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. [2][6] Meanwhile, exits followed a similar decline: exit values and counts remain below five-year averages even after rising somewhat in 2024. [1][7] Crucially, distributions (cash returned to LPs) relative to NAV have fallen to ~11%, the lowest level in more than ten years. [1][6][7] 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. [1][2][3]

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). [2][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. [6] 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?