Morgan Stanley and Cliffwater Cap Private Credit Withdrawals

Redemption curbs at two major funds signal mounting stress across the fast-growing private credit market.

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Briefing

Morgan Stanley and Cliffwater have moved to restrict investor withdrawals from their private credit funds after redemption requests surged, in the latest sign of strain in an asset class that has expanded rapidly in recent years. Cliffwater's $33 billion fund is expected to see withdrawals exceeding 7 per cent, while veteran fund manager George Noble has warned that a private credit crisis may be unfolding in real time.

Morgan Stanley and Cliffwater have both moved to limit redemptions at their private credit funds following a surge in withdrawal requests, adding to a growing body of evidence that stress is building across one of finance's most closely watched asset classes.

Morgan Stanley restricted redemptions at its private credit fund after withdrawals climbed sharply, according to reporting by Reuters and Bloomberg. Cliffwater, which manages a fund with approximately $33 billion in assets, separately capped payouts after facing its own wave of redemption pressure, the Financial Times reported.

Cliffwater's fund is expected to see withdrawals exceed 7 per cent of its total assets, according to Seeking Alpha, a scale of outflows that underscores the severity of investor appetite to exit the vehicle.

The moves by two prominent names have intensified what Bloomberg has described as a redemption pressure roller coaster for private credit, an asset class that has attracted enormous institutional and retail capital over the past several years on the promise of higher yields and lower volatility than public markets.

George Noble, a veteran fund manager, went further in his assessment, warning via Business Insider that a private credit crisis may be unfolding in real time. His comments reflect a chorus of disapproval that MarketWatch noted has grown steadily louder around the sector.

The Wall Street Journal reported that Cliffwater's fund has joined a broader list of private credit vehicles that have moved to limit redemptions, suggesting the pressure is not isolated to a single manager or strategy but is becoming a more systemic feature of the market.

Private credit funds, many of which are structured as semi-liquid vehicles designed to offer periodic redemption windows rather than daily liquidity, have long faced questions about the mismatch between the illiquid nature of their underlying loans and the relative ease with which investors can request their capital back. Those questions are now becoming acute.

The redemption caps imposed by Morgan Stanley and Cliffwater are a mechanism built into fund structures precisely to manage such scenarios, allowing managers to limit outflows to a set percentage of assets in any given period. Their activation, however, can itself prompt further concern among investors who remain in the fund and may accelerate the very pressure managers are trying to contain.

Analysis

→Publicly traded business development companies and direct lending vehicles face compounding pressure from two directions simultaneously. Redemption caps at semi-liquid private credit funds signal deteriorating investor confidence, which will push allocators to reassess all private credit exposure including BDCs such as Ares Capital, Blue Owl Capital, and Prospect Capital. This dovetails directly with the prior implication from the JPMorgan story: tighter bank lending to private credit funds raises leverage costs and squeezes net interest margins, while fund-level redemption pressure may force asset sales into a market where JPMorgan has already marked down loan portfolios. The combination of rising funding costs and forced selling at distressed valuations creates a compounding loop that could trigger dividend cuts and downward net asset value revisions at listed BDCs well ahead of formal earnings season disclosures.
→The activation of redemption caps by two prominent managers, Morgan Stanley and Cliffwater, creates a reflexivity risk that portfolio managers in the private credit ecosystem must now price explicitly. As George Noble's warning and the Wall Street Journal's reporting both suggest, redemption caps are themselves a signal that can trigger additional outflows from investors who remain in the fund and fear being last out. For asset managers with significant private credit platforms, including KKR and Blackstone, the concern is reputational contagion: even well-performing funds may face rising redemption requests from institutional allocators who treat the Morgan Stanley and Cliffwater episodes as a sector-wide stress indicator rather than idiosyncratic events. KKR and BX, both flagged in the JPMorgan story's tickers, face incremental multiple compression as private credit AUM growth assumptions are revised downward and fee revenue projections are haircut by analysts.
→Deutsche Bank's disclosed $30 billion private credit exposure, flagged in a prior story, now carries sharper systemic relevance. With redemption caps activating, underlying loan markdowns at JPMorgan, and signs that outflows are becoming structural rather than episodic, European banks with undisclosed or opaque private credit interconnections face an accelerated reckoning. The prior implication that BaFin and the ECB would use Deutsche's disclosure as a template to demand peer disclosures from BNP Paribas, Societe Generale, and UBS is now more likely to materialise on a compressed timeline. Forced disclosure under regulatory pressure, rather than voluntary transparency, is historically more disruptive to valuations, and European financial names with suspected but unquantified private credit exposure could see credit default swap spreads widen before any formal supervisory action is announced.

Connected Events

The JPMorgan private credit markdowns story is the most direct antecedent to this development and should be read as part of the same stress sequence. JPMorgan marking down loan portfolios and tightening lending to private credit firms removed a key source of fund-level leverage at the same moment that redemption pressure was building, constraining managers' ability to meet withdrawals without asset sales. The Morgan Stanley and Cliffwater redemption caps are arguably the demand-side expression of the same stress that the JPMorgan story captured on the supply side, confirming that private credit deterioration is now visible from multiple vantage points in the capital structure simultaneously.

Deutsche Bank's disclosure of $30 billion in private credit exposure and its stated intention to grow further in the asset class, covered in a prior story, now reads as a significantly more exposed strategic posture given the scale of redemption pressure emerging at fund level. A sector where two prominent managers have activated redemption caps, where JPMorgan is marking down underlying loans, and where George Noble is warning of a real-time crisis is not one that will attract benign regulatory treatment of a major European bank's expansion ambitions. The prior implication that peer banks would face pressure to make similar disclosures is reinforced, and the probability that those disclosures arrive in a deteriorating rather than stable market environment has increased materially.

Morgan Stanley and Cliffwater Cap Private Credit Withdrawals

Analysis

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