This Company Is Triggering Private Credit’s $3 Trillion Reckoning
The US private credit market, long insulated from the volatility that routinely hammers public markets, is now confronting something it has largely avoided since its explosive post-2008 growth: a genuine stress test. And Blue Owl Capital is where that pressure is most visible.
Key Takeaways
- Blue Owl Capital (OWL) fell over 21% in February 2026, its worst monthly drop ever, and has now declined for seven straight months
- Short interest hit an all-time high of nearly 18% of free float, with OWL briefly becoming the most borrowed stock in the US market
- The firm restricted redemptions on a $1.7B retail fund and sold assets to cover payouts, raising questions about liquidity across the sector
- Up to 40% of private credit loans may be exposed to AI-disrupted software companies, with UBS projecting default rates as high as 15%
Shares of Blue Owl (NYSE: OWL) fell between 21% and 22.7% in February 2026 — the steepest single-month decline in the company’s history. By March 4, the stock had closed at $10.34, roughly 59% below its January 2025 all-time high of $25.02. It marked the seventh consecutive monthly decline, the longest losing streak the firm has recorded.
Short Sellers Move In
The bearish positioning has been aggressive and, by some measures, historic. S3 Partners put short interest at 14.65% of free float as of early March — an all-time high for the stock. S&P Global’s estimate was even higher, at 17.9%, up sharply from 14.3%–14.9% the prior week. On March 4, Blue Owl was the most borrowed equity across all US markets, with more than 19 million shares on loan. Borrowing costs to short the stock surged 266% month-over-month, a signal of extreme and accelerating demand from short sellers.
Redemptions Frozen, Assets Sold
The deeper concern isn’t the stock price — it’s what triggered the selloff. In mid-February, Blue Owl halted regular redemptions for OBDC II, a $1.7 billion retail-focused credit strategy, and moved to sell $1.4 billion in assets to fund periodic payouts to investors. The firm maintained the sales occurred near par value, at roughly 99.7 cents on the dollar. That claim is disputed by the broader market context: New Mountain Finance, another private credit player, sold comparable assets at approximately 94 cents on the dollar — a gap that suggests either selective disclosure or genuine divergence in portfolio quality.
The personal finances of Blue Owl’s co-CEOs have added another layer of scrutiny. Doug Ostrover and Marc Lipschultz have together pledged over 106 million units — approximately 6.6% of outstanding stock — as collateral for personal loans. Since January 1, 2026, the value of that collateral has dropped by an estimated $260 million, raising the prospect of forced selling if prices deteriorate further.
The AI Exposure Problem
Analysts have identified a structural vulnerability underpinning much of the turbulence. Private credit, as an asset class, has made heavy bets on technology and software companies — many of which are now facing revenue pressure from AI-driven disruption. Estimates suggest that up to 40% of private credit loans sit with software borrowers in this position. UBS has projected that default rates in this cohort could reach 15%, a figure that would represent a material shock to a market that has, until recently, reported historically low credit losses.
Systemic Risk Debate
Mohamed El-Erian and a handful of other prominent voices have raised the question of whether Blue Owl’s difficulties represent something broader — a canary, as the phrase circulating in markets goes, for a $1.8 to $3 trillion asset class still operating largely outside traditional regulatory oversight. Moody’s and Fitch have both flagged private credit stress as among their primary concerns for 2026, with particular attention to contagion risks running through “back-leverage” financing arrangements that tie private credit funds to bank balance sheets.
Not everyone reads the situation as a warning. Analysts at Bank of America have characterized the selloff as a buying opportunity, pointing to Blue Owl’s historically low default rates and arguing that the market has overreacted to liquidity noise rather than fundamental credit deterioration.
That debate will take time to resolve. What’s already clear is that private credit — marketed for years as a stable, low-volatility alternative to public markets — is now learning what volatility actually looks like.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
