Morgan Stanley, Cliffwater Limit Withdrawals From Private Credit Funds Amid Surge in Redemption Requests
Private Credit Funds Restrict Investor Withdrawals as Redemption Demand Surges
Morgan Stanley and Cliffwater LLC have capped withdrawals from their multibillion dollar private credit funds after investors attempted to redeem significantly more shares than the funds were prepared to allow.Cliffwater’s flagship $33 billion private credit vehicle restricted redemptions to 7 percent of shares during the first quarter after investors sought to withdraw a record 14 percent of shares.
Morgan Stanley also limited withdrawals from its North Haven Private Income Fund, which manages about $8 billion in assets. The fund returned only $169 million to investors after capping redemptions at 5 percent of shares, satisfying less than half of the total withdrawal requests.
Growing Pressure in the $1.8 Trillion Private Lending Market
The restrictions highlight rising pressure within the global private credit market as investors increasingly seek liquidity. The $1.8 trillion private lending industry is facing heightened scrutiny as concerns grow over the quality of some loans held by these funds.Many of these loans are linked to software companies that may face risks from rapid advancements in artificial intelligence. The uncertainty surrounding these borrowers has contributed to investor caution and increased redemption requests.
Other Asset Managers Also Tighten Withdrawal Limits
BlackRock Inc. also moved to restrict withdrawals from one of its funds last week. The move signaled broader caution across the private credit industry as managers deal with elevated redemption pressures, although many funds initially tried to meet investor cash demands.Representatives from both Morgan Stanley and Cliffwater declined to comment on the restrictions.
JPMorgan Tightens Lending to Private Credit Funds
Additional pressure is emerging from the banking sector. JPMorgan Chase & Co. has begun limiting lending to private credit funds after reducing the value of certain software linked loans within its portfolios.While the move affects only a limited group of borrowers and has not triggered significant margin calls, the decline in asset values is expected to reduce the amount of financing the bank is willing to provide to private credit funds.
Structural Limits on Investor Withdrawals
Private credit funds that target individual investors typically offer quarterly share repurchases. However, these funds are not designed to handle large scale redemption waves, making withdrawal caps a built in mechanism to manage liquidity.Cliffwater confirmed that the 7 percent redemption cap applied in the first quarter represented the regulatory maximum allowed. The information was shared in a letter to investors signed by founder and Chief Executive Officer Stephen Nesbitt.
Cliffwater Highlights Fund Performance and Liquidity
In the letter, Nesbitt emphasized that the Cliffwater Corporate Lending Fund continues to perform strongly despite the surge in redemption requests.He noted that the fund has maintained a historical track record of near zero percent realized losses and has generated an annualized return of approximately 9.4 percent since June 2019.
The fund currently holds liquidity equal to about 21 percent of its net asset value, according to the investor communication.
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