US private equity giant Cliffwater faces redemption crisis: Behind the $42 billion "black box," are there 5,000 more "black boxes"?

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The largest private credit interval fund in the United States is now deep in a redemption crisis, reflecting issues of opaque valuations and liquidity mismatches that are triggering widespread doubts about structural risks throughout the entire private credit industry.

Cliffwater Corporate Lending Fund recently restricted investor redemptions, becoming the latest private credit fund to take such measures. According to The Wall Street Journal, many investors believe the fund’s reported net asset value (NAV) is inflated and are seeking to sell their holdings. Latest data show that during the most recent redemption cycle, redemption requests reached 14% of the floating shares, far exceeding the usual quarterly repurchase cap of 5%, with the fund ultimately agreeing to repurchase 7%.

The core contradiction of this redemption wave is that the fund attracts investors with short-term liquidity commitments but holds a large amount of long-term, illiquid, and opaque assets. Remaining shareholders in the fund must bear the risk of possible forced discounted asset sales, while more and more investors are unwilling to assume this risk.

The largest scale, the lowest transparency

Cliffwater Corporate Lending Fund is the largest SEC-registered private credit interval fund in the United States.

According to Interval Fund Tracker, as of the end of last year, the fund had total assets of $42 billion and net assets of $31.6 billion. Notably, one of the fund's trustees was Paul Atkins—who resigned from the fund's board last year and is set to become Chairman of the U.S. Securities and Exchange Commission in April 2025.

The fund’s latest quarterly report listed over 3,600 positions, covering direct loans to mid-sized business borrowers and equity investments in other private credit funds.

Most of the holdings’ names are unfamiliar to ordinary investors, such as Accordion Partners, ALKU Intermediate Holdings, ZB Holdco, etc. Additionally, the fund listed about 1,700 undrawn loan commitments, involving nearly 1,000 different borrowers and totaling $6.9 billion—meaning the fund must be ready to provide this capital on demand.

A single holding reveals valuation doubts

The timeline of a specific fund holding concentrated investor concerns.

Cliffwater Fund first bought shares in another private loan fund—Ares Commercial Finance—in 2021, continued to add over the years, and consistently told investors the fund would liquidate on June 30, 2025. However, after June 30, Cliffwater stated it still held the position and continued to value it higher.

As of September 30, 2025, Cliffwater disclosed an unrealized gain in the Ares fund of $11 million, fair value of $64.9 million, cost of $53.8 million, but the disclosure form still listed “fund term” as “until final liquidation and distribution, June 30, 2025”—which suggests the fund theoretically shouldn't exist anymore absent further explanation. Three months later, Cliffwater disclosed that investment cost had risen to $98.6 million, and the valuation as of December 31 was $111.5 million, with the book gain expanding to $12.8 million, again without any clarification.

Cliffwater responded that the June 30 liquidation date in the September 30 report was "a clerical error, not updated in time—the fund converted to a perpetual structure in Q3 2025," and stated the Ares fund’s investors had approved this conversion.

Black box within a black box: dependence on valuations becomes a risk

Insufficient valuation transparency is the core challenge facing the fund. As of December 31, $29.7 billion, accounting for 71%, of Cliffwater’s investments are categorized as "Level 3" assets, meaning assets with “significant, unobservable inputs”—these rely on pricing models and subjective assumptions and are difficult to verify independently.

Another $11.6 billion, or 28% of investments, are shares in other private investment vehicles, including the aforementioned Ares fund. Cliffwater states it relies on the NAV provided by managers of these funds, not on its own assessments.

This approach is called a “black box within a black box”: investors must not only trust Cliffwater’s own opaque valuation, but also accept Cliffwater’s trust in others’ valuations. If a single valuation goes wrong, it could undermine trust in other valuations along the chain.

NAV's long-term stability now fuels an exodus

Since its inception in 2019, the fund’s NAV has moved with unusual stability. On most trading days, the NAV remains unchanged, and single-day moves of over one cent are rare. The NAV was $10 per share at launch and recently hovered around $10.52, up 8 cents since December 31.

This low volatility was long seen as an advantage, but now it has become a driver of speeding redemptions: the NAV staying elevated means investors wanting to exit can sell their shares at relatively favorable prices, further strengthening the motivation to flee.

At the same time, worries about private credit valuations are rising due to multiple factors, including inflation risk from soaring oil prices after the outbreak of war in Iran, and disruptive threats from new artificial intelligence tools to software companies heavily indebted to non-bank lending institutions.

The structural flaws of interval funds are exposed in this episode. Investors cannot redeem at will—they must apply during specific windows, and funds are legally forced to repurchase shares within set intervals. Other products with similar structures, such as non-traded business development companies, use self-imposed repurchase agreements to offer similar mechanisms, but these are not mandatory rules.

The fundamental contradiction in this structure is: attracting capital through short-term liquidity promises, but allocating it to long-term, illiquid and opaque assets. When redemption pressure accumulates, funds may have to liquidate assets at unfavorable prices, hurting remaining shareholders. As more investors realize this risk, redemption pressure could intensify.

Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their circumstances. Invest accordingly, at your own risk. ```