A recommendation from UBS for clients heavily invested in private credit to diversify and reduce exposure has triggered substantial investor redemptions from a flagship fund managed by Blue Owl Capital, a top-tier retail product originally developed with the bank's assistance.
In the fourth quarter of 2025, investors began large-scale withdrawals from the Blue Owl Technology Income Corp (OTIC) fund. This $3 billion direct lending fund is primarily distributed through UBS's wealth management channels.
According to two sources familiar with the matter, UBS had advised clients with excessively high allocations to private credit to reduce their positions. Shortly after this guidance, the wave of redemptions commenced.
This incident, where a shift in UBS's investment view impacted a Blue Owl fund, underscores the critical role wealth channels play in connecting private credit firms with retail investors. It also exposes the risks inherent when institutions are overly reliant on a single distribution partner.
The situation further illustrates that amid the boom in retail private credit products, control over capital flows is shifting from private credit managers to the banks and wealth platforms that control client access.
While channel partnerships are a vital source of fund capital, fund managers can become vulnerable to changes in the strategic advice issued by their partner institutions.
The entire industry has been expressing concerns about the asset valuations and return prospects in private credit. Blue Owl, as an early entrant into the retail market, now finds itself at the epicenter of this turbulence.
Two insiders revealed that before launching this tech-focused fund in 2022, Blue Owl collaborated with UBS to tailor an investment product specifically suited to the bank's client base.
These sources added that at least 60% of the fund's capital was raised from UBS clients, a majority of whom are based in Asia. This concentration from a single channel is roughly double the maximum threshold many industry executives consider prudent.
An executive from another major international private capital group stated their retail funds cap single-platform fundraising at 20% to 30% to mitigate channel concentration risk.
A person familiar with the Blue Owl fund noted, "Both Blue Owl and UBS initially intended to broaden the fundraising base, but the ultimate client concentration exceeded both parties' expectations."
The backdrop for UBS's reduction advice includes defaults by auto lenders like Tricolor and First Brands Group, which sparked broader market worries about potentially lax underwriting standards across the credit sector. A fund managed by UBS O'Connor, the bank's private credit arm, had a 30% exposure to the latter auto parts company.
Another informed source indicated UBS also harbored concerns that intensifying competition for new credit assets was compressing spreads, thereby eroding the expected returns of private credit funds.
Although UBS's advice was a general recommendation for overall portfolio reduction for overexposed clients and not specifically targeted at the Blue Owl tech fund, the fund's heavy reliance on the UBS channel meant it suffered a severe impact.
Data from rating agency KBRA shows that investor redemptions in the last quarter amounted to 15.4% of the fund's total assets, representing a net outflow of approximately $400 million. This redemption volume was several times higher than in the previous quarter.
Developments in artificial intelligence technology have led the market to question the long-term value of software companies. Since software firms are major borrowers in the private credit space, the Blue Owl tech fund faced additional pressure from selling in the software sector.
In the first quarter of this year, redemption requests for the fund at one point surged to over 40% of its total size.
UBS declined to comment on the matter. A Blue Owl spokesperson stated, "The OTIC fund's credit performance remains stable, with a non-accrual rate of just 0.2%, supporting the fund's ability to consistently maintain a 9.2% dividend yield."
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