The 2020 and 2021 venture vintages produced some of the highest portfolio marks in the history of the asset class. Entry valuations were elevated and deployment was aggressive with the expectation that IPOs and M&A activity would convert those marks into cash distributions within a reasonable horizon.

That conversion has not happened at the expected pace and IPO windows have been narrow. Additionally, strategic M&A has been disciplined and focused, with buyers unwilling to pay premiums that would validate 2021 entry multiples. As a result, funds that look successful by traditional metrics and IRR are sitting on portfolios that have not generated meaningful cash back to limited partners. The funds can look healthy while the LPs are liquidity-stressed. But how is this actually affecting private markets?

Across private equity and venture, over $1 trillion in net asset value remains trapped in older fund vintages with average holding periods that have now stretched past five years. Distributions to Paid-In Capital, or DPI, the measure of actual cash returned relative to capital committed, has fallen to historic lows for 2018-2021 fund cohorts, with some funds reporting ratios as low as 0.1x to 0.3x. Internal rate of return, which can be manufactured through marks and fee timing, no longer carries the weight it once did. Investors want cash, not marks.

A 2025 McKinsey survey found that 2.5 times as many LPs ranked DPI as their most critical performance metric compared to three years prior. Sponsors that raised successfully in the last 18 months shared a common characteristic: they had both strong net IRR and meaningful DPI in prior vintages. Firms with strong performance but weak distributions struggled to raise at all, with some well-regarded managers failing to close new funds despite solid track records on paper.

The cash distribution drought has led to frustration among LPs grappling with high fundraising targets. For every $3.00 of GP fundraising targets, only $1.00 of capital is currently available, while the ratio has historically been closer to $1.30 to $1.00. LPs who have not received cash from older funds now have less capacity to commit to new ones, regardless of how good the underlying marks look.

The response from GPs has been a rapid scaling of what the industry sometimes calls synthetic liquidity, representing mechanisms to return capital to LPs without requiring a traditional exit through IPO or trade sale. The secondary market has been the primary vehicle for synthetic liquidity. Global secondary volumes exceeded $200 billion in 2025 for the first time on record, driven by both LP-led sales and GP-led continuation vehicles, which now account for approximately 13% of all private equity exit value. Cambridge Associates estimates CVs will represent at least 20% of distributions in 2026 as LP demand for cash over paper gains continues to dominate.

Partial exits and founder secondaries have also become more common as growth-stage companies seek to provide early investors and employees with some liquidity without forcing a full exit event.

The concentration of funding in large managers has downstream consequences for companies seeking growth capital. Many growth rounds today are led by firms that are simultaneously managing liquidity pressure in older portfolios. The incentive to push for near-term liquidity events, including premature secondaries or earlier-than-optimal M&A processes, can create tension with the long-term interests of the company. This is a tension we encounter regularly when working with growth-stage companies, and one that is worth pressure-testing early in any fundraising process.

We have seen secondaries and continuation vehicles work effectively for management teams in practice, but they are not costless and often involve trade-offs that are not immediately visible in headline terms. In a secondary transaction, pricing is determined by a small number of sophisticated buyers with significant informational advantages over sellers. This dynamic often results in pricing that reflects buyer downside protection more than full intrinsic value. In a continuation vehicle, the GP controls both the timing and the narrative, which means LPs who cannot negotiate from a position of scale are largely term-takers rather than price-setters. Leverage is often embedded in the structure through NAV loans or preferred return mechanisms that are easy to overlook when the headline valuation looks attractive. The best outcomes for founders and management teams come from understanding what they are agreeing to before the process begins, not after, and that is where rigorous early preparation makes the most difference.

We also think the DPI pressure is a healthy corrective to a period where performance measurement became detached from cash reality. Funds that have built real revenue and profitability will have more options. Those who accumulated marks without building fundamentals will find the exit environment significantly harder.

For companies navigating this environment and looking to raise capital, it’s an advantage if you can demonstrate a credible path to liquidity and exit beyond simply projecting growth. Investors are increasingly focused on how and when they get paid, not just how big the business could become.

We frequently advise our clients to move beyond generic exit narratives and develop a clear and defensible view of realistic outcomes: who the likely acquirers are, under what market conditions they would transact, and what milestones make the company strategically relevant to them. This includes mapping buyer universes, understanding recent comparable transactions, and aligning the company’s positioning with the priorities of those buyers. Having early conversations or collaborations with these potential buyers or strategics to validate these points and build relationships early will create significant advantages and differentiation from competitors. Companies that can clearly show why they are or will become an attractive acquisition target, for whom, and on what timeline create a fundamentally different level of confidence. This confidence translates into greater leverage across both fundraising and exit discussions, and a more controlled and competitive process.

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