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Why does Blue Owl borrow from a bank to lend? Why would it need investors if it borrows from a bank?
by gowld 7mo ago
Why does Blue Owl borrow from a bank to lend? Why would it need investors if it borrows from a bank?
- JumpCrisscross 7mo ago> Why does Blue Owl borrow from a bank to lend? Why would it need investors if it borrows from a bank? Leverage. They raise money in their public funds. And then they borrow, typically around 50% of their capital, to amplify returns. Note: “Private credit lenders won’t lose money before private equity firms do. That’s how the capital stack of companies work: Equity is the first in line for losses. Before lenders like Apollo Global Management, Blue Owl Capital or Ares Management lose a dollar on their loans if a portfolio company fails, the private equity owners will already have been hit” [1]. Leveraging the senior debt is actually less risky than leveraging the underlying equity. (Though obviously they compound when done together.) [1] https://www.nytimes.com/2026/03/12/business/dealbook/private-equity-credit-problem.html https://www.nytimes.com/2026/03/12/business/dealbook/private...
- donavanm 7mo agoFor the gp: the other side of the risk/reward coin is that private credit has limited upside. They're going to get the margin between the private 6/7/8/9/10% loan and their funding source + admin. Whereas PE can go “to the moon” if things work out. morningstar had a nice writeup of the changing winds https://dbrs.morningstar.com/research/469893/2026-private-credit-outlook-negative-margin-compression-and-rising-leverage-are-key-challenges https://dbrs.morningstar.com/research/469893/2026-private-cr...