American private equity giant Cliffwater is mired in a redemption crisis: Behind the $42 billion "black box," are there still 5,000 "black boxes"?

The largest private credit interval fund in the United States is currently mired in a redemption crisis, reflecting issues of valuation opacity and liquidity mismatch, which are raising widespread doubts in the market about the structural risks of the entire private credit industry. The 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 that the net asset value (NAV) reported by the fund is inflated, prompting them to seek to sell their holdings. Recent data shows that during the latest redemption cycle, the redemption requests reached 14% of the circulating shares, far exceeding its usual quarterly repurchase limit of 5%, and the fund ultimately agreed to repurchase 7%. The core contradiction of this redemption wave lies in the fact that the fund attracts investors with short-term liquidity commitments while holding a large amount of long-term, illiquid, and opaque assets. Remaining shareholders of the fund will bear the risk of the fund being forced to sell assets at a discount to meet redemptions, and an increasing number of investors are unwilling to take on this risk. Largest in Scale, Lowest in Transparency The 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 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 will assume the role of chairman of the U.S. Securities and Exchange Commission in April 2025. The fund's latest quarterly report lists over 3,600 holdings, covering direct loans to mid-sized borrowers as well as equity investments in other private credit funds. The vast majority of the holding names are quite unfamiliar to ordinary investors, such as Accordion Partners, ALKU Intermediate Holdings, ZB Holdco, etc. Additionally, the fund lists approximately 1,700 unfunded loan commitments involving nearly 1,000 different borrowers, totaling $6.9 billion—indicating that the fund must be prepared to provide this capital on demand. A Holding Revealing Valuation Doubts The timeline of a specific holding encapsulates investors' concerns. The Cliffwater fund first purchased shares in another private loan fund, Ares Commercial Finance, in 2021, and has continued to increase its position over the years, consistently informing investors that the fund would be liquidated on June 30, 2025. However, after June 30, Cliffwater stated that it still held this position, and the valuation continued 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 of $53.8 million, but the disclosure form still indicated "Fund Term" as "until the final liquidation distribution date of the fund, June 30, 2025"—which implies that the fund should theoretically no longer exist without further clarification Three months later, Cliffwater disclosed that the investment cost rose to $98.6 million, with a valuation of $111.5 million as of December 31, and the book profit expanded to $12.8 million, without any explanation. In response, Cliffwater stated that the June 30 liquidation date in the September 30 report was a "typo" and had not been updated in time—"the fund has been converted to a perpetual fund in the third quarter of 2025," and indicated that Ares fund investors had approved this conversion. Black Box within a Black Box, Valuation Reliance Becomes a Hidden Risk Insufficient valuation transparency is at the core of the doubts surrounding this fund. As of December 31, $29.7 billion of Cliffwater's fund, accounting for 71%, was classified as "Level 3" assets, which include "significant and unobservable inputs"—these assets rely on pricing models and subjective assumptions, making independent verification difficult. An additional $11.6 billion, accounting for 28%, consists of shares in other private investment vehicles, including the aforementioned Ares fund. For this portion of holdings, Cliffwater stated it relies on net asset values provided by other fund managers rather than estimating them independently. This practice has been described as a "black box within a black box": investors must not only unconditionally trust Cliffwater's own valuations but also accept Cliffwater's trust in the valuations of other managers. If any valuation issue arises, it will undermine the credibility of other valuations. Long-term Stable NAV Now Becomes an Incentive for Exit Since its establishment in 2019, the NAV of the fund has shown an unusually stable trend. On most trading days, the NAV remains unchanged, with daily fluctuations exceeding one cent being relatively rare. The NAV at the fund's inception was $10 per share, recently hovering around $10.52, an increase of 8 cents since December 31. This low volatility was long viewed as an advantage, but it has now become a catalyst for accelerated redemptions: a high NAV means that investors wishing to exit can sell their shares at a relatively favorable price, further reinforcing the motivation to flee. At the same time, investor concerns about private credit valuations are intensifying due to multiple factors, including inflation risks brought about by soaring oil prices following the outbreak of the Iran war, and the disruptive threat posed by new artificial intelligence tools to many software companies that borrow from non-bank lending institutions. The structural flaws of interval funds have been fully exposed in this incident. Investors cannot redeem at any time and must submit applications within specific time windows, with the fund required by law to forcibly repurchase shares within a designated interval. Other similarly structured products, such as non-traded business development companies, provide similar repurchase mechanisms through voluntary buybacks, but are not driven by mandatory rules. The fundamental contradiction of this structure lies in attracting funds with short-term liquidity commitments while allocating them to long-term, illiquid, and opaque assets. When redemption pressure accumulates, the fund may be forced to liquidate assets at unfavorable prices, harming the interests of remaining shareholders. As more investors become aware of this risk, redemption pressure may further intensify