• PE 150
  • Posts
  • PE Liquidity Pressure: A Growing Strain Across the Private Equity Landscape

PE Liquidity Pressure: A Growing Strain Across the Private Equity Landscape

Private equity (PE) firms are facing mounting liquidity pressure as longer holding periods, valuation mismatches, and increased investor demands converge to stress the traditional PE exit cycle.

November 04, 2025 • Estimated Reading Time: 7 minutes

Liquidity Squeeze Deepens Amid Record Holding Periods

Across the global market, PE firms are holding on to portfolio companies for significantly longer durations than in previous cycles, according to S&P Global Market Intelligence data.

As shown in the chart, the average global PE holding period has steadily extended since 2000, now approaching six years, while the US and Canada average has climbed even higher—surpassing seven years in 2025. Several factors underpin this trend, notably the surge in acquisition valuations during the pre-pandemic years and the subsequent tightening of monetary conditions that have made exits more complex.

“Buyouts made in 2019 and 2020 benefited from historically low interest rates,” explains Christian Westra, partner at Ropes & Gray. “As rates rose sharply from 2022 onward, return models were upended, creating valuation gaps between buyers and sellers.”

This divergence has left firms in a holding pattern, unable to exit at acceptable multiples. Kate Withers, private equity and technology M&A partner at Ropes & Gray, notes that “borrowing costs have come up, so that has changed the return modeling across sectors.” The result is that many funds are carrying mature assets longer than their limited partners (LPs) anticipated—intensifying calls for liquidity.

LP Pressure Builds as Exit Pipelines Clog

According to Peter Witte, Director at EY Private Equity division, the growing imbalance between deployment and realizations is creating a critical inflection point. “One year ago, roughly three-quarters of general partners (GPs) rated LP pressure between five and seven on a 10-point scale,” he says. “Today, the majority rate it between six and eight.”

The chart illustrates this shift vividly. In Q3 2025, LP pressure peaked near the extreme end of the scale, indicating unprecedented stress on managers to deliver distributions. After years of record fundraising and dealmaking, LPs—many of them large institutional investors such as pension funds and sovereign wealth vehicles—are seeking to recycle capital into new vintages.

Exit activity has shown some improvement, with US$470 billion in PE exits announced year-to-date, a 40% increase from last year, according to EY. Yet, that figure still trails the levels needed to rebalance capital flows within the asset class.

A modest revival in the PE-backed IPO market has provided a glimmer of relief. More than US$18 billion in IPO proceeds were raised in Q3 2025—primarily concentrated in resilient sectors such as healthcare and financial infrastructure. These successful listings underscore the market’s selective appetite for high-quality growth stories but are insufficient to offset the backlog of un-exited assets.

Sectoral Divergences: Industrial, Consumer, and Healthcare Lag Behind

The drag on exits is not evenly distributed. Certain industries—particularly industrial, consumer discretionary, and healthcare—show the longest average holding periods, at 7.5, 6.6, and 6.4 years, respectively.

Industrial companies are facing uncertainty from geopolitical disruptions and trade volatility, which complicate valuation assessments and deter acquirers. Consumer discretionary businesses, meanwhile, are weighed down by weaker demand and inflation-driven margin pressures. In healthcare, structural factors play a role: roll-up strategies and regulatory uncertainty around public spending contribute to inherently longer hold times.

As Konstanze Nardi, Global Private Equity Readiness Leader at EY, points out, “Even moderately favorable conditions for M&A activity will push sponsors to transact.” That urgency stems from both macroeconomic normalization and investor impatience, which together are likely to spark a wave of exits in late 2025 and into 2026.

The Secondaries Market: A Pressure Valve, but Not Enough

The private equity secondaries market has emerged as a critical outlet for liquidity. Global secondaries dry powder reached $227 billion as of September 2024—an all-time high—yet experts suggest it still falls short of meeting demand. With approximately $155 billion in secondaries transactions executed in 2024, that dry powder equates to only about 18 months of dealmaking capacity.

The surge in secondary activity reflects both structural evolution and necessity. “Greater acceptance of secondary sales as a portfolio management tool” has met with a “shortage of traditional exit routes,” according to S&P Global Market Intelligence. Fund managers are increasingly turning to GP-led secondary processes, such as continuation funds, to provide liquidity to LPs without forcing suboptimal exits.

The momentum is evident in fundraising as well: $34 billion was raised for secondary vehicles in the first quarter of 2025—the highest quarterly total in two years. Over 215 secondaries funds were in market by mid-2025, a record number. Despite this growth, supply still outpaces available capital, constraining the market’s ability to fully relieve liquidity pressure.

Macroeconomic and Valuation Headwinds Persist

The widening valuation gap remains the central obstacle to normalizing exit activity. Even the latest interest rate declines, the interest rate shock of 2022–2024 recalibrated the pricing of risk, compressing expected returns and reshaping deal economics. Buyers are unwilling to match sellers’ legacy valuations, while PE sponsors resist markdowns that could damage fund performance metrics.

In certain sectors, such as telecom and media, outliers skew averages—some deals reflect holding periods as long as nine years. Across industries, uncertainty around regulation, trade, and interest rates continues to defer exit decisions.

Meanwhile, public market volatility has limited the appetite for large-scale listings, despite incremental reopenings in select geographies. Until greater alignment between buyer and seller expectations emerges, holding periods are likely to remain elevated.

Outlook: A Measured Thaw Ahead

The remainder of 2025 could mark the beginning of a gradual thaw in liquidity conditions. EY’s analysts anticipate that as inflation stabilizes and financing costs moderate, sponsors will regain confidence to execute exits. Yet, this recovery will be uneven—favoring companies with resilient cash flows, low leverage, and clear growth trajectories.

In parallel, secondaries activity will remain a vital outlet, enabling LPs to rebalance portfolios and recycle commitments. For GPs, the challenge lies in balancing portfolio optimization with capital return obligations—a dynamic that will define the next chapter of private equity’s evolution.

The pressure may persist, but it is also forcing innovation. From continuation vehicles to creative recapitalizations, PE firms are adapting to a new normal—one where liquidity is no longer assumed but must be engineered.

Sources & References

Peter Witte, EY. (2025). Private Equity Pulse: key takeaways from Q3 2025. https://www.ey.com/en_gl/insights/private-equity/pulse