Author：Wall Street CN

The wave of redemptions is having a ripple effect in the US private equity fund industry, bringing to light a crisis of confidence regarding the authenticity of asset valuations.

According to The Wall Street Journal, Cliffwater’s flagship private credit fund has recently faced a large number of redemption requests, while the fund also holds shares in other private credit funds that are also under redemption pressure, including products from Blue Owl Capital.

according toPrevious articles from Wall Street InsightsBlue Owl announced this week that it is again limiting the redemption amount of one of its funds, resulting in investors seeking to exit receiving less than a quarter of the amount they applied for.

This situation pushes the entire industry into a fundamental valuation dilemma: when a fund is unable to fully redeem its holdings in another fund, can it still value that position at the latter's reported official net asset value (NAV)? Current accounting rules allow this practice, but critics point out that...This means there is a systemic discrepancy between the figures on paper and the reality of the market, which is further shaking investor confidence and accelerating a redemption spree.

NAV Exceptions: A Loophole or a Practical Shortcut?

Accounting standards typically require funds to measure their holdings in other funds at "fair value," which is the price at which market participants are actually willing to pay. However, the rules include an exception for investors holding shares in private funds—allowing them to directly use the official NAV disclosed by the funds in which they hold shares. The legislative intent is that investors often lack the information needed to independently calculate fair value, and using the official NAV is a pragmatic simplification.

The problem is that when a fund has explicitly reduced its redemption quota, a significant discrepancy emerges between its official NAV and the amount that investors can actually realize. Under current rules, fund managers "should consider" whether adjustments are necessary when they know that the NAV data is outdated or flawed, but the rules do not require them to take any substantive action—the word "consider" is the entire obligation.

This gray area is gradually being expanded.Other investment funds have even exploited this loophole in drastically different ways: buying private equity fund units at a significant discount on the secondary market and then adjusting the value of their holdings to the official NAV.In some cases, the daily book return exceeded 1000%.

Cliffwater cascade exposure

Cliffwater Corporate Lending Fund is a prime example of this valuation dilemma.As of the end of last year, the fund's net assets reached $31.6 billion, with 28% of its portfolio allocated to other private investment vehicles, and the valuations of these vehicles all depended on the NAV provided by the respective fund managers.

Of 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, approximately 1% higher than its cost, valued based on the official NAV provided by Blue Owl. During the same period, the fund also held approximately 3.8 million shares of Ares Strategic Income Fund, with a book value of $104.9 million, approximately 5% higher than its cost, also measured using the official NAV. Subsequently, the Ares Fund also reduced its redemption limit to 5% of the outstanding shares, while shareholder redemption requests exceeded 11%.

In an interview, Cliffwater's Chief Investment Officer, Blake Nesbitt, stated that Cliffwater has not adjusted its NAV to date for any non-trading BDCs that failed to fully redeem redemption requests. He also stated 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 either of the aforementioned funds this year—OCIC's holdings began in 2021, and Ares's holdings began in 2022.

The credibility of the valuation has been questioned.

Although the combined holdings of OCIC and Ares represent only a tiny fraction of Cliffwater's fund assets, their signaling significance should not be underestimated:Once investors discover that the NAV of some of their holdings deviates significantly from market reality, they have reason to question the reliability of similar holdings more broadly.

Private lending managers have already faced multiple pressures, including concerns about their exposure to vulnerable software companies, lack of transparency in information disclosure, and subjectivity in asset pricing. OCIC's redemption rate of 21.9% is itself a strong signal that investors believe its official NAV is inflated.

For ordinary investors, the current dilemma lies in the fact that, under the current accounting framework, funds have the right to price their holdings based on another fund's official NAV, even if this pricing is significantly deviated from the actual realizable value. This means that the book figures throughout the investment chain may not reflect the true situation, and the valuations of other assets built upon NAV may also be eroded by implicit price discrepancies.

The redemption wave in private credit funds is evolving into a stampede. The current rules, which allow managers to choose their own valuation benchmarks, are providing an additional incentive for investors to accelerate their exodus.