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News Analysis
Cliffwater’s evolution: from consultant to co-investor
by Lisa Fu
After a strong January, the second month of 2025 saw record issuance and spreads hitting all-time tights, while managers remained optimistic there won’t be a slowdown anytime soon
Six years ago, Cliffwater bet big on an unusual strategy — the consultant would launch its first fund and position itself as a quiet partner to other private credit managers rather than source its own deals. Now, the firm is backed by prominent private equity investors and poised to deploy more than USD 10bn into private credit co-investment.
Last month, Cliffwater sold a minority stake to two new investors — Singapore state-owned investment firm Temasek and TPG Growth, which made the investment through its growth equity platform. The two join existing investor private equity firm TA Associates, which first invested in 2023. The transaction marks a new phase of growth for Cliffwater, which recently hit USD 36bn in assets under management.
“Ten years ago, we were primarily a consultant,” said CEO Stephen Nesbitt. “Today, we are an investment manager but operating from a very different playbook compared to traditional GPs like Golub, Antares or HPS.”
Based on regular inflows from its flagship direct lending fund, which is poised to hit USD 28bn in AUM, Cliffwater expects to deploy more than USD 10bn into private credit co-investments this year.
We do not source or underwrite loans
Stephen Nesbitt
CEO
Cliffwater
The firm began 20 years ago as an alternatives investment consultant to large institutional investors, publishing two textbooks on private debt and creating a widely cited direct lending index. Today, Cliffwater manages billions in assets for wealthy individual investors in interval funds. It acts more like a sovereign wealth fund with a series of formal and informal investment partnerships, than a traditional private credit manager.
“We do not source or underwrite loans but instead partner with managers that we believe are the best and acquire loans from them through funds, separately managed accounts, secondaries and co-investments,” Nesbitt said.
Relying on other private credit managers and co-investing rather than originating its own loans allows Cliffwater to take part in a wide variety of deals. This diversification is key to the firm’s flagship product, which Nesbitt views as an enhanced index fund.
To encourage private credit managers to share co-investment deals, Cliffwater serves as a quiet partner. It provides a reliable source of capital to help smaller firms take down large loans, shows a willingness to seed or anchor new funds and even acts as “a solutions provider” to managers, said Nesbitt. These solutions include providing a warehouse facility for managers to originate loans in a “season and sell” strategy.
The profile of Cliffwater’s partners is varied. They include traditional private credit firms, banks and even alternative asset managers that have yet to launch their first dedicated lending product. “We will work with any entity that has strong origination and underwriting skills,” Nesbitt said.
Ted Gooden, founder and managing partner at private markets advisory firm Växa Partners, said it’s not surprising Cliffwater attracted renowned private equity investors like Temasek and TPG. It was a first mover in creating a product for the private wealth channel that offers diversified private credit exposure with fee efficiency. “I think others would be wise to take inspiration from Cliffwater,” Gooden said.
Though Cliffwater still holds its original consulting business, this is now dwarfed by its asset management activities. But a former consultant said that this side of the business is still important. “A consultant that represents LPs can steer client capital into the funds of various private credit managers, buying goodwill and encouraging a stronger relationship,” they said.
Cliffwater also acts like a limited partner by anchoring funds, which results in private credit managers treating it with less scepticism and becoming more willing to share deal flow, the consultant added.
The firm is essentially a limited partner that has increased co-investment activity to minimise fund-related fees, one placement agent said. Relying on co-investments, taking GP stakes in managers, providing warehouse lines and investing in secondaries deals are low-fee ways to get private credit exposure.
Large international institutional investors, such as GIC, or fund-of-fund specialists, arrived at this model a bit earlier, but Cliffwater’s direct lending interval fund has “been a rocket ship”, the placement agent said.
Cliffwater LLC
AUM: USD 36bn (USD 33bn private credit)
Assets under advisement: USD 80bn
Headquarters: Marina del Rey, with offices in NYC, Chicago and Newport Beach
Founded: 2004
Employees: 192
