Private credit was flying high these last few years. I feel like podcasts like Blomberg's Odd Lots did no less than 10 episodes on private credit in 2024 using terms like "booming" and "swallowing the economy."
It's 2026 now and some of the lustre has worn off.
Investors are fleeing the $42 billion Cliffwater Corporate Lending Fund, among the latest of its kind to limit redemptions for shareholders. Many investors appear to believe the private-credit fund’s official net asset value is inflated, prompting them to sell their shares, or try to.
Why would investors think the fund's asset value is inflated?
The Cliffwater fund first bought a stake in another private-lending fund called Ares Commercial Finance in 2021. Since then, it had consistently told investors the Ares fund would liquidate on June 30, 2025. Over the years, Cliffwater kept adding to its stake. When June 30 came and went, though, Cliffwater said it still owned its stake in the Ares fund and that its value had kept rising.
As of Sept. 30, 2025, Cliffwater reported an $11 million unrealized gain on the Ares fund. A disclosure table said it had a $64.9 million fair value and cost $53.8 million, and that the “fund term” was: “Until the final liquidating distributions of the fund, June 30 2025.” That indicated the Ares fund shouldn’t have existed anymore, barring further explanation, which the disclosure report didn’t provide.
Three months later, Cliffwater said the investment in Ares Commercial Finance had cost $98.6 million and was worth $111.5 million as of Dec. 31. The paper gain had climbed to $12.8 million, again with no explanation of what happened or why the Ares fund was still alive.
This seems like it may not be the easiest thing on which to do one's die diligence. Buy it gets even more complicated:
$11.6 billion, or 28%, of the fund’s investments were in other private-investment vehicles, such as the Ares fund. For those holdings, Cliffwater said it relied on the net asset values provided by the other funds’ managers, rather than trying to estimate the values on its own.
It's hard to have much sympathy for investors, though. Seems to me like this is part of the deal when you go in private credit.
The structural problem with funds like this is they promise investors short-term liquidity while holding long-term, illiquid assets with opaque valuations. Shareholders who stay with the fund bear the risk that someday it may have to sell assets at unfavorable prices to fund redemptions. Increasing numbers of investors no longer want to take that risk.
So they are limiting redemptions:
Cliffwater fund’s usual policy has been to cap buybacks at 5% of outstanding shares quarterly. In the latest period, redemption requests hit 14%, and the fund agreed to repurchase 7%.