Investors rush to withdraw, banks drastically cut credit lines, and the US private credit industry faces a "bank run storm"

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 tighten lending, this massive market worth $1.8 trillion is teetering.

According to the Financial Times, private credit giants Cliffwater and Morgan Stanley have recently imposed redemption restrictions on their billion-dollar funds. In the first quarter, these semi-liquid funds experienced a surge in redemption requests, forcing management to trigger gates to prevent underlying assets with low liquidity from being sold at discounts.

While funding pressures mount, private credit lenders are also facing tightening from large banks. JPMorgan recently notified relevant institutions that it has lowered the collateral value of some software loans in its portfolio. Although this did not immediately trigger margin calls, it directly reduced the future financing capacity of related funds, marking a comprehensive reassessment of the traditional banking system’s risk exposure in this area.

This double-sided squeeze hinges on net asset value (NAV) arbitrage logic. As the value of related assets in the public markets plummets, private credit firms have not simultaneously marked down their holdings, prompting investors to rush to cash out at prices above fair market value. This chain reaction, similar to a bank run, not only intensifies liquidity pressures on funds but also forces the market to reevaluate the true pricing of private credit assets.

(Private credit company stock prices continue to decline)

Redemption wave spreads, semi-liquid funds face a major test

The Financial Times reports that Cliffwater restricted redemptions for its $33 billion flagship fund (CCLFX) in Q1. The fund received redemption requests representing 14% of total shares, of which only about half were approved, 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 withdrawals would be limited. Redemption requests in Q1 surged to 10.9%, with only 45.8% of those requests fulfilled.

In recent months, this trend has spread across the industry. HPS recently set a redemption cap of 5% for its flagship high-net-worth client fund. Blackstone’s Bcred fund fully paid out after redemption requests reached 7.9% of NAV, and Blue Owl and Ares had previously met high redemption requests, although Blue Owl has implemented a permanent redemption restriction on another fund earlier this year.

Cliffwater raised $16.5 billion last year, expanding at a pace comparable to industry giant KKR. However, this reliance on independent brokers managing retail 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 investor letters that the fund generated an 8.9% return in 2025, with a net leverage ratio of only 0.23x, well below most peers.

This outflow highlights the risks faced by many new semi-liquid funds that were marketed as ways to invest in private credit but hold assets that are rarely traded, offering only occasional exit opportunities.

Overvaluation Triggers Arbitrage and Run Risks

The core driver behind investors rushing to withdraw is NAV arbitrage.

According to a Bloomberg column, software stocks and related debt in the public markets have fallen sharply this year, but private credit firms tend to hold loans to maturity without adjusting their portfolio valuations accordingly.

This lag in pricing creates arbitrage opportunities. If a fund claims its loans are worth $100, but investors believe their actual market value is only $98, they will attempt to redeem at the $100 book value.

This logic can trigger bank-run-like dynamics: if the fund pays out at $100, the remaining investors’ assets are further diluted, prompting more to redeem. This puts enormous pressure on interval funds that promise partial liquidity.

To ease concerns over opaque valuations, some firms are trying to increase transparency. John Zito, Co-President of Asset Management at Apollo Global Management, said the firm is preparing to start reporting net asset values monthly, with the goal of eventually providing daily NAV reports and third-party valuations.

JPMorgan Takes Proactive Steps to Tighten Leverage Financing

Amid internal outflows, external leverage sources for private firms are also under pressure. According to the Financial Times, JPMorgan has proactively lowered the valuation of some corporate loans in private portfolios, mainly those in the software sector deemed particularly vulnerable under AI disruption.

JPMorgan’s private credit financing business has a special clause allowing it to revalue assets at any time, unlike most other banks that typically act only after triggers like interest defaults. Analysts note this move aims to preemptively reduce credit limits on these funds, enabling timely action before a crisis erupts.

This tightening was foreshadowed. JPMorgan CEO Jamie Dimon has publicly expressed cautious views on private credit. Troy Rohrbaugh, a senior executive, stated in February that JPMorgan is becoming more conservative than peers regarding private credit risks. A fund manager confirmed that JPMorgan has been “significantly more aggressive” in providing backend leverage over the past three months.

Industry Expansion Model Under Strain, Future Risks Uncertain

The rapid expansion of private credit relies heavily on leverage from regulated banks. Since late 2020, private firms have raised hundreds of billions of dollars, quickly gaining the capacity to compete directly with banks in large-scale leveraged buyouts.

However, many underlying assets were created during the high-valuation boom of software companies amid the remote work surge. As corporate cash flow expectations are revised downward, these debts will mature over the coming years in a market environment vastly different from the time of issuance.

Currently, private credit firms insist that software companies are still growing and that loans will continue to perform normally. Although no other banks have yet followed JPMorgan’s tightening stance, the market’s scrutiny of liquidity and valuation transparency is expected to intensify as major banks reassess assets and retail redemption pressures remain high.

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