Stephen Nesbitt's Cliffwater, once a darling of private credit investing, is scrambling to retain investors after massive withdrawals. The firm, which grew from zero to nearly $50 billion in assets under management, is now facing a crisis of confidence as wealthy individuals who fueled its rise reconsider their positions.

After several high-profile defaults in the industry, investors are pulling funds so aggressively that managers are imposing withdrawal restrictions. Cliffwater's unique model—investing alongside other funds rather than directly making loans—has become a vulnerability. In the first quarter alone, investors requested to withdraw the equivalent of 14% of its largest fund.

Wall Street critics are now labeling Cliffwater a "canary in the coal mine" for the sector's troubles. The firm's executives, including Nesbitt and his son Blake Nesbitt, are hosting calls with advisers to defend their democratization of private lending. Morningstar researcher Brian Moriarty notes that while Cliffwater pioneered success in semiliquid funds, the firm has never weathered a true downturn, which will test its resilience.