Private equity’s new liquidity playbook: creativity now rivals capital

December 2025  |  SPECIAL REPORT: PRIVATE EQUITY

Financier Worldwide Magazine

December 2025 Issue

With conventional exits slow in recent years, private equity (PE) firms have been reshaping the playbook for liquidity. As the initial public offering (IPO) window remained largely closed and with M&A activity tepid over the past several years, fund managers have increasingly turned to secondary transactions and distributions to paid-in capital (DPI)-driven structures to return cash faster. In today’s market for asset allocation, creativity now rivals capital as the most valuable currency in the asset class.

Record year for secondaries

According to a report by Jefferies, the 2025 global secondaries market is showing record-breaking activity, with transaction volume in the first-half topping $100bn on the back of solid demand for liquidity from limited partners (LPs) and continued growth in general partner (GP)-led deals. Full-year volume is estimated to be roughly $230bn, driven by LP-led sales of existing stakes and GP-led continuation vehicles.

In the first half of 2025 alone there was approximately $102bn in transaction volume, a sharp increase from the same period in 2024, according to reports from Evercore and Jefferies. While estimates based on 2024 trends intimate somewhere around $176bn in total 2025 activity, other estimates suggest the full-year figure will be beyond $200bn. One thing is certain: 2025 is set to be one of the strongest years ever for the secondary market.

Behind the surge is a coming together of underlying forces such as slower traditional exit routes, continued interest-rate volatility and institutional pressure to meet cash-distribution targets. These are all factors that require PE managers to engineer creative liquidity solutions with urgency, rather than rely only on IPOs or strategic sales to drive DPI.

The rise of GP-led solutions

Once perceived to be niche, GP-led secondary transactions are rapidly becoming a central feature in PE. These structures, particularly continuation funds, allow fund managers to hold high-performing assets longer while providing liquidity to existing investors.

Evercore reports that GP-led activity now represents nearly half of total secondary volume, reflecting both investor appetite and the sophistication of fund sponsors in designing bespoke vehicles. According to Evercore’s H1 2025 Secondary Market Review, GP-led transactions reached a volume of $48bn in the first half of 2025. This represented about 47 percent of the total secondary market volume during that period, approaching half of all secondary activity.

DPI becomes a performance imperative

DPI, long a key performance ratio in PE, has become a force in 2025 deal design. As traditional realisations slow, managers are looking to secondaries and structured liquidity solutions to maintain strong DPI metrics.

Firms with top-quartile DPI are attracting new commitments faster in the current fundraising cycle. In a competitive market where LPs are overallocated to PE and facing their own liquidity constraints, a fund’s ability to return cash early has become a differentiator.

This is prompting fund managers to recycle capital more tactically. Some are selling partial stakes in mature assets through continuation funds, while others are packaging legacy positions into secondary sales that unlock near-term distributions and retain upside exposure.

Institutional strategies and portfolio engineering

Institutions themselves are playing offence. Pension plans, sovereign wealth funds and endowments are proactively looking to the secondary market. Secondary sales are now an integral part of a sophisticated liquidity-management strategy.

According to data from Campbell Lutyens, the secondary market had a huge first half of 2025, with transaction volume reaching $110bn. Seventy percent of the total transaction volume was driven by 17 of the largest buyers. The line between primary and secondary investing has effectively blurred, with portfolio optimisation emerging as a defining institutional capability.

Diversification beyond LBOs

By mid-2025, mega leveraged buyouts (LBOs) have captured an outsized share of activity, with deals exceeding $10bn now representing 27 percent of global PE volume year to date, up from just 11 percent in 2024, according to EY. However, activity has slowed overall – KPMG reports that global PE deal value fell to $363.7bn in Q2 2025, from $505.3bn in Q1.

While LBOs continue to dominate the secondary landscape, niche sectors are definitely gaining traction. Infrastructure and renewables, for instance, have attracted a growing number of GP-led transactions as sponsors extend ownership of cash-flow-generating assets under long-term sustainability mandates.

The diversification trend also extends geographically. Europe remains a stronghold, but Asia-Pacific markets are seeing record activity, particularly in private credit and venture secondaries, as regional GPs embrace continuation-fund models pioneered in the US and UK.

Capital formation and pricing trends

Dedicated secondary capital has grown dramatically. Preqin estimates that dry powder for secondaries now exceeds $250bn globally, giving specialised buyers ample firepower to transact quickly and selectively. This abundance of capital has tightened pricing across many segments of the market.

Average pricing for diversified LP portfolios climbed to the low-90s (as a percentage of net asset value (NAV)) in 2025, up from the mid-80s just a year ago. High-quality buyout portfolios are more often clearing at or near par. And venture and growth-equity portfolios, historically more volatile, have seen pricing improve as buyers become more comfortable with valuations and exit trajectories.

On the GP-led side, pricing remains competitive. Investors are applying increased scrutiny to asset concentration, governance rights and alignment of interest. Successful continuation funds are increasingly those with clear value-creation roadmaps, rollover commitments from GPs and strong LP transparency.

Innovation becomes the differentiator

What we are seeing across the board is innovation. PE’s current liquidity revival is about creativity and capital deployment. Fund sponsors are blending elements of traditional secondaries, NAV-based lending and hybrid-financing structures to create more specific solutions that match investor needs.

Some firms are experimenting with preferred-equity structures and others are forming multi-asset continuation funds with cross-portfolio synergies. These innovations accelerate DPI and enhance control, flexibility and strategic alignment across fund families.

Outlook: a permanent shift in liquidity strategy

As we move into 2026, a return to the old model of relying solely on IPOs is unlikely. The secondary market has become a strategic pillar of PE portfolio management. Secondaries are redefining how liquidity is created and how value is sustained in private markets.

 

Louis Lehot and Brian Wheeler are partners at Foley & Lardner LLP. Mr Lehot can be contacted on +1 (650) 251 1222 or by email: llehot@foley.com. Mr Wheeler can be contacted on +1 (415) 438 6438 or by email: brian.wheeler@foley.com.

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Louis Lehot and Brian Wheeler

Foley & Lardner LLP

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