Private Equity: Exits Are Stalling — Is the Market Stuck?

An Unprecedented Traffic Jam

Private Equity funds are sitting on $2.8 trillion in unsold investments — an all-time record. The average holding period has climbed to 6.4 years, up from 4.5 years five years ago. The exit market is frozen.

Why Exits Are Blocked

Three factors converge:

1. High rates: strategic buyers finance more expensively, so they offer less. A deal that worked at 8x EBITDA with 3% debt doesn''t work at 6%.

2. Valuation gap: PE funds revalued their portfolios during the 2021 boom at high multiples (12-15x EBITDA). Selling today at 9-10x means crystallizing a loss.

3. Closed IPO market: IPOs, traditionally the most lucrative exit, are nearly non-existent for PE-backed companies.

Workarounds

PE funds have found palliatives — but none solve the fundamental problem:

• Continuation funds: the GP sells the investment... to itself in a new vehicle. LPs can exit or stay. Volume +120% in 2 years.
• NAV lending: borrowing against portfolio value to distribute cash to LPs. It looks like returns, but it''s debt.
• Dividend recaps: making the portfolio company borrow to pay a dividend to the fund. Increases leverage, reduces repayment capacity.

Key Takeaway

The PE market is in a structural impasse. Rates need to drop significantly (below 4%) to unlock exits at acceptable multiples. Until then, expect more continuation funds, more NAV lending, and mediocre vintage 2020-2022 performance. For PE investors: secondary funds are the best way to profit from this dislocation — they buy PE stakes at -20/-30% of stated NAV.