The largest private credit interval fund in the United States is grappling with a redemption crisis, raising widespread concerns about valuation opacity and liquidity mismatches that point to structural vulnerabilities across the private credit industry.
Cliffwater Corporate Lending Fund recently restricted investor redemptions, becoming the latest private credit fund to take such measures. According to reports, many investors believe the fund's reported net asset value (NAV) is inflated and are seeking to sell their holdings. Recent data shows that during the latest redemption cycle, redemption requests reached 14% of the outstanding shares, far exceeding the fund's typical quarterly repurchase limit of 5%. Ultimately, the fund agreed to repurchase 7% of the shares.
The core conflict in this redemption wave lies in the fund's strategy: it attracts investors with promises of short-term liquidity while holding a large volume of long-term, illiquid, and opaquely valued assets. Remaining shareholders bear the risk of the fund being forced to sell assets at a discount to meet redemptions, a risk that a growing number of investors are unwilling to accept.
Largest in Scale, Lowest in Transparency Cliffwater Corporate Lending Fund is the largest SEC-registered private credit interval fund in the U.S. Data from Interval Fund Tracker indicates that as of the end of last year, the fund had total assets of $42 billion and net assets of $31.6 billion. Notably, a former trustee of the fund 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 lists over 3,600 holdings, including direct loans to mid-sized corporate borrowers and equity investments in other private credit funds. The vast majority of these holdings are unfamiliar to average investors, such as Accordion Partners, ALKU Intermediate Holdings, and ZB Holdco. Additionally, the report details approximately 1,700 undrawn loan commitments involving nearly 1,000 different borrowers, totaling $6.9 billion—meaning the fund must be prepared to provide this capital on demand.
A Single Holding Reveals Valuation Concerns The timeline of a specific holding highlights investor doubts. The Cliffwater fund first purchased shares in another private loan fund, Ares Commercial Finance, in 2021, continued to add to the position over subsequent years, and consistently informed investors that the Ares fund would liquidate on June 30, 2025. However, after that date passed, Cliffwater reported it still held the position, and its valuation continued to increase.
As of September 30, 2025, Cliffwater disclosed an unrealized gain of $11 million on the Ares fund, with a fair value of $64.9 million against a cost of $53.8 million. Yet, the disclosure table still listed the "fund term" as "until final liquidation distribution, June 30, 2025"—implying the fund should theoretically no longer exist without further explanation. Three months later, Cliffwater reported the investment cost had risen to $98.6 million, with a valuation of $111.5 million as of December 31, and an increased book gain of $12.8 million, again without clarification.
In response, Cliffwater stated that the June 30 liquidation date in the September 30 report was "a clerical error that was not updated in time—the fund converted to a perpetual fund in the third quarter of 2025," adding that Ares fund investors had approved the conversion.
Black Box Within a Black Box: Reliance on Valuations Poses Risk The core issue facing the fund is a lack of valuation transparency. As of December 31, $29.7 billion, or 71%, of the Cliffwater fund's investments were classified as "Level 3" assets—those containing "significant unobservable inputs." These assets rely on pricing models and subjective assumptions, making independent verification difficult.
Another $11.6 billion, or 28%, of investments consisted of shares in other private investment vehicles, including the aforementioned Ares fund. For these holdings, Cliffwater stated it relies on NAVs provided by other fund managers rather than conducting its own estimates.
This practice has been described as a "black box within a black box": investors must not only trust Cliffwater's own valuations unconditionally but also accept Cliffwater's reliance on valuations from other managers. If one valuation proves problematic, it could undermine confidence in others.
Stable NAV, Once a Strength, Now Fuels Exodus Since its inception in 2019, the fund's NAV has shown unusual stability. On most trading days, the NAV remained unchanged, with daily fluctuations exceeding one cent being relatively rare. The NAV started at $10 per share and recently hovered around $10.52, up 8 cents from December 31.
This low volatility was long seen as an advantage but has now become a driver of accelerated redemptions. A persistently high NAV means investors looking to exit can sell their shares at relatively favorable prices, reinforcing the incentive to leave.
Meanwhile, investor concerns about private credit valuations are intensifying due to multiple factors, including inflation risks from surging oil prices following the outbreak of war in Iran, and the disruptive threat posed by new AI tools to software companies that rely heavily on loans from non-bank lenders.
The structural flaws of interval funds have been exposed by this event. Investors cannot redeem at will; they must submit requests during specific windows, and the fund is legally required to repurchase shares within set intervals. Other structurally similar products, such as non-traded business development companies, offer similar repurchase mechanisms through issuer tender offers, but these are not driven by mandatory rules.
The fundamental contradiction of this structure is clear: it attracts capital with promises of short-term liquidity but deploys it into long-term, illiquid, and opaquely valued assets. When redemption pressure builds, funds may be forced to liquidate assets at unfavorable prices, harming remaining shareholders. As more investors recognize this risk, redemption pressures are likely to intensify.
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