"Industry-Wide Stampede Crisis" in US Private Credit Funds: If Redemptions are Impossible, What Should the "Net Asset Value" Actually Be?

Redemption waves are creating a chain reaction in the US private credit fund industry, as a crisis of confidence regarding the authenticity of asset valuations surfaces. According to the Wall Street Journal, Cliffwater's flagship private credit fund recently faced large-scale redemption requests, while the fund also holds stakes in other private credit funds that are similarly under redemption pressure, including products under Blue Owl Capital. According to a previous article by Wall Street Insights, Blue Owl announced this week that it would once again restrict the redemption size of one of its funds, resulting in investors seeking an exit actually receiving less than a quarter of the requested amount. This situation has pushed the entire industry into a fundamental valuation dilemma: when a fund is unable to fully redeem its holdings in another fund, can it still carry that position on its books at the latter's reported official Net Asset Value (NAV)? Current accounting rules permit this practice, but critics point out that this means there is a systemic divergence between book figures and market reality, which is further shaking investor confidence and accelerating the redemption stampede. NAV Exception Clause: Accounting Loophole or Practical Shortcut? Accounting standards generally require funds to measure their holdings in other funds at "fair value," which is the price market participants are actually willing to transact at. However, the rules provide a specific exception clause for investors holding stakes in private funds—allowing them to directly use the official NAV disclosed by the underlying fund. The legislative intent was that investors often lack the information needed to perform independent fair value calculations, and adopting the official NAV was a pragmatic simplification. The problem arises when a fund has explicitly cut its redemption quota, creating a significant deviation between its official NAV and the amount investors can actually realize. Under current rules, fund managers "should consider" whether an adjustment is necessary when aware that the NAV data is outdated or flawed, but the rules do not require them to take any substantive action—the word "consider" represents the entirety of their obligation. This gray area is being increasingly exploited. Other investment funds have even utilized this loophole in diametrically opposite ways: buying private equity fund stakes at significant discounts in the secondary market and immediately marking up the value of these holdings to the official NAV. In some cases, single-day book returns exceeded 1000%. Cliffwater's Chain Exposure The Cliffwater Corporate Lending Fund is a typical case of this valuation dilemma. As of the end of last year, the fund had a net asset value of $31.6 billion, with 28% of its portfolio allocated to other private investment vehicles, all of which rely on NAVs provided by their respective fund managers for valuation. Among its known holdings, as of December 31, 2025, Cliffwater held approximately 16.2 million shares of OCIC with a Book Value of $151.2 million, about 1% higher than its cost, based on the official NAV provided by Blue Owl. During the same period, the fund also held approximately 3.8 million shares of the Ares Strategic Income Fund with a Book Value of $104.9 million, about 5% higher than its cost, also measured using the official NAV. Subsequently, the Ares fund also capped redemptions at 5% of outstanding shares, while shareholders' redemption requests exceeded 11%. Blake Nesbitt, Chief Investment Officer at Cliffwater, stated in an interview that, to date, Cliffwater has not adjusted the NAV for non-traded BDCs that failed to fully meet redemption requests. He also noted that Cliffwater updates its NAV daily and makes regular adjustments based on other factors. Nesbitt further revealed that Cliffwater has not increased its holdings in these two funds this year—the OCIC position began in 2021, and the Ares fund position began in 2022. Valuation Credibility Questioned Although the combined holdings in OCIC and Ares represent a very small portion of Cliffwater's assets, their signaling significance should not be underestimated: once investors realize that the NAV of some holdings deviates significantly from market reality, they have reason to more broadly question the reliability of similar holdings. Private credit managers have already been facing multiple pressures, including concerns about their exposure to vulnerable software companies, opaque disclosures, and the subjectivity of asset pricing. The fact that redemption requests for OCIC reached 21.9% is itself a strong signal that investors believe its official NAV is inflated. For ordinary investors, the current predicament is that under the existing accounting framework, funds have the right to price holdings at another fund's official NAV, even if this pricing is clearly detached from actual realizable value. This means that book figures throughout the investment chain may not reflect the true situation, and other asset valuations built on NAVs may also be eroded by hidden price discrepancies. The wave of redemptions in private credit funds is evolving into a stampede. The current rules, which allow managers to independently select valuation benchmarks, are providing additional impetus for investors to accelerate their exit.