[Edaily Marketin YunJi Kim JI YEONG-EUI Reporter] "Redemption restrictions are a structural feature of the fund; they are not a sign that the loan assets have become non-performing."

Michael Dale, Managing Director at Blue Owl Capital, made this statement in a recent interview with E-Daily regarding the redemption controversy surrounding private loan funds. He argued that the surge in redemption requests should be evaluated separately from the soundness of the loan assets held by the funds.

Blue Owl drew market attention in the first half of this year as some unlisted private loan funds faced a flood of large-scale redemption requests. In April, redemption requests for the first quarter of this year received by Blue Owl Credit Income Corporation (OCIC) and Blue Owl Technology Income Corporation (OTIC) totaled $5.4 billion (approximately 7.8348 trillion won), amounting to 21.9% and 40.7% of their total equity, respectively. However, in accordance with the terms and conditions, actual redemptions for both funds were limited to 5% of their net asset value (NAV). As investors received only a portion of the amounts they requested, some raised concerns about the funds’ lack of liquidity and the potential for non-performing loan assets.

However, the prevailing view in the capital markets is that it is difficult to judge a fund’s soundness based solely on the scale of redemption requests. In the interview, Managing Director Dale also emphasized that the risk of private loans should be assessed based not on whether investors are withdrawing funds all at once, but rather on: △ the priority and collateral levels within the loan’s capital structure; △ the borrowing company’s ability to repay principal and interest; and △ the asset manager’s capacity to respond to defaults.

Blue Owl: “Loan Quality Is More Important Than Redemption Limits”

Private lending is an investment method in which an asset management firm lends money directly to a company and receives interest. Since loan assets cannot be readily liquidated like stocks or listed bonds, evergreen funds—which operate without a fixed maturity—typically allow redemptions of up to 5% of the NAV per quarter.

Blue Owl explained that such redemption limits are not measures newly introduced after market conditions deteriorated, but rather rules established at the fund design stage. This is because if normal loan assets are hastily disposed of to meet redemption requests, losses from selling at a discount could be passed on to the remaining investors in the fund.

For example, if redemption requests total 10% of the fund’s assets, investors would initially receive only about half of the amount they requested. While this may be inconvenient for investors, the explanation is that it is more stable to align asset maturities and liquidity than to operate a fund holding illiquid assets as if it were offering full redemption at any time. Managing Director Dale emphasized, “Private credit funds should not be viewed as products—like deposits or exchange-traded funds—from which investors can withdraw the full amount whenever needed,” adding, “Investors must examine not only the redemption terms but also whether the interest and principal repayments from the loans alone are sufficient to meet regular redemption demand.”

Blue Owl maintains that, despite the increase in redemption requests, there are no significant abnormalities in the soundness of its loan assets. As of the first quarter of this year, there was no significant increase in loans under watch, non-interest-bearing assets, or requests to modify loan terms, and the borrowing companies’ revenue and EBITDA continued to grow at a mid-to-high single-digit rate. In fact, since the establishment of Blue Owl’s direct lending portfolio, the average loss rate has been 0.12%, and the average loan-to-value ratio has been in the low 40s. If a company’s enterprise value is 100, the loan amount is approximately 40, with the private equity firm’s equity capital positioned below that level. This structure ensures that even if the enterprise value declines, this equity capital absorbs the losses first.

We also believe it is inappropriate to compare private loans using the same criteria as general corporate bonds or syndicated loans. While syndicated loans are sold to multiple investors within a short period, direct loans are executed after a process lasting from several weeks to several months, involving financial due diligence, interviews with management, and on-site visits. The explanation is that because a small group of major lenders directly negotiates the loan terms, they can establish more stringent financial covenants; furthermore, should problems arise, these lenders—who are familiar with the company—can directly engage in restructuring and recovery negotiations.

Focus on Cash Flow and Management Capabilities Rather Than Yields

As redemption requests from private debt funds have recently exceeded limits, Korean institutional investors have become even more cautious in evaluating new overseas alternative investments. Domestic pension funds, mutual aid associations, and insurance companies—facing high interest rates and delays in private fund redemptions—are now scrutinizing actual distributions, liquidity, and loss protection more closely than target yields.

Managing Director Dale noted that in this environment, the importance of assets that generate steady returns based on contractual terms is growing, rather than relying on asset sales or increases in enterprise value. He explained that private debt secures regular cash flow through interest payments, while real assets such as data centers and net-lease real estate also generate returns based on long-term lease agreements.

In fact, Blue Owl invests by constructing or acquiring data centers and then entering into long-term lease agreements—spanning 10 to 20 years—with major technology companies. This structure secures returns based on the tenants’ creditworthiness and long-term lease payments, rather than on the stock prices or future market share of AI companies. Dale, the managing director, explained, “Rather than picking winners among specific AI models or semiconductor companies, a strategy of investing in the data centers, power, and cooling facilities needed by the AI industry as a whole is most effective.” He added, “It is still difficult to know which AI models and platforms will ultimately prevail, but regardless of which companies win, they will all need data centers, power, and cooling infrastructure.”

However, he noted that even within the private credit sector, performance varies significantly depending on the fund manager, so one should not judge solely based on past returns. He emphasized the need to also examine how well losses were minimized during adverse market conditions and whether the manager has experience managing and recovering non-performing assets.

Managing Director Dale stated, “We should not evaluate the entire private lending market based solely on the recent redemption controversy,” adding, “We must distinguish between redemption rules and the actual soundness of assets, and also examine the fund manager’s due diligence and loss management capabilities.” Even within the private lending sector, risk varies significantly depending on whether a loan is senior or subordinated, the level of collateral, the financial condition of the borrowing company, and the fund’s redemption terms. Therefore, rather than viewing the entire market as distressed simply because redemption requests were concentrated on certain funds, one must examine which companies received funding, under what conditions, and whether the fund manager possesses the capability to respond to defaults.