By Jonathan Weil
Imagine opening a black box, only to find 5,000 more black boxes inside.
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.
One reason many are rushing for the exits: It can be difficult for shareholders to understand what they own. The disclosures at funds like this often are as impenetrable as they are voluminous.
The Cliffwater fund's most recent quarterly report listed more than 3,600 individual holdings, including direct loans to middle-market corporate borrowers and ownership stakes in other private-credit funds.
Most of the names aren't recognizable, such as Accordion Partners, ALKU Intermediate Holdings or ZB Holdco. The fund also listed about 1,700 unfunded loan commitments to almost 1,000 different borrowers totaling $6.9 billion, which is money the fund would have to supply on demand.
With $42 billion of total assets at year-end and $31.6 billion of net assets, the Cliffwater fund is the largest SEC-registered private-credit interval fund, according to Interval Fund Tracker. Its trustees until last year included Paul Atkins, who resigned from the fund's board shortly before he became the Securities and Exchange Commission's chairman in April 2025.
A look at the timeline for just one of the fund's many holdings helps explain investor skepticism.
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.
With disclosures like that, it is little wonder many investors got jittery.
In response to questions, Cliffwater said the June 30 liquidation date in the Sept. 30 filing "was an error as it was not updated for the conversion of the vehicle to an evergreen fund, which occurred in Q3 2025." An evergreen fund operates indefinitely. Cliffwater said the Ares fund's investors approved the conversion.
Insight into the fund's valuations is extremely limited. Cliffwater in its Dec. 31 report said $29.7 billion, or 71%, of its investments were "Level 3" assets, meaning they included "inputs that are both significant and unobservable."
It's common for companies to use pricing models to value assets that lack market quotes, and this often requires making assumptions. But the valuations are difficult and subjective. If a problem arises with one of them, it can undermine the credibility of others.
A further $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.
The reliance on NAVs reported by other managers epitomizes black-box financial reporting. Investors not only have to take the Cliffwater fund's valuations on faith, they also must accept Cliffwater's faith in others' valuations.
Investors lately have been fretting over private-credit valuations for a growing list of reasons. Those include surging oil prices and inflation risk since the Iran war started, as well as the disruption threat that new artificial-intelligence tools pose to software makers that have borrowed heavily from nonbank lenders.
Because the Cliffwater fund is an interval fund, its investors can't sell at will. To exit the fund, Cliffwater investors submit redemption requests during designated time periods, or intervals, when the fund is legally required to buy back shares. Other funds with different structures, such as nontraded business-development companies, offer similar buybacks but use discretionary tender offers rather than mandatory, rule-driven intervals.
The 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%.
The NAV at Cliffwater has been a sea of calm over the years. On most days since the fund started in 2019, the NAV was unchanged, and one-day moves of greater than a penny a share have been relatively infrequent. The NAV was $10 when the fund was launched. Lately, it has been hovering around $10.52 a share, up 8 cents since Dec. 31.
For years, this lack of volatility was seen as a benefit. Recently, it has become a liability: The higher the NAV stays, the more attractive the price is for investors looking to sell.
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.
Write to Jonathan Weil at jonathan.weil@wsj.com
(END) Dow Jones Newswires
March 16, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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