Investors scramble to withdraw, banks sharply cut credit lines—America’s private credit industry faces a "run-on-the-bank storm."

Investors scramble to withdraw, banks sharply cut credit lines—America’s private credit industry faces a "run-on-the-bank storm."

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The US private credit industry is facing a dual squeeze of liquidity contraction and asset revaluation. As investors rush to withdraw funds and major Wall Street financial institutions reduce credit lines, this gigantic $1.8 trillion market is teetering on the brink.

According to the Financial Times, private credit giants Cliffwater and Morgan Stanley have recently imposed redemption restrictions on their multi-billion-dollar funds. In the first quarter, these semi-liquid funds experienced a surge in withdrawal requests, with outflows prompting management to trigger "gates" to prevent the underlying illiquid assets from being sold at discounted prices.

While facing pressure on the funding side, private credit institutions are also encountering tightening from large banks on the financing side. JPMorgan has recently notified relevant institutions of a downward adjustment in collateral value for certain software loans in its portfolio. Although this move did not immediately trigger margin calls, it directly cuts the future financing available to related funds, marking a comprehensive reassessment of risk exposure in this sector by the traditional banking system.

The core of this double squeeze lies in the NAV (net asset value) arbitrage logic. As the value of related assets in public markets plummets, private credit institutions have failed to simultaneously lower their portfolio valuations, prompting investors to cash out at book values higher than market fair values. This chain reaction, similar to a bank run, not only intensifies liquidity pressure on funds but also forces the market to re-examine the true pricing of private credit assets.

(Private Credit Company Stocks Continue to Decline)

Redemption Wave Spreads, Semi-Liquid Funds Face Major Test

According to the Financial Times, Cliffwater restricted redemptions for its $33 billion flagship fund (CCLFX) in the first quarter. The fund received redemption requests for 14% of total shares, ultimately approving only about half and buying back 7%.

Just hours after Cliffwater acted, Morgan Stanley also notified investors in its $7.6 billion North Haven Private Income Fund that withdrawals would be restricted. Redemption requests in the fund surged to 10.9% in the first quarter, with only 45.8% of those shares fulfilled.

This trend has spread across the entire industry in recent months. HPS recently set the redemption cap for its flagship fund targeting high-net-worth clients at 5%. Blackstone’s Bcred fund fully paid out after redemption requests reached 7.9% of net assets, while Blue Owl and Ares also met high redemption requests, though Blue Owl has already imposed permanent redemption limits on another fund this year.

Cliffwater raised $16.5 billion last year, expanding at a pace rivaling industry giant KKR. However, its model of relying on independent broker dealers to manage retail funds makes it more vulnerable to market sentiment fluctuations.

To cope, the report says Cliffwater is raising $1 billion by selling loan portfolios and expects to attract $3 billion in new commitments this quarter to offset outflows. The company emphasized in a letter to investors that the fund generated an 8.9% return in 2025, with a net leverage ratio of only 0.23 times, far lower than most peer instruments.

This wave of outflows highlights the risks facing many new semi-liquid funds, which were promoted as a way to invest in private credit, but because their underlying assets are rarely traded, they can only occasionally provide selling opportunities.

Overvalued Assets Trigger Arbitrage, Redemption Risk Emerges

The core driver of investors rushing to withdraw is NAV arbitrage.

According to a Bloomberg column, software stocks and related debts in public markets have dropped sharply this year, but private credit institutions tend to hold loans to maturity and have not simultaneously lowered portfolio valuations.

This lag in pricing creates arbitrage opportunities. If a fund claims a loan is worth $100 but investors think its actual market value is only $98, investors will try to redeem and cash out at the $100 book value.

This operational logic creates a bank-run-like dynamic: if funds pay out at $100, the asset value for remaining investors will be diluted further, prompting more to join the redemption line. This greatly intensifies the pressure for interval funds that promise some liquidity when facing investors.

To alleviate external concerns about opaque valuations, some firms are trying to improve transparency. John Zito, co-president of Apollo Global Management’s asset management division, stated the company is preparing to begin monthly reporting of its credit funds’ NAV, aiming to eventually implement daily NAV reporting and introduce third-party valuations.

JPMorgan Takes Initiative, Tightens Leverage Financing

As internal capital outflows mount, external leverage sources for private institutions are also being tested. According to the Financial Times, JPMorgan has actively lowered the valuations of corporate loans in private institution portfolios, mainly concentrated in the software industry considered highly fragile under the impact of artificial intelligence.

JPMorgan holds a special clause in private credit financing, reserving the right to revalue assets at any time, whereas most other banks usually act only after triggers like interest defaults. Media analysis notes this move is intended to proactively shrink available credit lines for these funds, so action can be taken when necessary—not waiting for a crisis to break out.

The tightening move was anticipated. JPMorgan CEO Jamie Dimon has repeatedly expressed a cautious stance on the private credit sector. The bank’s executive Troy Rohrbaugh said in February this year that, compared to peers, JPMorgan is becoming more conservative regarding private credit risk. One fund manager also confirmed that JPMorgan has been “significantly tougher” on back-end leverage in the past three months.

Industry Expansion Logic Damaged, Future Risks Uncertain

The rapid expansion of the private credit industry has heavily relied on leveraged financing provided by regulated banks. Since the end of 2020, private institutions have raised hundreds of billions of dollars, quickly acquiring the ability to directly compete with banks in large-scale leveraged acquisition financing.

However, much of the underlying assets were formed during the work-from-home boom period when software company valuations were high. As corporate cash flow expectations are revised downward, relevant debts will mature in coming years, with market conditions at maturity likely to be very different from those at issuance.

Currently, private credit institutions insist enterprise software firms are still growing and expect loans to continue performing normally. Although no other banks have clearly followed JPMorgan’s tightening stance, as major banks start reassessing asset values and retail redemption pressures remain high, scrutiny of liquidity and valuation transparency in this sector is expected to intensify further.

Risk Warning and DisclaimerThe market carries risk, and investment must be prudent. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular situation. Investing based on this information is at your own risk. ```