Private Equity’s Crucial Crossroads: Fundraising Drought, Aging Assets & Continuation Funds

Over the past 18-24 months the private equity industry has entered a period of compressed exit activity, diminished fundraising, and sustained pressure from LPs for liquidity—forcing GPs to pursue a range of strategic responses to stay viable. The situation is driving tactical innovation but also raising governance, valuation, and moral hazard challenges.

Fundraising and Exits: Lagging Behind Expectations
The data paints a stark picture: in 2024, total PE fundraising dropped 23–24% to approximately $400–410 billion, the lowest annual total since 2020. Meanwhile, exits followed a similar decline: exit values and counts remain below five-year averages even after rising somewhat in 2024. Crucially, distributions (cash returned to LPs) relative to NAV have fallen to ~11%, the lowest level in more than ten years. This trend, coupled with a backlog of ~30,000 unsold portfolio companies (half of them held over four years), valued at roughly $1.8–3 trillion, is dragging on LP liquidity and confidence.

Alternative Liquidity Vehicles and Restructuring Strategies
With traditional fundraising and exit routes constrained, GPs are increasingly turning to continuation funds, asset spin-outs, and rebranded sector-specialized firms. Notable is Trilantic Capital’s ~$600 million continuation vehicle backed by Blackstone ($400 million) and Neuberger Berman ($200 million), where assets from its 2017 vintage fund are being transferred with bids at large discounts (~30-40% of NAV).[Primary] Firms like Vestar have opted to pause flagship fundraises and focus on the existing portfolio and tuck-ins. [Primary] Huron Capital rebranded part of its business while spinning out a new platform (HCP Services Partners). [Primary]

LP Preferences, Valuation Pressures, and Governance Tensions
LPs are showing clear preference for traditional exit mechanisms—even if that means selling below prior valuation marks—over continuation or NAV loan structures. Recycling provisions (allowing proceeds from exits to be reinvested) have become more flexible, with broader definitions and higher cap limits. [Primary] Yet LPs remain wary about deep discounts, extension fees, hidden leverage, or conflicts in GP-led secondary vehicles. The need for alignment and strong LP-GP partnership is rising fast. [Primary]

Strategic Implications

• GPs with notable franchise strength and performance (low aging assets, good exit track record) are better positioned to raise new capital or secure favourable secondary or continuation deals.
• Smaller GPs or those without strong recent exits risk being forced into wind-downs or non-traditional liquidity measures, potentially at material valuation discounts.
• LPs need to scrutinize valuation, alignment (especially in structure of continuation vehicles), discount rates, governance and rights when engaging alternative liquidity options.
• Industry may see increased stratification: mega-firms & established top quartile GPs continue to dominate capital; the middle and lower-tier may increasingly focus on niche sectors, specialized spin-outs, or merging/selling to avoid obsolescence.

Open Questions

• How sustainable is LP demand for continuation vehicles and NAV financing given the discounts and complex waterfalls often involved?
• Will regulatory or tax regimes shift to accommodate or limit extended holding periods or new fund structures?
• What will be the macroeconomic triggers that unlock a meaningful exit rebound—interest rate declines, IPO renaissance, or policy stabilization?
• How will GP fee models (management fees, carry) evolve under pressure from LPs increasingly favoring co-investments, evergreen funds, or lower cost structures?