Blue Owl Fouls the Nest for AI Financing
There are few sure things in business, but here’s one: If you want to start a fast-growing company, lend money. The demand for loans is insatiable, and if you offer a good deal, you’ll have a line stretching down the block.
Fair warning: The good times may not last long, and the downturn could be ugly.
Private market lender Blue Owl is living through the downturn part. The struggles of the firm, which has been a big funder of the AI build-out, could affect the flow of capital into data center developers and cloud providers that need to raise cash.
Blue Owl, founded in 2016, has grown rapidly to $300 billion in assets. My colleague Miles Kruppa, in a very timely profile of the firm’s co-founder, Marc Lipschultz, showed how the firm has become a critical cog in the AI money machine. Last year, it made at least $5.6 billion of equity investments into data centers and raised $64 billion in debt for those projects, according to internal figures.
The year didn’t end well for Blue Owl, and things have gotten worse in 2026. Its shares are down 30% in less than two months. The firm’s effort to manage rising redemptions in one of its smaller funds backfired and appears to have tainted the whole firm. Private lenders live and die on their access to capital and deal flow, both of which are at risk of drying up for Blue Owl.
The firm’s troubles are significant because it sits at the nexus of two important funding sources for the AI build-out—private capital and individual investors. If worries about Blue Owl spread, some projects will be funded at a higher cost—or might not get funded at all.
Here’s how Blue Owl got into this difficult spot and why it might have trouble getting out. Last year, a $1.6 billion private fund that it runs for small investors was facing redemption requests. The firm decided to address the issue by merging the fund with a $16.5 billion publicly traded fund it also runs.
The problem was, the bigger fund was trading at a 20% discount to the value Blue Owl was placing on its assets. The smaller fund, because it wasn’t publicly traded, was priced at the value of its assets. That meant investors in the smaller fund would see the value of their investments fall by 20% when the deal got done. That didn’t make them happy.
Blue Owl should have been better prepared for redemptions, said Greg Obenshain, a partner and head of credit at hedge fund Verdad. “They brought it on themselves,” he said.
Blue Owl has consistently said the quality of its assets is good and it is trying to serve its investors.
Blue Owl called off the merger, but the damage was done. The deal drew attention to the perennial problem of valuing private assets. If the market says Blue Owl’s loans are worth 20% less than the firm contends, that creates doubts in the minds of investors.
So far, there’s no evidence that Blue Owl’s numbers are wrong or that its funds have problems, but try telling that to nervous investors. AI-related debt in general is performing fine too, though most loans are relatively new, so they are unlikely to have had problems yet. There are other reasons besides Blue Owl’s situation for investors in private credit to feel anxious. Many of these funds hold a lot of debt issued by software companies, widely seen as vulnerable to AI’s impact.
Still, redemption requests kept rising for the small fund. That created a difficult situation because the loans it holds are not easy to sell. “Problems don’t really surface when you’re bringing in money, and the problems arise when the money starts to flow out,” Obenshain said.
Fast-forward to last week, when Blue Owl came up with another flawed solution to its problems. It would sell $1.4 billion of assets to three big institutional investors and to an insurance company that it has a deep financial relationship with. That money would fund investor redemptions.
One problem is that when a fund with illiquid holdings sells assets, investors assume it is selling the highest-quality and most liquid ones, meaning what’s left will be harder to sell. That makes further redemptions tougher and gives investors a signal to get out. In other words, the attempt to raise money for funding redemptions only exacerbated the problem.
Another issue: Blue Owl selling assets into the insurer, Kuvare Holdings, could indicate that there were no other buyers and that it stuck Kuvare with bad assets. To tamp down those concerns, both companies issued statements. Kuvare said it “rejected a significant number of loan assets” largely because they were too risky or performing poorly. Blue Owl said it was still holding portions of the loans it sold to Kuvare, meaning its investors weren’t stuck with the dregs of the fund. Insurance assets have also become an important source of funding for AI.
All of this matters because the companies building AI need to keep the cash flowing. Blue Owl was one of the pipelines. That became clear on Friday, when Business Insider reported that Blue Owl had trouble raising funds for a $4 billion data center in Pennsylvania.
The project is relatively speculative as these things go, so there could be other reasons why Blue Owl couldn’t raise the cash. The firm said it has considered outside funding and ultimately didn’t need it. The project “is fully funded, on time and on budget,” a spokesperson said.
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