"The 'all-industry stampede crisis' of U.S. private credit funds: If redemption is impossible, what should the 'net asset value' actually be?"

"The 'all-industry stampede crisis' of U.S. private credit funds: If redemption is impossible, what should the 'net asset value' actually be?"

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Redemption waves are creating a chain reaction in the U.S. private credit fund industry, and a trust crisis over the authenticity of asset valuations is surfacing.

According to The Wall Street Journal, the flagship private credit fund of Cliffwater has recently faced large-scale redemption requests, while the fund simultaneously holds shares in other private credit funds that are likewise under redemption pressure, including products under Blue Owl Capital.

As WallstreetCN previously reported, Blue Owl this week again announced restrictions on redemptions for one of its funds, resulting in investors seeking to exit actually receiving less than a quarter of what they applied for.

This situation has pushed the entire industry into a fundamental valuation dilemma: When a fund cannot redeem in full the shares it holds in another fund, can it still value its holdings at the official net asset value (NAV) reported by the latter? Current accounting rules permit this practice, but critics point out that this creates a systemic divergence between reported figures and market reality, further shaking investor confidence and accelerating redemption stampedes.

Accounting standards typically require funds to value holdings in other funds at "fair value," i.e., the price market participants are actually willing to transact at. However, the rules specifically contain an exception for investors holding private fund interests—allowing them to adopt the official NAV disclosed by the portfolio fund. The legislative intent is that investors often lack the information needed to perform independent fair value estimates, so using the official NAV is a pragmatic simplification.

The problem is, once a fund has clearly cut redemption quotas, there emerges a significant gap between its official NAV and the amount investors can actually realize. Under current rules, managers are required to "consider" whether adjustments are needed if aware that NAV data is outdated or flawed, but there is no requirement to take any substantive action—the word "consider" constitutes the entirety of the obligation.

This gray area is being gradually amplified. Some other investment funds have even exploited this loophole in profoundly different ways: buying private equity fund interests at deep discounts on the secondary market, then immediately marking their holdings up to official NAV, in some cases resulting in single-day mark-to-market gains exceeding 1000%.

Cliffwater’s Chain Exposure

Cliffwater Corporate Lending Fund is a typical case of this valuation dilemma. As of the end of last year, the fund's net assets reached $31.6 billion, with 28% of its portfolio allocated to other private investment vehicles, all relying on NAVs provided by each fund manager for valuation.

Among known holdings, as of December 31, 2025, Cliffwater held about 16.2 million shares of OCIC, with a book value of $151.2 million, about 1% above cost, based on the official NAV provided by Blue Owl. At the same time, the fund also held about 3.8 million shares of Ares Strategic Income Fund, with a book value of $104.9 million, about 5% above cost, also valued at official NAV. Subsequently, the Ares fund also lowered its redemption cap to 5% of outstanding shares, while redemption requests from shareholders exceeded 11%.

Cliffwater’s Chief Investment Officer Blake Nesbitt said in an interview that so far, Cliffwater has not adjusted NAV for non-traded BDCs that have failed to fully meet redemption requests. He also noted that Cliffwater updates NAV daily and periodically adjusts it for other factors. Nesbitt further disclosed that Cliffwater has not increased its holdings in the two above-mentioned funds this year—its OCIC position began in 2021, and the Ares fund position in 2022.

Concern Over Valuation Credibility

Although OCIC and Ares together account for only a small proportion of Cliffwater's fund assets, the signal is not to be underestimated: once investors discover that the NAV of some holdings is seriously deviating from market reality, they have reason to cast broader doubts on the reliability of similar holdings.

Private credit managers have already been under numerous pressures, including concerns over their exposure to vulnerable software companies, non-transparent disclosures, and subjective asset pricing. OCIC’s redemption requests of up to 21.9% are themselves a strong signal that investors believe its official NAV is overstated.

For ordinary investors, the current dilemma is this: under the present accounting framework, funds are entitled to mark holdings at another fund’s official NAV, even if that figure clearly does not reflect the realizable value. This means the marked values throughout the investment chain may not reflect reality, and other assets valued based on NAV could also be subject to latent price bias.

The redemption wave in private credit funds is evolving into a stampede. Current rules that allow managers to select valuation bases at their discretion are providing additional motivation for investors to flee.

Risk disclosure and disclaimerThe market involves risk, and investments need to be made with caution. This article does not constitute individual investment advice and does not take into account the special investment objectives, financial condition, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable to their specific circumstances. Investing accordingly is at your own risk. ```