Concerns about private equity investing escalated this month when Blue Owl Capital, a private equity management firm, restricted investor withdrawal requests from its private credit fund (OBDCII) after selling $1.4 billion in assets to meet those demands. This action rattled the market and reignited worries about retail-focused private credit, particularly regarding liquidity, valuations, and transparency issues when investing in struggling sectors.
As attention turns to private equity and private credit investing, there has been a growing push by the Trump administration and major alternative asset managers to make these asset classes available to retail investors, including for retirement accounts. The recent situation with Blue Owl underscores how allowing retirement funds and this type of investment could be extremely risky.
Private equity (PE) involves purchasing ownership stakes in struggling companies, aiming for appreciation as these companies are restructured and eventually sold. Private credit (PC), on the other hand, involves lending money to such companies to generate regular income. While both carry risk, PC is generally considered less risky, as credit holders are paid first in the event of bankruptcy.
Transparency is a critical factor in PE, where investors need better visibility into valuation accuracy, performance reporting, fee structures, conflicts of interest, and overall risk. For PC, investors require more insight into loan underwriting criteria, ongoing performance monitoring, risks of interest payment deferrals, and how distressed loans are managed.
The unregulated nature of private markets and the emphasis on protecting proprietary strategies limit the level of transparency available to investors. Additionally, PE transactions often involve complex ownership structures and financing arrangements, with no standardization or frequent public reporting required. Private assets are typically marked-to-model rather than marked-to-market, often resulting in internal estimates instead of market-driven prices. Achieving greater transparency would also require significant investments in technology, personnel, and operations—costs that could reduce investor returns through increased fees.
Some top-performing funds are beginning to adopt more transparent reporting to meet investor demand, but, the industry remains largely opaque. The Blue Owl incident may be just the tip of the iceberg. Until the concerns mentioned above are addressed, private markets are not a safe place for retirement investing. The situation could worsen before it improves, and even with careful consideration of available data, there may still not be enough information for the average retail investor to make informed decisions.
While private equity and private credit may offer some potential opportunities, their current lack of transparency and regulatory oversight pose significant risks for most investors—especially those saving for retirement. Caution and due diligence are essential until meaningful reforms are made to protect retail participants.
