By Gregory Zuckerman, Matt Wirz and Peter Rudegeair

Doug Ostrover and Marc Lipschultz seemed to have private credit figured out.

The executives joined forces to launch fund manager Blue Owl Capital, turning it into a powerhouse in the booming business of lending to private companies without the use of banks. They pounced on trends early, zeroing in on lending to software companies, plowing money into artificial intelligence and selling their funds to wealthy individuals.

Ostrover and Lipschultz became instant billionaires, buying a hockey team, a piece of a football team and luxury real estate.

Now, the foundations of their empire are cracking -- raising questions about the once-sizzling industry's future and transfixing Wall Street in a mix of schadenfreude and anxiety.

Spooked by a series of shocks in the wider credit market, individual investors who put cash into some Blue Owl funds have been asking for their money back. The firm recently said it was unloading loans to raise cash for investor payouts. Fears about the impact of AI on software companies in Blue Owl's portfolio have weighed on its market value, which has lost about $24 billion in around a year.

On Feb. 23, after battling a blizzard to get to his Park Avenue office, Ostrover led a call with thousands of financial advisers who had offered Blue Owl funds to their clients, hoping to calm their nerves. "I've been through many of these cycles," he told them.

Sentiment about the private-credit industry began shifting last year when allegations of credit fraud surfaced in the collapse of two auto companies. Signs of stress continue to percolate as some private-credit funds mark down the value of their loans.

On Friday, shares of some publicly traded private-credit funds fell after the companies announced dividend cuts and concerns about risky lending helped drive down bank stocks. Shares of private-credit lenders including Apollo, Blackstone, Ares and KKR have fallen more than 25% so far this year.

"What all this fret is about is whether private credit is about to have a lot higher losses," said Evercore senior research analyst Glenn Schorr. "Blue Owl is one of the bigger players and that's why all eyes are on them."

Blue Owl's crisis isn't the result of a souring credit cycle. So far, most of its borrowers are paying their loans. Instead, the troubles stem from the firm's big bet on technology lending, its heavy marketing of funds to individual investors -- who tend to be flightier -- and a series of missteps that snowballed out of control.

In recent days, Ostrover and Lipschultz have reached out to friends, expressing frustration with the scrutiny on the firm. One urged the pair to demonstrate public confidence. Another was reassuring: "Things will get better...You'll get through this."

About 40% of the firm's $307 billion of assets under management come from individuals, far more than most competitors. While the firm can limit withdrawals, investor unease makes fundraising harder, affecting its stock price. Blue Owl's future will depend on whether Ostrover and Lipschultz, two of Wall Street's smoothest salesmen, can assuage concerns.

Betting on themselves

Lipschultz and Ostrover have pulled off comebacks before, having launched their investment firm after missing out on top jobs elsewhere on Wall Street.

Ostrover gained a reputation as a junk-bond salesman. He co-founded GSO Capital Partners, a hedge fund specializing in such debt, then sold it to Blackstone in 2008.

At Blackstone, Ostrover talked openly about his working-class roots and wore a Timex Ironman digital watch to client meetings. He urged employees to also show modesty with pension funds and their other clients. By 2015, it became clear he wasn't going to take over management of GSO.

Ostrover was soon discussing starting a new lending firm with Lipschultz, a friend who was hitting a ceiling of his own at KKR. Lipschultz began his career at Goldman Sachs and was known for his adept networking. He raced over to greet years-ago colleagues in restaurants and forged close relationships with executives at university endowments.

On KKR's private-equity team, Lipschultz identified trends early, investing in technology, infrastructure and energy deals. But he struck out on several mammoth transactions, including the buyout of power producer TXU Corp., which went bankrupt.

Ostrover and Lipschultz each put $250 million of their own money in their new firm, then called Owl Rock, which they launched with Craig Packer, a former investment banker at Goldman Sachs. They received $155 million in early investments from George Soros's family office and $250 million from Iconiq, the firm that manages money for Mark Zuckerberg and others.

Owl Rock specialized in lending money at high interest rates to companies with below investment-grade credit ratings. It enticed big institutions to invest in its funds by offering lower fees.

Blue Owl was formed in 2021 when Owl Rock combined with Dyal Capital Partners, which bought stakes in investment managers.

The combined firm put extra effort into courting wealthy individuals, a rarity at the time. It sponsored conferences for financial advisers of Morgan Stanley, UBS and others, and recently flew investment advisers to Chicago, putting them up at The Langham hotel with dinner at Gibsons Bar & Steakhouse.

Ostrover and Lipschultz named conference rooms in their Park Avenue office after species of owls -- an animal associated with wisdom -- and stocked them with bowls of M&Ms stamped with pictures of the birds. Lipschultz decorated his office with Phish memorabilia and sneakers from his collection of rare Air Jordans. Ostrover hung a sepia photograph of his grandfather's smoked-fish shop in Manhattan in the early 20th century.

Blue Owl's surging stock gave them collateral to use for personal loans. The duo pledged Blue Owl shares worth about $2 billion at their peak to lenders, according to securities filings.

In 2024, Ostrover and Lipschultz led a group that purchased the Tampa Bay Lightning hockey team. They also bought minority stakes in the Washington Commanders football team. Ostrover spent about $40 million on two vacant properties in Palm Beach with plans to build a mansion atop them.

A string of blunders

Blue Owl plunged head first into lending to software companies -- a sector that was both sexy and stable in the pre-AI era. Much of the money in funds focused on that theme came from individual investors.

More recently, Blue Owl went all-in on financing the AI build-out. It spent about $1 billion last year to acquire a digital infrastructure investment firm and bought ownership stakes in data centers leased by Meta Platforms and Oracle. Lipschultz and Ostrover donned hard hats to take big investors on tours of a project it financed in Texas.

Lately, what had been the firm's chief selling points are becoming vulnerabilities.

The value of loans to software firms like those made by Blue Owl have tumbled in recent months as concerns run rampant that AI could make some of those companies obsolete. Its funds hold large loans to companies such as Anaplan and Zendesk, software firms that were bought by private-equity firms in recent years.

One of its funds, Blue Owl Technology Finance, concentrated 56% of its investments in software and technology-services companies as of September, according to PitchBook LCD, much more than similar funds.

Blue Owl is also heavily exposed to certain tenants in its data-center business, some of which look riskier today than when they signed leases. The cost to buy protection against potential defaults on bonds of Oracle and CoreWeave, for example, has soared from a few months ago.

Blue Owl's troubles intensified last autumn with a plan to merge one of its oldest private, or "semiliquid," funds for individual investors with a publicly traded one. The deal was meant to let investors exit by giving them shares they could sell on the open market. But shares of the public fund dropped as the private-credit backlash gained steam, implying potential losses of about 15% for investors in the old fund.

Management launched the deal anyway, misjudging how unpopular it would be with clients, then canceled the merger. What started as a trickle of redemption requests gained speed as owners of 15% of the shares in a semiliquid technology fund asked to cash out. Meanwhile, other managers like Blackstone and Ares also faced withdrawals.

Lipschultz took to the airwaves, holding television interviews to defend his firm and private credit as an industry.

Semiliquid funds are designed to withstand outflows by allowing managers to limit quarterly redemptions to 5% of shares outstanding. But Blue Owl made an exception for the tech fund and paid out the full 15% in January, hoping to make a show of strength. Days later, market panic over weakness in software companies sent Blue Owl stock tumbling again.

Eager to resolve the issue of the old fund, the firm said in mid-February it had sold $600 million of loans from that fund for top dollar, enabling investors to get 30% of their money back. But it left out details about which loans remained in the portfolio and what they were worth.

Blue Owl's stock fell a further 10% in the days following the announcement.

A spokesman for Blue Owl said the sale accelerated the return of capital for the fund, which was always required to do so after a set amount of time. Following the sale, the fund's portfolio "remains attractive and well-diversified, with portfolio composition, credit quality and borrower characteristics that are substantially consistent with the portfolio prior to the transaction," he said.

One issue Wall Street is watching: Ostrover and Lipschultz, having borrowed against their shares, could be vulnerable to margin calls if the stock keeps falling.

A spokesman for Ostrover and Lipschultz said the men used financing to facilitate personal transactions "on a limited basis" and that the loans are "meaningfully over-collateralized." He added that neither has sold shares since the firm went public.

Blue Owl's fans say the investor angst will abate.

"We don't believe there is a serious concern about a deterioration in private-credit quality," Chris Kotowski, an Oppenheimer analyst, told investors this past week when reiterating his "outperform" rating on Blue Owl and some of its peers.

Write to Gregory Zuckerman at Gregory.Zuckerman@wsj.com, Matt Wirz at matthieu.wirz@wsj.com and Peter Rudegeair at peter.rudegeair@wsj.com

(END) Dow Jones Newswires

March 01, 2026 21:00 ET (02:00 GMT)

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