Stephen Nesbitt was on no one’s list of Wall Street heavyweights when he bumped into a thirty-something salesman pitching the next big thing for wealthy investors: private credit. Nesbitt — who, as it happened, had written a book on private debt — took the idea and ran with it. Within a few years, he and his son Blake transformed their modest consulting business, Cliffwater LLC, into an unlikely giant. Their strategy: rather than sweat the details of every direct loan themselves, they’d piggyback on the firms that did. They’d also invest in industry heavyweights, creating something akin to a fund-of-private-credit-funds. Now the father-and-son team, who rode private credit on the way up, risk falling hard on the way down. As investors in private credit funds rush for the exits, Cliffwater has become one of the biggest question marks in the $1.8 trillion industry. The worry isn’t so much that private loans will go bad all at once and crush the funds where Cliffwater has invested. It’s that antsy investors will keep asking for money back, prompting Cliffwater to dash for cash itself — instigating a vicious circle of redemptions and markdowns. Concerns center around the $33 billion Cliffwater Corporate Lending Fund, the largest of its kind in private credit. It’s what’s known as an interval fund, a type of closed-end vehicle that isn’t traded on an exchange but rather promises to buy back shares from investors at set intervals, usually quarterly, at net asset value. Cliffwater is legally obliged to buy back at least 5% every quarter if investors ask. That promise was a key selling point in good times. “Liquidity is the first-, second- and third-most important thing,” Blake Nesbitt emphasized at an industry roundtable this month. Trouble is, investors have been asking for a lot more back lately. In the first quarter, they demanded 14% from Cliffwater’s flagship fund. The firm capped redemptions at 7% or $2.3 billion — the first time that number had eclipsed inflows. The elder Nesbitt assured investors that the fund’s performance “remains strong,” but S&P Global Ratings lowered its outlook to negative, warning its rating could be at risk if the firm kept paying out more than 5%. Other vehicles from BlackRock Inc. and Morgan Stanley have limited redemptions at 5% in recent weeks, but, crucially, they maintain the right to further restrict withdrawals if the market gets ugly.
Cliffwater’s Deep Reach Into Private Credit
Investments in private-lending funds, Q4 2025 fair-value estimates
The chorus of doomsayers is growing louder. A viral report last month from David Rosen, founder of hedge fund Rubric Capital, called the firm “the canary in the coal mine” for a wider reckoning. Boaz Weinstein, the famous activist investor, said interval funds have overpromised “that you can get out, but it doesn’t work if there’s actually a fire.” “It all works great when no one wants their money back — but when you start to call those loans, we start to have a problem,” said Mark Malek, chief investment officer at Muriel Siebert & Co. A Cliffwater spokesperson said that despite recent pressure, the fund has enough liquidity to meet 5% redemptions for more than a year without selling a fund position or an asset. The Nesbitts, through the spokesperson, declined to comment for this story.Private C