Redemption Wave Meets Credit Withdrawal Wave: US Private Credit Industry Faces “Run Storm”

Original Source: Wall Street News

The US private credit industry is facing a dual squeeze of liquidity contraction and asset revaluation. As investors rush to withdraw funds and major Wall Street financial institutions scale back credit lines, this massive $1.8 trillion market is teetering.

According to the Financial Times, private credit giants Cliffwater and Morgan Stanley have recently imposed redemption restrictions on their multi-billion dollar funds. These semi-liquid funds faced a surge in withdrawal requests in the first quarter, with the scale of outflows forcing management to trigger “gates” to avoid fire sales of underlying illiquid assets.

While facing pressure on the funding side, private credit firms are also encountering tightening from major banks on the financing side. JPMorgan Chase recently notified relevant institutions that it is reducing the collateral value of certain software-related loans within their portfolios. While this move does not immediately trigger margin calls, it directly reduces the future financing capacity available to these funds, signaling a comprehensive revaluation of risk exposure in this sector by the traditional banking system.

The core of this two-way squeeze lies in the net asset value (NAV) arbitrage logic. As the value of related assets in public markets plummets, private credit firms have failed to synchronously mark down their portfolio valuations, prompting investors to rush to cash out at book prices higher than fair market value. This chain reaction, similar to a bank run, not only intensifies liquidity pressure on the funds but also forces the market to re-examine the true pricing of private credit assets.

(Private credit company stock prices continue to decline)

Redemption Wave Spreads, Semi-Liquid Funds Face Major Test

According to the Financial Times, Cliffwater restricted redemptions from its $33 billion flagship fund (CCLFX) in the first quarter. The fund received redemption requests amounting to 14% of its total shares, ultimately approving only about half, repurchasing 7% of shares.

Just hours after Cliffwater’s action, Morgan Stanley also notified investors in its $7.6 billion North Haven Private Income Fund that it would limit withdrawals. The fund’s redemption requests jumped to 10.9% in the first quarter, with only 45.8% of those requests ultimately fulfilled.

This trend has been spreading across the industry in recent months. HPS recently set a 5% redemption cap for its flagship fund targeting high-net-worth clients. Blackstone’s Bcred fund fully met redemption requests after they reached 7.9% of net assets, while Blue Owl and Ares previously met high redemption requests, although Blue Owl has already imposed permanent redemption restrictions on another fund this year.

Cliffwater raised $16.5 billion last year, expanding at a pace comparable to industry giant KKR. However, its model, which relies on independent broker-dealers to manage retail investor funds, makes it more vulnerable to market sentiment swings.

To address the situation, the report states that Cliffwater is raising $1 billion by selling loan portfolios and expects to attract $3 billion in new commitments this quarter to offset outflows. The company emphasized in a letter to investors that the fund generated an 8.9% return in 2025 and has a net leverage ratio of only 0.23x, significantly lower than most comparable vehicles.

This outflow highlights the risks faced by many new semi-liquid funds, which were originally marketed as a way to invest in private credit but can only offer occasional selling opportunities because their underlying assets rarely trade.

Inflated Valuations Spark Arbitrage, Run Risk Highlighted

The core driver behind investors’ rush to withdraw is net asset value arbitrage.

According to a Bloomberg column analysis, software stocks and related debt in public markets have fallen sharply this year, but private credit firms, which tend to hold loans to maturity, have not marked down their portfolio valuations accordingly.

This lag in pricing creates an arbitrage opportunity. If a fund claims its loan is worth $100, but investors believe its actual market value is only $98, investors will try to redeem at the $100 book value to cash out.

This operational logic triggers dynamics similar to a bank run: if the fund pays out at $100, the asset value for remaining investors is further diluted, prompting more to join the redemption queue. This puts immense pressure on interval funds, which promise partial liquidity, when facing investors.

To alleviate concerns about opaque valuations, some institutions are trying to increase transparency. John Zito, co-president of the asset management division at Apollo Global Management, stated that the company is preparing to begin reporting the net asset value of its credit funds monthly, with the ultimate goal of achieving daily NAV reporting and introducing third-party valuations.

JPMorgan Takes Proactive Action, Tightens Leveraged Financing

As internal funds drain, private firms’ external leverage sources are also being tested. According to the Financial Times, JPMorgan proactively reduced the valuation of some corporate loans within private firms’ portfolios, primarily concentrated in the software industry, which is considered particularly vulnerable to AI disruption.

JPMorgan holds a special clause in its private credit financing business, reserving the right to revalue assets at any time, whereas most other banks typically wait for trigger conditions like interest payment defaults before taking action. Media analysis suggests this move aims to preemptively reduce available credit lines to these funds, allowing for timely action if necessary, rather than waiting for a crisis to erupt.

This tightening move was foreshadowed. JPMorgan CEO Jamie Dimon has repeatedly expressed a cautious stance on the private credit sector publicly. The bank’s executive Troy Rohrbaugh stated in February this year that JPMorgan is becoming more conservative regarding private credit risk compared to peers. A fund manager also confirmed that JPMorgan has been “significantly tougher” in providing back-end leverage over the past three months.

Industry Expansion Logic Damaged, Subsequent Risks in Question

The rapid expansion of the private credit industry has heavily relied on leveraged financing provided by regulated banks. Since the end of 2020, private firms have raised hundreds of billions of dollars, quickly gaining the ability to compete directly with banks for large-scale leveraged buyout financing.

However, a large portion of the underlying assets were formed during the work-from-home boom when software company valuations were high. As corporate cash flow expectations are revised downward, the related debt will mature over the coming years, facing a market environment vastly different from the time of issuance.

Currently, private credit firms insist that enterprise software companies are still growing and expect loans to continue performing normally. Although no other banks have explicitly followed JPMorgan’s tightening stance, as major banks lead the way in revaluing assets and retail redemption pressure remains high, market scrutiny of the industry’s liquidity and valuation transparency is expected to continue intensifying.

Эта статья взята из интернета: Redemption Wave Meets Credit Withdrawal Wave: US Private Credit Industry Faces “Run Storm”

Related: DeFi Protocol Shutdown Wave: They All Had Perfect Technology, Then Died Gracefully

Original Compilation: Chopper, Foresight News Over the past two months, at least 10 crypto protocols have announced their shutdown. Not due to rug pulls, but because they had no users, no money, or both. Not to mention mining companies like BlockFills and lending platforms freezing withdrawals. Just yesterday, Angle also announced (https://x.com/AngleProtocol/status/2029161525580112263) the gradual shutdown of its EURA and USDA stablecoins, despite once having a Total Value Locked (TVL) of $250 million and doing well in business partnerships. Angle stated bluntly in its announcement, “The decentralized stablecoin landscape has fundamentally changed. Yield-bearing stablecoins today are essentially just branded wrappers over existing vaults and lending protocols. There’s no longer a need to maintain a separate, independent infrastructure.” Almost all of these shuttered projects had products that functioned properly: Polynomial had a…