previously thought, they would spread.

“If you then learn there is a lemon – it’s called a failure – you lose confidence ​in the whole system, because you say, ‘There are more lemons in there than I thought, more weak companies in there than I thought, and I don’t know where they are’,” ​Bailey said, referring to the loss of confidence in the lead-up to the 2008 crisis.

The US Treasury also said on Wednesday that it would seek to meet regulators that oversee the insurance industry to understand the risks stemming from private credit.

Many other funds such as KKR, Ares Management and Apollo Global have also limited withdrawals to 5pc.

Blue Owl’s mammoth withdrawal requests sent shares in the company down by as much as 7pc in New York. Its stock price has fallen by more than 47pc so far this year.

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Craig Packer, the co-president of Blue Owl, said in an investor update that he believed the surge in redemptions reflected a “period of heightened negative sentiment toward the asset class that has intensified as peers have reported tender results”.

He added: “We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio.”

However, others in the industry have warned that private credit firms, some of which, like Blue Owl, have lent heavily to a tech sector under threat from AI, could be in for more trouble.

Marc Rowan, Apollo’s chief executive, also warned earlier this month that a “shake-out” was coming for private credit firms as investors became increasingly jittery.

“I don’t think it is going to be short-term,” he told a conference in New York.

Jitters in the sector first began last autumn with the collapses of US subprime auto lender Tricolor and car parts company First Brands, which triggered major losses for their shadow banking creditors.

This led to a warning from Jamie Dimon, the JPMorgan boss, that more “cockroaches” would emerge from the system.

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