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If you don't follow US private market investing, you may not have come across Blue Owl. The firm has been attracting a lot of attention recently due to perceived liquidity issues, and there are lessons to be learnt for NZ Funds and businesses alike. In this blog, I summarise the issues facing Blue Owl and how NZ businesses can avoid similar issues.

Blue Owl is a US-listed alternative asset manager focused on private credit, providing debt financing to companies outside traditional bank lending. They offered exit opportunities to investors by running 'semi-liquid' funds with scheduled liquidity windows. This has worked well for them in the past, but that approach to investor liquidity ran into problems when liquidity expectations and redemption demand rose beyond the level they could reasonably meet without negatively impacting other investors.

The US manager recently sold about US$1.4 billion of loan assets across three credit funds to a small group of North American pension and insurance investors, in part to help fund withdrawal requests.

The biggest sale came from a retail-focused private credit fund commonly referred to as OBDC II. The fund sold US$600 million of loans, roughly a third of its portfolio. After the sale, Blue Owl changed how investors in that fund can access liquidity. It permanently removed the option for investors to withdraw some funds every quarter. Instead, it will return cash through return-of-capital distributions funded by earnings, repayments and potential asset sales or other transactions.

This fund was aimed at retail investors, in this case mainly high net worth individuals rather than pension funds or insurance companies, which can amplify sensitivity to exit or liquidity conditions because these investors are often more focused on flexibility and more likely to react quickly when access to cash changes. Owl's shares fell sharply after the announcement, as investors digested the shift away from quarterly tender offers and what it might signal about liquidity expectations and confidence in semi-liquid private credit products. Peers in alternative credit and private markets were pulled down as well.

That reaction speaks to a broader tension in private markets. “Semi-liquid” products try to offer periodic exits for long-term assets that are difficult to convert quickly into cash without losing significant value. When too many investors ask for liquidity at the same time, managers are forced into trade-offs. They may need to sell assets, limit withdrawals, or change the mechanics of how cash is returned, even if the underlying loans remain performing.

The Blue Owl episode also highlights the downsides of redemption-based liquidity, where investors exit via the fund itself. In that model, the investor experience depends on how confidently the manager can source cash and deliver it fairly to all investors, especially during periods of higher withdrawal demand.

There is another structure that doesn't solely rely on the fund manager sourcing cash. Liquidity can be facilitated through scheduled secondary trading events, where investors can buy and sell with other investors in defined windows. In that model, liquidity primarily comes from other buyers showing up, not from the fund meeting withdrawals, however the fund can choose to support liquidity by participating in the trading as a buyer - when it has sufficient liquidity. Price is discovered through supply and demand at each event, which means non-trading investors can benefit if the Fund buys at a small discount to its current unit value and then reissues units to new investors at the higher value. This means everyone benefits without investors expecting the fund to be solely responsible for funding exits.

Catalist's markets are designed around that same principle. Trading happens through periodic auctions set by the business or manager, with pricing usually determined by orders placed by buyers and sellers. The system is built to support transparent price discovery and fair, orderly execution.

In New Zealand, Punakaiki Fund showcases an investor-to-investor approach to liquidity through scheduled events, rather than relying on fund redemptions. This has been supported in recent trading events by the Fund acting as a buyer for some units, which improved liquidity without setting an expectation that the fund fulfils all exit requests. The broader point is not that one model of liquidity is universally better, but that the mechanism changes the risks and expectations.

Private assets will always involve trade-offs between return, risk, and access to cash. The key is to be clear about which liquidity model sits underneath the product, and what conditions need to hold for it to work. If you want to improve liquidity for your investors whilst managing the risks for your business, speak to Catalist now to discuss your options.

By Abby Sathyendran