Trends Influencing Liquidity in Private Equity

71% of exit dollars in 2024 came from a new avenue : secondaries. Historically, IPOs and M&A have been the dominant exit paths for venture backed companies. Some years IPOs dominate, other M&A dominates, but in 2024 secondaries captured the super majority. When a company sells new shares to investors in exchange for dollars, they create new shares in the company - primary shares. When existing shareholders sell their shares to new investors, we call this a secondary sale. An employee tender is a secondary sale offered to employees of the company. But secondary sales can also occur between one venture capitalist and another venture capitalist. The secondaries market is incredibly opaque. So the figures gathered here are extremely rough estimates but should be directionally correct. There has been a huge challenge in liquidity since 2022 with the IPO market effectively silent, and M&A also stymied. In response, capital markets respond in a way they always do. They flood capital where there’s opportunity. And now the primary path to liquidity within venture are secondaries. This is based on a Pitchbook analysis of the overall secondary market released in Q1 of 2025. This mirrors the private equity industry. I’ve written previously about how venture capital and private equity have parallel paths. Here I’m using a slightly different and narrower dataset, but you can see the announced transactions that have been reported that are outside the scope of private exchanges are roughly 20 to 30% within both private equity and venture capital. Over the last 10 years private equity has averaged about 28% secondaries as a form of liquidity. As in private equity, we should start to expect secondaries to become a permanent and significant part of venture capital liquidity for both employees of companies and also investors. With the target ARR required to achieve an IPO growing from $80m in 2008 to approximately $250m today, secondaries will become a permanent fixture in venture capital markets. It’s not just a temporary anomaly, but a structural evolution in how venture capital will function and ultimately evolve to look a bit more like private equity.

June 25, 2025: Blackstone, TPG, The Carlyle Group, and Apollo Global Management, Inc. tout the 2021 vintage. The cash tells a different story. Private equity raised record capital in 2021. Three years on, median DPI is 0.03x. Three cents on the dollar. Net. IRR still looks glossy. Median 10.90%. Top quartile 18.50%. But LPs don’t fund retirements with marks. They need wires. Those wires aren’t moving. The IPO window reopened in Q1. A few cleared. Most paused. Some priced down. Exit volume dropped in Q2. Melio’s $2.5B acquisition by Xero is the new path: trade sale, not ticker symbol. Fintech isn’t listing. It’s leaving. Hold periods stretch. Secondaries discount. Primaries delay. Fundraising continues. Pitch decks show momentum. Distribution notices show silence. European infrastructure funds raised €40B in 2025. Deal counts stay flat. Capital commits. Capital sits. This isn’t a crisis of conviction. It’s a shortage of liquidity. Capital formed. Capital stuck. Everyone holds. No one harvests. Watch the DPI curve. #PrivateEquity #InstitutionalCapital #LiquidityRisk #DPI #Secondaries

There was an important article in the Wall Street Journal over the weekend about pension funds, private equity, zombie funds, and NAV loans. The article (“Pensions Piled Into Private Equity. Now They Can’t Get Out”; linked in the comments) flags a trend where state and private pension funds, having invested billions of dollars with private equity managers, are stuck with sunk cash in the funds, continuing requirements to fund capital contributions, lackluster payouts, and demands to free up cash to pay out retiree benefits. Major takeaways are below: 👉 CALPERS (California’s state worker pension) has been paying more money into its private equity portfolio than it received for eight years in a row. 👉 Private equity funds typically have a 10 year investment period before they liquidate assets and pay out returns, but the interim estimates of fund value during that time may not be reliable, particularly because fund managers, who are paid as a percentage of the asset valuation, are incentivized to boost those valuations. 👉 The cause of the slowed distributions is the difficulty that private equity funds are having selling their companies in an environment where high interest rates have made buying and owning companies more expensive for prospective purchasers. 👉 The lack of quality exit opportunities has resulted in “zombie funds” – funds that did not pay out on the expected timetable and continue to hold illiquid assets of uncertain value. 👉 One solution to the log jam is the sale of interests in private equity funds to secondary market buyers, though often at a steep discount (Jefferies found that the discount was an average of 85% of the valuation right before the sale). 👉 Some pension funds are borrowing to access cash in order to pay distributions to retirees. I suspect such a loan would be collateralized by all assets of the pension fund, including its interests in private equity funds. 👉 In a #fundfinance angle, the article notes that The Alaska Permanent Fund has received cash distributions as a result of NAV loans taken out by the private equity funds in which it invests. But Alaska’s investment chief is not thrilled about this approach because he estimates that Alaska could borrow on its own at a lower cost than the NAV loans. As interest rates continue to remain high with no promise of near term relief and cash starved pension funds search for money to pay benefits, the opportunities for #fundfinance as a solution in this space seem likely. This could be either in the form of NAV loans to the private equity funds that are then distributed to the investors – which have their share of controversy as noted in the article – or loans to the pension funds themselves. One thing is for sure: this liquidity shortage will likely create opportunities for creative and hungry bankers to land new deals and clients.

In 2024, the VC secondary market was almost half the size of the VC primary market (i.e. VC funds deployed). If the trend holds, annual VC secondary activity will surpass primary activity within the next decade. Is this really a surprise? In 2024, public stock market secondary volume was 100X greater than primary volume. The last time you bought NVIDIA stock, you likely purchased it from another investor (indirectly), not from Nvidia itself. That’s the secondary market. As companies remain private longer, it's reasonable to assume more secondaries will occur. In the past month alone, Caplight's IPO Readiness Tracker flagged Deel conducting a $300 million secondary sale, and Anduril Industries, Revolut, and Cohere doing large tenders. How can the VC ecosystem best prepare for this market shift? LPs: 💧 LPs will have to gauge GPs not only on their ability to find gems but also on their capacity to liquidate them at the right time. ⌛ Liquidity risk will be a bigger consideration, and familiarity with continuation vehicles and LP-interest secondary transactions will be a useful skill set to develop. GPs: 🏃♂️ The #VentureDeals (Brad Feld) approach of allocating 10% of a VC’s time to exits and admin likely won’t cut it. Anecdotally, we’re starting to see the rise of the Chief Liquidity Officer role among the smartest VCs. 📊 VCs will need to develop portfolio management practices akin to those of public portfolio managers. Private companies: 🚰 Companies will have to rethink stock-based compensation management, moving from stock transfer restrictions to controlled liquidity as a tool to avoid talent leakage. ⚖️ Executives will need to balance primary raises with secondary permissiveness as they manage the capital needs of their companies. The good news? This won’t change overnight, and we’re here for you with the tools, analysis, and support you need to make the secondary market your competitive advantage. Sources are linked below. #vc #venturecapital #liquidity #alternativeinvestments #secondarymarket #IPO

US institutional investors are increasingly selling their Private Equity holdings at a discount due to lower-than-expected valuations and rising interest rates. Led by pension funds and endowments, a significant proportion of major investors 99%—sold their PE holdings at or below their net asset value on the secondary market last year, as reported by Jefferies. This is the highest percentage since the investment bank began tracking this data in 2017, with figures standing at 95% in 2022 and 73% in 2021. The surge in the use of the secondary market is a response to the recent slowdown in stock listings and mergers and acquisitions, which are traditional exit strategies for private equity investors. Additionally, many pension plans are obliged to make payouts to their beneficiaries, compelling them to turn to the secondary market to liquidate their assets more swiftly. Amid higher interest rates and consequently lower valuations, PE firms have struggled to achieve satisfactory returns. However, with the situation beginning to stabilise and the mounting pressure on firms to return capital, we are likely to witness a surge in M&A activity. Many advisers are already noting this trend, which is set to continue at pace towards the end of 2024.

Private Thoughts From My Desk ……………. #33 𝐓𝐚𝐫𝐢𝐟𝐟𝐬 & 𝐔𝐧𝐜𝐞𝐫𝐭𝐚𝐢𝐧𝐭𝐲: 𝐖𝐡𝐚𝐭 𝐈𝐭 𝐌𝐞𝐚𝐧𝐬 𝐟𝐨𝐫 𝐏𝐄 𝐑𝐢𝐠𝐡𝐭 𝐍𝐨𝐰 After five years of what I can only describe as "unique disruptions"—a global pandemic, unprecedented inflation, interest rate shocks—we now face yet another: a new wave of tariffs. For private equity, the impact of these policy moves isn’t just about the numbers—it’s about the uncertainty they inject into long-term models. Private equity lives and dies by its ability to predict the future—five years at a time, with leverage. So when policy shifts like these arrive without clear direction or a timeline, deal pipelines stall. It’s not that the tariffs themselves are necessarily fatal—it’s that no one knows what game we’re playing, or how the rules might change again next quarter. We entered 2025 with momentum. Intermediaries were busy, due diligence was in high gear, portfolio companies were readying for exit. But in February, the “T word” started surfacing. Tariffs are just another word for uncertainty—what I call the dreaded “U word” in private equity—and everything slowed. Activity now reflects what we’re hearing every day: it’s hard to make long-term bets when you don’t know what to model in the short term. For LPs, the liquidity crunch is especially acute. Liquidity is at levels we haven’t seen since the Great Recession. Many LPs are rebalancing through secondaries; some are exploring NAV loans and other creative strategies. The ones with dry powder—sovereign wealth funds, select family offices—see dislocation as opportunity. But for most, frustration is mounting. Fundraising is feeling the pinch, see the chart below for buyout fundraising trends. Exit activity is a leading indicator—and right now, that indicator is flashing yellow. Fundraising was always going to be challenged in 2025. Now, recovery may be deferred even further. So what can GPs do? It’s back to basics (again) with portfolio companies: secure the balance sheet, conserve cash, and avoid covenant or financing issues in the near term. There’s also renewed urgency to get EBITDA up—quickly—through pricing, cost reduction, and working capital optimization. Anything that opens the door to a liquidity event in the near term. This is also a time for firms to solidify their long-term strategy. Some are asking whether it’s time to double down on what they do best and exit non-core strategies. Consolidation is no longer theoretical—it’s a daily conversation, especially for firms caught in the increasingly challenging middle market. This isn’t a crisis. But it is a moment of reckoning. In a market defined by scarcer capital, talent, and investment opportunities—not everyone wins. Knowing what you do best, doubling down on it, and charting a clear path forward for your firm are more essential than ever. #privateequity #privatemarkets #privatethoughtsfrommydesk

Debt & Equity = Balance (true for the public market & true in the private market) WSJ reported that Private Equity funds face mounting/prolonged exits. In contrast, private credit offers a more deterministic return profile given contractual coupon payments, with amortization, and defined maturity dates, which delivers relatively consistent DPI (Distributions to Paid-In), IRR and MOIC calculations. Top-quartile PE managers will distinguish themselves from the crowd as they will deliver strong returns that is truly value-added. Those who are not performing as well will seek extensions, multi-asset continuation vehicles, and fee drag until the “frozen M&A environment” re-opens. The WSJ article highlights $668B stuck in aging PE funds (some now lasting 15 years), whereas direct lenders can pay dividends, recycle capital, or return the capital to their investors as loans mature or prepay. The efficiency and more predictable cash flows of Private Credit is crucial for LPs managing duration and liquidity. PE investors (including pensions and insurance companies) are re-allocating a portion of their alternative investment portfolio towards private credit due this predictable cash flows, lower volatility, and shorter duration. The critical point to realize is that Private Equity and Private Credit work together, it is the perfect balance to optimize your diversified portfolio: Private Equity provides upside through capital appreciation and operational value creation, while Private Credit delivers steady income, downside protection, and predictable cash flows. Together, they complement each other—equity drives growth, credit provides stability—creating a resilient, all-weather private markets allocation for institutional investors. Manager selection is critical in private markets, as top-quartile managers consistently drive most of the value creation. In both private equity and credit, dispersion is wide—making access to proven managers the key determinant of returns.

“The amount of calls I’ve received from limited partners seeking liquidity in the past few days is the most since the first days of Covid,” said Matthew Swain, head of private capital at Houlihan Lokey. “People were banking on IPOs to meet their liquidity needs and now need to raise cash just to meet capital calls.” The race to find liquidity signals that investors in private equity funds increasingly expect to receive few cash profits from their holdings this year and may face liquidity pressures that cause them to further retrench from making new investments. Last year, the private equity industry’s assets dropped for the first time in decades, according to Bain & Co, as fundraising plunged 23 per cent from 2023. “If the public market keeps going down and down, the denominator effect will become an issue again,” said Oren Gertner, a partner specialising in secondaries at law firm Sidley Austin. The prices of second-hand private equity fund stakes, which had risen to nearly 100 cents on the dollar in recent quarters, could fall to levels below 80 cents on the dollar, they forecast. “Most people don’t want to sell below 80 per cent of a fund’s net asset value or less, but this time could be different,” said one top banker. https://lnkd.in/eSTWHzXp

In a study we did several years ago, we found that Fund 1's had over 60% of their fund capital from High Net Worth Individuals and small-medium Family Offices. In contrast, that number was <5-10% for larger, more established funds. Today, the market is unquestionably challenging for new EMs, but seemingly effortless for large funds (in Q1, the top 5 largest raises represented 45% of total capital raised by VC firms. We expect the top 10-12 to represent that for 2024). What we see as the institutional capital providers, despite the inherent liquidity challenges, is that they are coming back tangibly (the denominator effect has diminished for most of these groups). As mentioned above, much of this capital has gone to larger groups. Some people question why, given the higher potential cash-on-cash returns of smaller funds? Sidenote: Similar to the buyout world, larger VC funds are simply a different financial product than small funds, as I've written above in the past. 𝗧𝗵𝗲𝗿𝗲 𝗮𝗿𝗲 𝗮 𝗳𝗲𝘄 𝗿𝗲𝗮𝘀𝗼𝗻𝘀 𝗳𝗼𝗿 𝗹𝗮𝗿𝗴𝗲 𝗶𝗻𝘀𝘁𝗶𝘁𝘂𝘁𝗶𝗼𝗻𝘀 𝘁𝗼 𝗶𝗻𝘃𝗲𝘀𝘁 𝗶𝗻 𝗯𝗶𝗴𝗴𝗲𝗿 𝗳𝘂𝗻𝗱𝘀  • Keeps the number of positions manageable by increasing the dollar amount per fund (it's easier to manage one $100MM ticket versus 10 $10MM tickets, especially when sourcing/diligence time is accounted for pre-investment) • They can usually accept a lower hurdle return rate as institutions are less sensitive to illiquidity (meaning a lower illiquidity premium can be acceptable) than individuals. • The allocation into the class is to diversify and add a level of non correlation to the portfolio per the allocation targets and policy.  • Safety (less variance leads to less personal risk. The adage of buying IBM is true). For individuals, because the sensitivity to liquidity is high during uncertain times, we've seen a marked slowdown of deployment over the last two years from HNW and smaller FOs. This is understandable as many of these LPs went very heavy in 2019-2021 with commitments (and capital calls were quick) without the benefit of a strong distribution market in 2022-2024. For individuals the illiquidity premium is and should be higher. The treasury rate at >5%, the volatility in the global markets, and geopolitical conflict add to the slowdown of backing EMs. It will take the liquidity markets to improve before we see things get considerably better (this is also why I'm closely watching the trend of GP-led secondaries in VC). For EMs, it might be slow going from the raise standpoint this year and likely 1H 2025. Still, this is one of the most exciting times to deploy into tech, given the new platform shift AI will continue to bring along with the market reset, shaping healthier founder/investor mindsets. For EMs, stay patient on the raise, and don't worry about settling on a smaller fund than you'd like. The following few vintages could be Power Law Vintages (to borrow the term from Stepstone)