By Shanu Sherwani CIO Kneip Management/ Partner Antwort Capital

Private equity is sitting on a liquidity time bomb. Cash distributions have slowed to historic lows, investors are growing restless, and fundraising momentum has stalled. Unlike past crises, this squeeze hasn’t been triggered by a recession or financial collapse — it’s the product of a market caught between high valuations, frozen exits, and a collective hesitation to sell.

Yet this moment is not just a threat; it’s a test. The firms that emerge strongest will be those that focus on fundamentals — operational value creation, disciplined liquidity management, and transparency with investors.

A Historic Collapse in Distributions

Distributions to limited partners (LPs) fell to just 11% of NAV in 2024, according to Bain & Company — far below the 20–30% typically expected in a healthy cycle. That effectively extends the recycling horizon from four years to ten. The last time distributions were this low was during 2008–09, at the height of the global financial crisis.

• 2022: 15% distribution to NAV
• 2023: 12%
• 2024: 11%

If 2025 follows the same trajectory, the industry will record four consecutive years of historic illiquidity — unprecedented in modern private equity.

The Backlog Problem

Buyout portfolios now hold roughly 30,000 companies worth $3.6 trillion, half of which have been held for more than five years. For context, all buyouts completed worldwide in 2024 totaled just $600 billion. Clearing today’s backlog could take years of robust exit activity, even if no new deals were added.

Many GPs are reluctant to sell below target valuations, preferring to wait for better markets. That patience paid off after the GFC, when multiples rebounded — but today’s higher-rate environment makes such recovery less likely. To restore liquidity, strong managers will need to lead the way in taking disciplined exits, even when pricing feels uncomfortable.

Fundraising Feels the Strain

The consequences are already visible. Buyout fundraising fell 25% in 2024, and in early 2025 no fund above $5 billion closed in the first quarter — a rarity in recent memory. Without distributions, LPs hesitate to re-up. Without re-ups, GPs delay exits further.

The firms that are still attracting capital are those communicating clearly, setting realistic expectations, and showing tangible operational progress in their portfolios. Liquidity may be scarce, but transparency builds trust — and trust drives commitments.

Exit Channels Blocked

Traditional exits remain constrained:

• IPOs are largely closed.
• Strategic buyers are cautious.
• Sponsor-to-sponsor deals are active but weighed down by valuation gaps.

To create liquidity, GPs are increasingly turning to continuation funds, partial stake sales, and secondary transactions. These can be legitimate tools — but only when used with governance, alignment, and a genuine focus on investor outcomes.

Secondaries: Discount or Opportunity?

Secondary markets appear well-positioned to benefit from the liquidity drought. LPs are selling fund stakes at discounts, while GPs are creating continuation vehicles. But the key question is whether current NAVs reflect reality. A 20% discount on an overstated NAV isn’t a bargain — it’s an illusion.

For LPs, manager selection has never mattered more. The best secondary managers aren’t simply bargain-hunters; they are disciplined investors who can separate true value from froth, actively support portfolio companies, and use liquidity tools responsibly.

Continuation Funds: Tool or Tension?

Continuation funds were designed to extend the life of strong-performing assets. At their best, they allow GPs to sell a proven company from one fund into another, creating a liquidity event for existing LPs and fresh upside potential for those who stay or reinvest.

When handled at arm’s length — with real price discovery and clear governance — continuation vehicles can serve investors well. But when used to warehouse hard-to-sell companies or delay reality, they risk becoming symbols of financial engineering. Good GPs know the difference and use the tool for what it was meant to do: unlock value, not disguise illiquidity.

The Rise of Family Offices and Private Investors

Family offices and private investors are fast becoming the new frontier of private equity fundraising. UBS reports that family offices now allocate nearly 20% of their portfolios to private equity, while Preqin estimates private wealth could account for 30% of all alternatives fundraising by 2030.

Many of these investors come from entrepreneurial wealth and bring a business-builder’s mindset. They’re increasingly professionalising — hiring in-house investment teams, demanding institutional-grade reporting, and seeking more control through secondaries, co-investments, and direct deals.

For GPs, this trend is both an opportunity and a challenge. Family offices are flexible, but they’re also selective. They value alignment, transparency, and clarity about liquidity timelines. Those GPs who return to basics — focusing on operational value creation, disciplined capital recycling, and clear communication — will be the ones who earn their trust.

Benchmarking Against More Liquid Alternatives

The liquidity crunch is prompting LPs to compare PE returns more directly with public equities, hedge funds, and private credit — all of which offer faster redeployment of capital. Liquidity is winning attention, but private equity’s edge has never been speed; it’s control, influence, and the power to transform companies over time.

The best GPs are embracing that difference, not hiding from it — shifting their focus back to hands-on operational improvement, smarter cost management, and value creation that doesn’t depend on multiple expansion. These are the managers who can justify illiquidity by delivering true alpha.

The Way Forward

Private equity has weathered crises before — and each time, the industry has evolved. Today’s liquidity squeeze is no different. The funds that survive and thrive will be those that face it head-on, accept market realities, and build genuine liquidity strategies rather than financial quick fixes.

The “liquidity time bomb” won’t destroy private equity — but it will expose the difference between managers who delay and those who deliver. In the end, this period may serve as a reset — rewarding the GPs who return to fundamentals and reaffirming why the best investors stay in the asset class for the long run.