When Traditional Paths Stall, Creative Liquidity Steps In

According to our latest Proprietary Survey (N=110), alternative liquidity tools are moving from niche to mainstream and not just among sponsors.

The question was simple:

“Beyond traditional exits, which alternative liquidity strategy is your firm most interested in exploring?”

The answers tell a story of financial engineering becoming strategic necessity.

The Context: A Cooling Exit Market

Before diving into liquidity innovations, it’s worth looking at the backdrop.
S&P data shows that private equity-backed exits have sharply declined from their 2021 peak of $780B to just $236B in H1 2025.

Trade sales remain the dominant exit path, but IPO and private placement volumes are at multi-year lows, reflecting a persistent disconnect between sponsor valuations and public market appetite. With traditional routes constrained, firms are being forced to manufacture liquidity rather than wait for it.

The New Playbook for Liquidity

Across all respondents, the field is fragmented, but dividend recaps (27%) and preferred equity solutions (25%) lead the pack. These tools let sponsors and corporates tap embedded value in portfolio companies without waiting for M&A conditions to improve.

NAV-based financing (20%), once considered a specialist instrument, now represents a credible third option. Firms are leveraging fund-level NAV loans to extend hold periods, finance bolt-ons, or backstop distributions when LP pressure mounts.

Structured and secondary strategies follow, with cross-fund deals (19%) and partial secondary or strip sales (9%) rounding out the mix. Together, they signal that fund managers are increasingly willing to trade complexity for flexibility.

How Different Players See It

• Bankers lean heavily toward dividend recaps (29%) and preferred equity (26%), consistent with their role in arranging credit solutions.
  With leverage markets stabilizing, recapitalizations are once again viable, though still more selective than in 2021.
  

• Consultants show a more diversified outlook: 35% cite cross-fund or structured deals as their top area of interest, reflecting advisory work around GP-led transactions and fund restructuring.
  

• PE sponsors, unsurprisingly, are gravitating toward cross-fund deals (31%), as firms explore liquidity within their own portfolios. The growth of continuation vehicles and strip sales has blurred the line between holding and exiting, a hallmark of the modern PE cycle.
  

• Corporate development teams stand apart: 38% prioritize preferred equity solutions, underscoring their focus on flexible capital partnerships over debt-heavy recaps. For corporates balancing capital efficiency with growth, structured equity offers a way to stay in control while bringing in cash.

A Market Redefining “Exit”

The message is clear: liquidity is no longer synonymous with sale.
Between preferred equity, NAV financing, and continuation funds, firms are building an arsenal of interim liquidity levers to bridge the gap between uncertain exit markets and rising investor expectations.

What was once a toolkit for distressed situations is now a strategic liquidity stack, allowing sponsors, corporates, and advisors alike to reshape timelines, optimize returns, and stay agile amid a slower deal environment.