Time to turn on the taps?

As uncertainty continues to put the brakes on exit processes, GPs and LPs still face liquidity issues. So what does this mean for the secondary market? And the industry more broadly?

As uncertainty continues to put the brakes on exit processes, GPs and LPs still face liquidity issues. So what does this mean for the secondary market? And the industry more broadly?

The year may have got off to a good start for private markets exits, but the volatility caused by an uncertain outlook for tariffs has sent GPs back to the drawing board – at least for now. Global exit values for private equity fell to $213bn across 800 deals in Q2 2025, from $332bn across 958 deals a quarter earlier, according to PitchBook data. At a time when both GPs and LPs were already facing a liquidity problem, with an inevitable effect on fundraising, this year's uncertainty has been far from helpful for the industry.

So how are fund managers and their investors working through these issues? Here are some of the main trends and perspectives from seasoned LPs and GPs.

GPs are waiting it out

"The industry has been a victim of its own success," says Daniel Lopez-Cruz, Global Head of Private Equity at Investcorp. "Private equity assets under management (AUM) grew threefold between 2014 and 2024. Dry powder has done much the same. Yet the value of exits today is roughly where it was a decade ago. It's not that the market is open or closed; it's just not absorbing exits at the level that's needed. We need exit value to triple to get things back into balance, but we just don't know today what comes next, so we are playing for time on behalf of our investors."

They are also playing for time on their own behalf. "A lot of managers bought portfolio companies at peak valuations and they just don't want to sell right now because buyers are not willing to pay those same multiples for certain companies," says Michael Shedosky, Co-Chief Investment Officer at Azimut Alternative Capital Partners. "So, they're holding on because there's this big bid-ask spread and they're not going to earn carry. They want to ride optionality further to see if these companies can grow and if interest rates may drop in the future."

What is the main reason GPs are delaying exits?

Market not absorbing exits at needed levels
Peak valuation purchases with lower current multiples
Waiting for interest rates to drop

Exit activity will be muted

"If you look at historic figures, around 50% of private equity exits have been to sponsors," says David Lyon, Head of Capital Solutions at Neuberger Berman. “So a lot of assets were really designed for private equity holds and the interest rate environment is not particularly conducive to selling to other sponsors right now. At the same time, it's hard for a corporate buyer to have massive conviction in the entire geopolitical environment. IPOs have never been a big part of the sponsor exit landscape. So, overall, exit activity will continue to be muted for the next several months – we're not going to get immediate relief because we're not going to have an immediately clear picture.”

LP-led secondary deals have been active

The first half of 2025 is likely to have seen an uptick in LP-led secondary volumes as large US endowments and foundations, such as Harvard and Yale, have entered the market – many for the first time. These sales have been prompted as US universities have had to grapple with the prospect of lower foreign student numbers and tax changes. "US endowments and universities in general are having to turn to the secondary market to sell assets and balance their budgets effectively," says a managing director at an alternative asset manager. "It is creating more deal flow and these are very large transactions – up to $7bn in size."

However, some doubt whether this momentum will carry through. "It's much easier to price a continuation fund of one to, say, five companies than a portfolio of 50 funds, where it's difficult to work out what the impact of tariffs will be on 500 companies," say Christophe Nicolas, Managing Director and Partner, Secondary Investments, at Carlyle AlpInvest. "So I think there will be a slowdown for LP portfolios for a while."

GP-led deals continue to forge ahead

"The secular trend towards continuation funds will continue in today's low distributions to paid-in capital (DPI) environment, but also as funds want to hold on to their most successful investments for longer," adds Nicolas. "Most GPs are now adopting the technology and the ones that have already used it are using it again. We're starting to see continuation funds of continuation funds on some very large transactions."

"In my view, GP-led continuation vehicles are unparalleled liquidity solutions that are only really topped by an exit to a sponsor or strategic," says Beatrix Thaler, Investment Manager at European Investment Fund. "But they do need to involve a trophy asset, be fully transparent for existing LPs and offer the options of rollover or exit."

What is the biggest challenge for private equity liquidity today?

Secondary market limitations (only 5% of overall market)
Difficulty valuing large portfolios
Overcapitalization requiring revaluation

Yet the secondary market is far from a panacea

"Liquidity is the conversion of assets to cash," says Cara Griffiths, Managing Director, GP Strategic Capital Investment Team, at Blue Owl Capital. "In the absence of exits, the focus has tended to be on tools, such as continuation vehicles, net asset value (NAV) loans and secondaries. But the secondary market is worth just 5% of the overall market – it is not a liquidity solution, and it is not a silver bullet."

There will need to be some pain if the system is to be unblocked

"There is massive unrealised NAV stuck in the industry," says Lyon. "NAV loans and GP-led deals are not a blanket solution to this problem. At the end of the day, there probably needs to be some sort of private equity revaluation and some people will need to exit the ecosystem because the industry was overcapitalised. That doesn't mean it's dead; it's just cyclical."

Even so, GP-led deals may actually come into play here – although transactions here could be more along the lines of those that originally spawned today's continuation vehicles. "Some GPs are really challenged in raising new money," says Nicolas. "I've heard of a GP that is looking to put all its assets into a continuation fund because it won't raise another fund. So maybe these types of transaction will come back."

Philipp Patschkowski, Managing Director at Neuberger Berman, agrees. "I can see a scenario where there are more of the fund restructuring deals on the market of the type we saw 15 years ago because of the fundraising environment," he says. "Some GPs won't raise another fund as their performance doesn't stack up and they have become misaligned with their LPs. They might be tempted to move all the assets they have left into a continuation fund and sell at hugely discounted pricing. They may not be great investment opportunities, but there is a scenario where more of these deals come to market."

Even as all this plays out, the industry still has to push for exits

"GPs need to be driving exits and DPI consistently, regularly sending liquidity back to LPs so you are not forced to sell the crown jewels at the wrong time," says Bert Janssens, Co-Head of EQT Private Capital Europe & North America. "You do that by taking a firm and fund-by-fund view, not an individual asset view. This moves some of the responsibility for exits away from the individual deal teams because if they are sitting on a good asset, they want to keep going, and if it's underperforming, they want another year. Of course some exits may be less rosy but we are in the business of taking risks, so some deals just won't work out. When that happens you need to press on, clean up the portfolio, and be honest with yourself about what could have been done better."

It's a view that Orlando Bravo, Founder and Managing Partner at Thoma Bravo, shares. "The industry is facing a lack of DPI," he says. "The average private equity fund is just not returning money to investors. They are not selling companies. Yet actually, valuations are healthy, the industry itself has record liquidity, corporate buyers' balance sheets have record amounts of cash. It is much harder to sell a company than buy one, so you have to spend at least as much time selling as buying. We are not an eternal hold business. And I think some people in the industry forgot that because they have high quality companies that they love. They may be thinking, the company is growing by 20%, so what if I hold for another year, pay down debt and create more equity value? But that buyer you have may not be around next year – they may have another strategic initiative or move onto better deals. Don't be afraid to sell. Remember, no-one is going to like your company better than you."

What is the key issue facing private equity according to Orlando Bravo?

Lack of DPI (Distributions to Paid-In capital)
Insufficient company growth rates
Holding companies for too long