Private Equity’s Liquidity Crunch: Slowing Exits, Longer Holds, and the Rise of Secondaries

Private equity investors worldwide are facing a growing liquidity crunch as exit activity slows and capital remains tied up in aging portfolios. A confluence of factors, from higher interest rates to volatile public markets, has lengthened buyout holding periods. According to the Bain Global Private Equity Report 2025, distributions as a portion of net asset value (NAV) sank to 11% in 2024, the lowest rate in over a decade.

This has left limited partners (LPs) waiting longer for distributions and general partners (GPs) juggling older investments. In response, many LPs are pushing for traditional exits even at lower valuations, while increasingly tapping the secondary market as an alternative liquidity valve. This article examines the depth of the liquidity challenge, drawing on insights from Bain’s Private Equity 2025 report and McKinsey’s Global Private Markets 2025 study, and analyzes what it all means for DPI performance, NAV valuations, fundraising, and the booming secondaries market.

Exit Activity Slows as Hold Periods Reach Record Highs

After the record-breaking exit wave of 2021, global exit activity has decelerated sharply. Industry data shows that 2024 saw a modest rebound in exit value (up 7.6% to about $813 billion) after two years of decline, but the overall pace of realizations remains sluggish. In fact, private equity portfolios are older than ever. The average buyout holding period sits around 6.7 years, versus a 5.7-year average over the past 20 years. This suggests that hold times for buyouts are at or near a 20-year high. The backlog of companies awaiting exit is now larger than at any time since 2005, a clear sign that GPs have been unable to exit many investments on their original timelines.

The result is a growing mountain of aging assets. As of early 2025, 61% of all buyout-backed companies had been held for over four years, up from 55% a year prior and well above the ten-year average of 53%. The extended holding periods create pressure to keep creating value in portfolio companies for longer, even as macroeconomic uncertainty makes buyers cautious. In short, exit routes have narrowed, leaving many PE firms with a logjam of assets and limited avenues to realize them.

LPs Embrace Secondaries

LPs have increasingly taken matters into their own hands via the secondary market. LP-led secondary transactions, where investors sell their fund positions to other investors, have surged as a liquidity tool. Industry reports confirm that the secondaries market has become a critical outlet for pent-up liquidity needs. In 2024, global secondary transaction volume hit an all-time high of $162 billion, and notably more than half of that volume was driven by LP-led deals (reflecting LPs actively monetizing their fund stakes). Even large institutional investors are using this tool. This trend illustrates how secondaries have emerged as a lifeline for liquidity-constrained LPs when standard exits are delayed.

At the same time, GPs themselves are making use of secondary solutions. GP-led secondary transactions, such as continuation funds, allow a sponsor to sell one or more assets from an older fund into a new vehicle (often financed by secondary buyers) to extend the hold period. GP-led deals climbed to $75 billion in 2024, accounting for roughly 46% of total secondary volume, and nearly 84% of those GP-led deals were structured as continuation fund transactions. These deals give GPs optionality to hold “trophy” companies longer (and potentially capture more upside) while still providing an exit (cash liquidity or rollover choice) to existing LPs. In an environment where traditional exits are difficult, both LP-led and GP-led secondaries have become important release valves.

Liquidity Metrics (DPI) Lag Historical Benchmarks

A key indicator of liquidity in private markets is Distributed-to-Paid-In capital (DPI), which is essentially how much cash a fund has returned to investors relative to the capital paid in. For recent vintages, DPI figures are well below historical norms, reflecting the sluggish exit environment. Bain’s midyear 2025 report notes that, for example, U.S. and Western European buyout funds raised in 2018 have only returned a little over 0.6x (60%) of paid-in capital to LPs so far, whereas historically they would have returned around 0.8x (80%) by this stage. In other words, about 20% of expected distributions are missing for 2018 funds. Funds from 2019-2021 are tracking even further behind the usual pace since they are younger and were hit by the 2022–2023 exit slump. Many of these funds have only generated minimal DPI to date, when normally a steady flow of liquidity would have started by now.

This shortfall in DPI is painful for LPs. Paper returns (TVPI or IRR) might look acceptable, but the cash back has been scant. It also heightens scrutiny on NAV valuations. With recent funds showing low DPI but still carrying high unrealized values, investors are questioning how solid those unrealized valuations are if exits are being delayed. This puts pressure on GPs to eventually convert those unrealized marks into real cash distributions, a hurdle that is growing taller the longer exits take.

Implications: NAV Marks, Fundraising Timelines, and LP–GP Alignment

The ongoing liquidity crunch in private equity has several important implications for valuations, fundraising, and the alignment between LPs and GPs:

• Stressed NAV Marks: With few exits to provide market feedback, fund NAV valuations are becoming increasingly uncertain. Many assets remain on books at valuations set during the boom, yet LPs indicate they would accept sales below recent marks to unlock liquidity. The lack of realizations means GPs must tread carefully in marking portfolios, as any eventual exit below NAV would erode trust. Some GPs are opting for modest write-downs or conservative marks, but others hold values steady hoping for market recovery, a stance that can frustrate LPs seeking faster alignment with reality.
• Delayed Fundraising Cycles: Slower distributions impede the fundraising cycle for new funds. Normally, LPs recycle distributions from earlier vintages into commitments for new funds, but the distribution drought has disrupted this rhythm. GPs holding companies longer are stuck in “harvest mode” and cannot conclusively prove their track record, making it harder to attract fresh capital. Indeed, fundraising has become exceptionally challenging; Bain notes that global buyout fundraising was on track for a sixth consecutive quarterly decline in early 2025. Managers who haven’t returned capital face skeptical prospective investors, often stretching fundraising timelines or forcing fund size reductions.
• LP–GP Alignment Tensions: The liquidity squeeze is testing LP–GP relationships. LPs want their money back and are increasingly vocal about pushing for exits, even if that means accepting lower prices or using secondary sales. GPs, on the other hand, worry that selling quality assets in a down market could sacrifice upside. Some sponsors have been “holding out for the last dollar” of value creation, reluctant to sell below peak valuations, but this stance is hard to maintain as the backlog grows. Frustrated LPs have leverage here, they can refuse to re-up in new funds or even seek secondary buyers for their positions. Consequently, many GPs are now conceding to exits at somewhat lower valuations to return cash to LPs and preserve goodwill. In extreme cases, GPs offer LPs options like fund extensions or selective asset sales to address liquidity needs. The rise of continuation funds also reflects an alignment mechanism: GPs can keep an asset for longer, but must allow any dissenting LPs to cash out at a fair price, requiring transparent valuation and process to maintain trust.

Secondaries Market Outlook: Volume, Pricing and Participation Trends

Looking ahead, the secondary market is poised to play an even larger role in private equity liquidity. After the record $162 billion in secondaries volume in 2024, most market participants expect robust activity to continue in 2025, with some predictions of $170+ billion in secondary deal volume for the year. The drivers behind this momentum, namely, motivated sellers (LPs needing cash) and ample buyer capital (secondary funds sitting on record dry powder), remain firmly in place.

Crucially, pricing in the secondary market has improved, making it more palatable for sellers. In 2023, LP stakes were trading at roughly 85% of their net asset value on average; by late 2024, that had risen to about 89% of NAV. The narrowing discount reflects strong demand for private equity exposure, a welcome development for LPs, as it means they can achieve liquidity with a smaller haircut on paper value. If public markets stabilize or rebound, secondary pricing could strengthen further, though it will vary by quality of assets and fund.

Participation in secondaries is also broadening. Pension funds and sovereign wealth funds have become active sellers. On the buy-side, dedicated secondary firms have raised bigger funds, and even retail investors are entering the fray. This diversification of participants is boosting liquidity and making secondaries a more mainstream feature of the PE ecosystem. Meanwhile, GP-led deals continue to evolve as continuation funds gain popularity. Major PE firms are launching dedicated vehicles to capitalize on GP-led opportunities, and LPs are becoming more sophisticated in evaluating these processes to ensure fair treatment.

Overall, the outlook is for the secondary market to sustain its upward momentum. Even if the traditional exit environment improves somewhat (for example, if M&A and IPO windows reopen), the need for liquidity and active portfolio management will likely keep secondary activity high. As such, secondaries have effectively become a permanent fixture of private markets, not just a cyclical release valve. For LPs and GPs alike, this means additional flexibility – from easing the denominator effect for over-allocated investors, to allowing GPs to secure partial liquidity while holding onto promising assets. In a world of longer hold periods and unpredictable exits, the secondary market’s role as a “pressure relief valve” for private equity liquidity is only set to grow in 2025 and beyond.

Conclusion

The current liquidity crunch in private equity serves as a reality check for both investors and fund managers. Slower exits and extended hold periods have created a backlog that will take time to unwind. LPs are increasingly assertive about seeing returns, if not through standard exits, then via alternatives like secondaries. GPs are adapting by balancing the tension between maximizing value and meeting liquidity expectations, whether that means accepting lower exit valuations or leveraging continuation funds. In the meantime, key performance metrics like DPI remain below par, and fundraising for new vintages is hampered by the overhang of unrealized assets. Yet, innovation and adjustments are underway: the rise of the secondary market and other liquidity solutions offer hope that private equity can navigate this turbulence. For LPs, GPs, and institutional allocators, the message is to brace for longer investment horizons, stay flexible in pursuing liquidity, and double down on value creation to ensure that when exits do come, they justify the wait. By leaning into these challenges and creatively using tools like secondaries, the industry can work through the current logjam and eventually restore a healthier balance between investments and exits.

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