A Wall Street giant has blocked investors from withdrawing money from one of its flagship private credit funds as concerns mount over a crisis in the shadow banking industry.

New York investment firm Blue Owl scrapped plans to let investors take their cash from its $1.7bn (£1.3bn) fund, saying it would repay them in quarterly instalments over an extended period instead.

It marked a reversal of previous plans to let investors take money out of its Blue Owl Capital Corporation II fund, which was launched in 2017 to allow retail investors to put money into private debt markets.

Blue Owl is one of the biggest private credit businesses in the world with more than $307bn worth of investments including in 20 Asda supermarkets in the UK, which it acquired for $467m last November.

Its Blue Owl Capital Corporation II fund, or OBDC II, mostly invests in middle-market companies in the US and has given loans to more than 180 businesses.

Blue Owl’s sudden reversal follows growing concerns about the private credit industry after the collapse of two heavily indebted US companies resulted in lenders suffering billions of dollars in losses.

The bankruptcies of First Brands and Tricolor caused shockwaves across the private credit industry as lenders ranging from Santander to BlackRock found themselves exposed.

It led to concerns about a lack of transparency in private debt markets with Jamie Dimon, the chief executive of JP Morgan, warning that investors would probably see more “cockroaches” emerge across the shadow banking system.

Blue Owl first stopped investors from withdrawing money from its OBDC II fund last November after scrapping plans to merge it into the larger, publicly traded OBDC fund, which controls $17bn worth of investments.

As an alternative, Blue Owl had planned to host quarterly tender offers where investors could withdraw cash from the OBDC II fund by selling stakes at its stated value at the time. However, Blue Owl is no longer going ahead with those plans.

The OBDC II fund is currently privately owned by Blue Owl, meaning investors are unable to sell their holdings on the stock market.

Blue Owl said it was now expecting to sell the remainder of its assets over the coming years and return money to investors on a quarterly basis.

The announcement was made as Blue Owl said it had struck an agreement to sell $600m worth of OBDC II’s loan book as part of a wider deal worth $1.4bn.

The New York firm said it would use the money raised from the sell-off to return 30pc of the money investors put into the OBDC II fund this March.

A spokesman for Blue Owl said the distribution “will provide OBDC II shareholders with significant liquidity and reflects our continued commitment to deliver value to OBDC II shareholders”.

“The overall sale underscores the strong demand for Blue Owl‑originated assets and reflects the rigour of Blue Owl Credit’s underwriting, portfolio construction and valuation processes.”

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