Key Takeaways
- • Secondary markets have transitioned from niche to core strategy: Private equity secondaries, once a quiet mechanism for offloading aging fund positions, are now a multi-billion dollar segment driving institutional liquidity as exits slow across the industry.
- • Global PE fundraising declined 12.7% to $480.29 billion in 2025: This represents the third consecutive year of fundraising decline, with Pitchbook reporting even steeper declines to $407.5 billion when using broader PE strategy definitions—down from $611.6 billion in 2024.
- • Exit slowdown since mid-2022 has created a massive portfolio overhang: Thousands of portfolio companies have lingered in PE portfolios for more than 10 years without successful exits, forcing institutional investors to turn to secondary funds as an alternative liquidity source rather than wait for traditional sale or IPO events.
- • Continuation vehicles and secondary fund sales are replacing traditional exit routes: With IPO windows closed and M&A activity stalled, general partners are increasingly moving aging companies into continuation vehicles while institutional investors sell their fund stakes to secondary buyers to address urgent liquidity needs.
- • Liquidity stress is fundamentally reshaping PE capital flows: The combination of weak exits, extended portfolio holding periods, and institutional investor pressure is driving record use of secondary sales and continuation vehicles as the primary mechanism for realizing returns.
Summary
Private equity's liquidity crisis has transformed secondaries from a peripheral strategy into a core feature of the broader PE ecosystem. Historically used as a discreet mechanism for institutions to quietly unload underperforming fund positions, secondary markets have evolved into a multi-billion dollar segment as traditional exit channels—mergers, acquisitions, and initial public offerings—have deteriorated significantly since mid-2022.
The scale of the challenge is evident in recent fundraising data. Global private equity fundraising fell 12.7 percent to $480.29 billion in 2025, marking the third consecutive annual decline, according to S&P Global Market Intelligence. Alternative data from Pitchbook, using broader PE strategy definitions, reveals an even steeper contraction to $407.5 billion across 2025, down from $611.6 billion the prior year. This fundraising environment reflects institutional investors' mounting concerns about liquidity—specifically, the inability of PE funds to exit aging portfolio companies at prices consistent with reported valuations.
The root cause is a massive overhang of companies trapped in PE portfolios beyond their intended holding periods. Since mid-2022, exit velocity has slowed materially, leaving thousands of portfolio companies languishing for more than a decade without successful exit events. When institutional limited partners face liquidity pressure due to fund-level illiquidity, they increasingly choose to sell their stakes in aging PE funds to secondary funds rather than wait for delayed exit timelines. This mechanism has become essential to addressing institutional cash flow needs and resolving confidence gaps around GP valuations for mature portfolio holdings.
General partners have adapted by deploying two primary strategies: secondary fund solutions and continuation vehicles. Secondary funds acquire the stakes of institutional investors seeking immediate liquidity, while continuation vehicles allow GPs to consolidate aging portfolio companies and extend holding periods under new governance structures. These approaches have become the dominant mechanisms for realizing returns in the current environment, effectively replacing traditional sale-based and IPO-based exits as the path to capital return.
The scale of the challenge is evident in recent fundraising data. Global private equity fundraising fell 12.7 percent to $480.29 billion in 2025, marking the third consecutive annual decline, according to S&P Global Market Intelligence. Alternative data from Pitchbook, using broader PE strategy definitions, reveals an even steeper contraction to $407.5 billion across 2025, down from $611.6 billion the prior year. This fundraising environment reflects institutional investors' mounting concerns about liquidity—specifically, the inability of PE funds to exit aging portfolio companies at prices consistent with reported valuations.
The root cause is a massive overhang of companies trapped in PE portfolios beyond their intended holding periods. Since mid-2022, exit velocity has slowed materially, leaving thousands of portfolio companies languishing for more than a decade without successful exit events. When institutional limited partners face liquidity pressure due to fund-level illiquidity, they increasingly choose to sell their stakes in aging PE funds to secondary funds rather than wait for delayed exit timelines. This mechanism has become essential to addressing institutional cash flow needs and resolving confidence gaps around GP valuations for mature portfolio holdings.
General partners have adapted by deploying two primary strategies: secondary fund solutions and continuation vehicles. Secondary funds acquire the stakes of institutional investors seeking immediate liquidity, while continuation vehicles allow GPs to consolidate aging portfolio companies and extend holding periods under new governance structures. These approaches have become the dominant mechanisms for realizing returns in the current environment, effectively replacing traditional sale-based and IPO-based exits as the path to capital return.
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