Wall Street 's inclusive promise to bring private credit accessible to everyone, 'democratizing,' recently hit a cement wall.
For a long time, private credit was reserved for the ultra-wealthy and pension funds. After private credit became 'democratized,' some investors got punished - with no exit in sight.
Blue Owl Capital(OWL) is a leading $295 billion asset manager. It works as a huge shadow bank, managing billions and deploying investors' capital into real estate, private companies, and tech infrastructure. It has become a household name within the $1.7 trillion private credit frenzy.
But the company faces an uncomfortable situation. In a New York federal lawsuit, the asset manager is alleged to have inappropriately halted withdrawals amid a $150 million surge in redemptions.
With the impending Feb. 2 deadline this Monday, time is running out for those caught in the whirlwind to be the lead plaintiff in the case.
$1.7 trillion private credit bubble& Blue Owl's OBDC II troubles
Blue Owl executives publicly claimed there was " no meaningful pressure " on their asset base, but something was brewing behind the scenes in a federal class-action lawsuit filed in New York ( Goldman v. Blue Owl Capital Inc .).
The investors in the firm's private credit fund, called OBDC II, were trying to exit in 2025. The allegation claims that while the company was assuring the public that everything was "stable," investor redemptions surged to $150 million within the first 9 months of the year, up a staggering 20% from the previous year.
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Blue Owl did not meet consensus estimates in its third-quarter report, reporting $376.2 million in fee-related earnings. It saw a 33% year-over-year decrease in performance revenue to about $188,000 , suggesting that easy money from the last few years is being drained.
In the third quarter of 2025, redemptions doubled to $60 million, or 6% of OBDC II's value.
The lawsuit alleges that, in response to the redemption surge, Blue Owl planned a controversial merger between OBDC , its publicly traded sister fund, and the private OBDC II. The merger triggered a rule that froze all withdrawals until the merger was complete in 2026, leaving retail investors unable to withdraw their cash as the value dropped.
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However, due to investor pushback and plummeting stock prices, Blue Owl Capital effectively canceled the merger on November 19, 2025.
Key figures in the federal complaint filed in the Southern District of New York named Blue Owl's Co-CEOs, Douglas I. Ostrover and Marc S. Lipschultz , for allegedly making false statements.
"The complaint is meritless, and we will seek dismissal at the earliest opportunity," according to a Blue Owl spokesperson.
Blue Owl walked away from Oracle's $10 billion deal
Blue Owl has a partnership to provide data center financing to Oracle (ORCL) . In December, it was considered the main capital source for Michigan's $10 billion data center, which was critical to OpenAI's future. Blue Owl walked away.
Oracle claimed they "selected a different partner," aka ongoing talks with Blackstone . Reports suggest that Blue Owl walked away from Oracle's increasing debt load, deciding the $10 billion commitment was too much of a grim undertaking amid unfavorable leasing and debt terms.
For Blue Owl, the timing is unfortunate. As it tightened its belt on the Oracle deal, it was under pressure from withdrawals from retail investors in its OBDC IIfund. While Blue Owl frames these as separate corporate maneuvers, the optics still raise eyebrows among investors.
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This story was originally published by TheStreet on Feb 2, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
