Running on investment funds and liquidity risk management

Liquidity crises in investment funds are a recurring concern, but recent events in the US private credit market - most notably Blue Owl's suspension of redemptions at its Business Development Company OBDC II - raise the question of whether such episodes reflect a regulatory failure or an inherently fragile business model. This paper examines the US and EU legal frameworks governing liquidity risk in collective investment schemes, alongside the evolving guidance of the FSB and IOSCO, using the Blue Owl case as an empirical anchor. It argues that OBDC II never breached its applicable regulatory regime, since the redemption rights investors had come to expect were discretionary rather than legally guaranteed; the crisis instead exposed a deeper mismatch between investor expectations and the structural illiquidity of private credit portfolios. The paper concludes by drawing lessons for the European Union, questioning whether the UCITS framework's tolerance for a 10% allocation to illiquid assets is adequately safeguarded, given that even far stricter US limits failed to prevent a comparable crisis.