American Private Equity Giant Cliffwater Caught in Redemption Crisis: Behind a $42 Billion "Black Box," Are There 5,000 More "Black Boxes"?

The largest private credit interval fund in the U.S. is currently facing a redemption crisis. The issues of opaque valuations and liquidity mismatches it reveals are sparking widespread concerns about the structural risks within 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. Recent data shows that during the latest redemption cycle, redemption requests reached 14% of the circulating shares—far exceeding its usual quarterly buyback limit of 5%. Ultimately, the fund agreed to buy back 7%.

The core problem behind this redemption wave is: the fund attracts investors with short-term liquidity commitments but holds a large amount of long-term, illiquid, and opaque assets. Remaining shareholders face the risk of forced asset sales at discounts to meet redemption demands, while an increasing number of investors are unwilling to bear this risk.

Largest in Size, Lowest in Transparency

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

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

The latest quarterly report lists over 3,600 holdings, including direct loans to middle-market borrowers and equity investments in other private credit funds.

Most holdings are unfamiliar to ordinary investors, such as Accordion Partners, ALKU Intermediate Holdings, ZB Holdco, and others. Additionally, the fund reports about 1,700 unwithdrawn 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 Sparks Valuation Doubts

A specific holding’s timeline highlights investor concerns.

In 2021, Cliffwater first purchased shares of another private loan fund, Ares Commercial Finance. It continued to increase its position over the years and consistently informed investors that the fund would be liquidated by June 30, 2025. However, after that date, Cliffwater stated it still held the position, with valuations continuing to rise.

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 and a cost basis of $53.8 million. Yet, the “fund term” field in the disclosure still showed “until the fund’s final liquidation and distribution date, June 30, 2025”—implying that, in theory, the fund should no longer exist without further clarification. Three months later, Cliffwater disclosed that the cost basis of this investment had increased to $98.6 million, with a valuation of $111.5 million as of December 31, and an unrealized gain of $12.8 million, again without explanation.

In response, Cliffwater explained that the June 30, 2025, liquidation date in the September 30 report was a typo and had not been updated—stating that the fund had transitioned to a perpetual structure in Q3 2025, with investors approving this change.

Opaque Valuations, Hidden Risks

Lack of valuation transparency is at the heart of the fund’s credibility issues. As of December 31, the fund’s $29.7 billion, representing 71% of its investments, was classified as “Level 3” assets—assets that rely on “significant unobservable inputs,” including models and subjective assumptions, making independent verification difficult.

Another $11.6 billion, or 28%, of investments are in other private investment vehicles, including the aforementioned Ares fund. For these holdings, Cliffwater states it relies on the NAV provided by other fund managers rather than estimating valuations itself.

This approach has been described as “black box within a black box”: investors must trust not only Cliffwater’s valuation but also the valuations provided by other managers. If any valuation is flawed, it could undermine confidence in the entire valuation framework.

Long-Term NAV Stability Now a Trigger for Redemptions

Since its inception in 2019, the fund’s NAV has been unusually stable. Most trading days see no change in NAV, and daily fluctuations exceeding one cent are rare. When the fund was launched, NAV was $10 per share; recently, it has hovered around $10.52, up 8 cents from December 31.

This low volatility was long considered an advantage, but now it appears to accelerate redemptions: a high NAV means investors can sell their shares at relatively favorable prices, further incentivizing exits.

Meanwhile, concerns about private credit valuations are rising due to multiple factors, including inflation risks driven by soaring oil prices after the Iran conflict and disruptive impacts of AI tools on software companies heavily reliant on non-bank debt.

The structural flaws of interval funds have been fully exposed. Investors cannot redeem at will; they must submit redemption requests within specific windows, and the fund is legally required to buy back shares within its interval. Similar structures, such as non-traded Business Development Companies (BDCs), use contractual agreements to facilitate buybacks, but these are not mandated by law.

The fundamental contradiction of this structure is: attracting short-term liquidity commitments with promises of liquidity, while investing in long-term, illiquid, and opaque assets. When redemption pressures build, the fund may be forced to liquidate assets at unfavorable prices, harming remaining shareholders. As more investors recognize this risk, redemption pressures could intensify further.

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