Private Credit Funds Face Rising Redemption Requests as Cliffwater Caps Withdrawals

The $1.8 trillion private credit market is facing growing pressure on liquidity structures as withdrawal requests increase across the alternative investment industry. In the latest sign of mounting investor pressure, Cliffwater LLC has capped redemptions for its flagship private credit fund after facing one of the largest withdrawal attempts in the sector’s history.

Cliffwater Hits “Regulatory Maximum” on Payouts

Shareholders of the $33 billion Cliffwater Corporate Lending Fund – the second-largest private credit vehicle for retail investors – sought to redeem approximately 14% of outstanding shares during the first quarter of 2026.

In response, the firm announced it will cap redemptions at 7%, a figure Stephen Nesbitt, chief executive officer, described in a shareholder letter as the “regulatory maximum.” As an interval fund, the vehicle is mandated to offer repurchases quarterly, typically ranging between 5% and 25% of net asset value. Cliffwater had previously considered a 5% cap but opted for the higher limit as requests surged far beyond expectations.

The activity at Cliffwater is not an isolated event but rather part of a broader trend of cautiousness among alternative asset investors. North Haven Private Income Fund LLC, a private placement business development company, plans to fulfill repurchase requests up to the 5% quarterly cap for Q1 2026 although its requests received were about 10.9%. This will result in a proration of approximately 45.8%.

Just last week, BlackRock Inc. limited withdrawals for its publicly registered non-traded business development company, HPS Corporate Lending Fund, or HLEND, capping repurchases at 5% after investors sought to redeem 9.3% of their shares.

Earlier this month, Blackstone Private Credit Fund, or BCRED, a publicly registered non-traded BDC sponsored by Blackstone Inc. (NYSE: BX), faced a record surge in withdrawals with clients requesting to pull $3.7 billion, representing approximately 7.9% of the fund’s value. Blackstone temporarily raised its quarterly redemption cap from 5% to 7% and utilized internal capital to meet all requests.

In February, Blue Owl Capital permanently restricted withdrawals from its $1.6 billion non-traded BDC, Blue Owl Capital Corp II, moving instead to return capital through episodic return-of-capital distributions as it sells down assets. Concurrently, its $34.2 billion BDC, Blue Owl Credit Income Corp., saw redemptions of approximately 5.2% of shares in Q4 2025, which were fully satisfied.

Market analysts point to several factors driving this “dash for cash” in the private markets:

• Loan quality: Investors are increasingly wary of credit quality in a high-rate environment, particularly regarding loans to software companies that may face disruption from artificial intelligence.
• Portfolio rebalancing: As traditional equity and bond markets fluctuate, many institutional and retail investors are reallocating capital away from less liquid “private” buckets to maintain target weightings.
• Liquidity trends: Despite strong current yields, the sheer volume of requests suggests a growing appetite for liquidity over long-term locked-in returns.

Despite the high withdrawal volume, Cliffwater leadership maintains that the fund’s fundamentals remain robust. Nesbitt highlighted an annualized return of 9.4% since 2019 and a track record of “near zero percent” in realized losses. Currently, the fund maintains a liquidity position representing 21% of its NAV, providing a significant cushion compared to the 7% payout cap.

This is the second major liquidity event for the fund in recent history; it previously honored a 7% withdrawal rate during the peak of the COVID-19 pandemic and processed a 5.3% redemption request last quarter.

Looking Ahead

The ability of these multibillion-dollar vehicles to manage “gated” redemptions without impacting underlying asset values will be a critical bellwether for the alternative investments industry in 2026. As more private credit products enter the market, the tension between investor desire for liquidity and the illiquid nature of middle-market lending remains at the forefront of regulatory and investor concern.

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