'We are paying attention': Scott Bessent notes that the Treasury is closely monitoring the private credit sector

Blue Owl Capital Faces Heightened Scrutiny Amid Private Credit Concerns

Blue Owl Capital (OWL) continues to experience pressure, as last week's asset sale—intended to reassure investors—has instead triggered fresh worries among top government officials about the $1.8 trillion private credit sector.

“We do have concerns,” commented Treasury Secretary Scott Bessent on Friday, addressing the rapid expansion of Blue Owl and other private lenders in recent years. He added, “If there’s a problem, it won’t be passed on to individual investors.”

Details of Blue Owl’s Recent Asset Sale

On Wednesday, Blue Owl announced the sale of $1.4 billion in loans and lending commitments from three of its funds. Part of the proceeds was used to return 30% of investors’ capital from its oldest private credit fund, Blue Owl Development Corporation II (OBDC II), which is being wound down after canceling a planned merger late last year.

However, what truly captured attention was Blue Owl’s move to end quarterly redemption opportunities for investors in OBDC II.

Growing Focus on Private Credit Transparency

This decision has intensified scrutiny of the private debt market, a sector that has expanded rapidly but has yet to weather a major crisis. The spotlight has grown even brighter as private credit products increasingly find their way into millions of American brokerage and retirement portfolios, following an executive order signed by President Trump last summer.

Analyst Perspectives on Blue Owl’s Actions

While most Wall Street analysts viewed Blue Owl’s loan sale positively, they remain unconcerned about significant credit risks for the company or the broader private credit industry.

“We don’t see any major threat to private credit quality,” wrote Oppenheimer analyst Chris Kotowski in a note to clients. He noted that Blue Owl’s recent sale “should have been well received,” and pointed out that the loans were sold at 99.7 cents on the dollar, demonstrating that private loan valuations are in line with market conditions.

Blue Owl’s co-CEO Marc Lipschultz recently stated that the company sees no warning signs in the credit quality of its software-related loans. “We’re not seeing any yellow flags—mostly green,” he told analysts.

Questions Raised Over Sale to Insurance Subsidiary

One element of Blue Owl’s transaction raised eyebrows: Bloomberg reported that one buyer was Kuvare, a Chicago-based insurer acquired by Blue Owl in 2024. Blue Owl is not alone in this structure—other major private credit firms like Apollo (APO), Ares (ARES), Blackstone (BX), and KKR & Co. (KKR) also own insurance companies. (Disclosure: Yahoo is owned by funds managed by affiliates of Apollo Global Management.)

Industry Implications and Regulatory Concerns

Barclays analyst Ben Troisi described Blue Owl’s asset sale as “more positive than negative,” but highlighted the broader implications of private lenders selling assets to their own insurance subsidiaries.

Troisi suggested that this type of transaction could become a model for other private credit managers, given the increasing overlap between the insurance and private capital sectors. If such deals become common, it could further intertwine these industries, making it harder to monitor systemic risk.

“We’re trying to assess whether private credit could impact the broader economy. So far, it’s been largely beneficial,” Bessent remarked during his Friday address.

“But we also need to consider its effects on the regulated financial system and work to prevent potential contagion.”

Reporting contributed by Jennifer Schonberger.

David Hollerith covers the financial industry, including major banks, regional lenders, private equity, and the cryptocurrency market.