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Weekly: Is Blue Owl The Private Credit Canary?
Four months ago, when a couple of bankruptcies in the auto sector riled regional lenders and stirred
“It’s hard to know…Who knows.” Exactly. Maybe investors and traders (and hybrids) are finally remembering (or learning for some/many new investors) that “risk” exists in markets, and it needs to be analyzed through multiple lens and across multiple timeframes. Maybe.
Offering liquidity from illiquid assets is classic financial alchemy that always goes bad when the assets become both illiquid and unpopular. Capture the illiquidity premium without paying the illiquidity price. The eager buyers think the assets will forever be popular, which is why they are the required greater fools. Packaging them (the assets, not the fools) in a non-traded vehicle assures that short term unpopularity will become long term untouchability by any with memories. Think how long some asset classes and individual names were untouchable after GFC. That is why they want to sell these vehicles to retail investors, with new cohorts birthed every year having no memory, and to retirement investors, who (often) don’t make their own investing decisions.
I read the OWL = Lehman comparisons with alert skepticism. OWL is not systematically important, even if some AI data centers will now have to find alternative funding at higher cost. But is the entire BDC industry at risk and in systemically important?
That actually had me laughing out loud.
Makes two of us!
Thank you for an excellent discription of the beginning of a credit crisis. Althouh this one stems from the opposite end of the credit spectrum, the final borrowers – as you point out – could be very weak and VERY big. A lot is being bet on these data centers.
I saw this in a post by El-Erian with the same question. I agree that Blue Owl’s apparent demise is notable, considering they are supporting the AI buildout. But I think they are too small to be considered significant. This could be simply a case of poor management instead of a canary. Now if other firms designed to support the $1.5T initiative start folding I would say at that point it may be worth considering the canary question.
Sure, this may be significant. But how about those Somali-run daycare centers in Minnesota???
Likely Clearing its throat!