The Liquidity Drought Forces a Reset | Private Markets Midyear Review

What's New: 

Private equity has a cash problem, not a returns problem. Annual distributions have been stuck at 8 to 10 percent of NAV over the past three years, versus a 20 percent historical norm, ever since the Fed's 500 basis point hike froze the exit pipeline.

Why It Matters: 

DPI, not IRR, now gates new fundraising. LPs are explicitly conditioning new commitments on prior fund distributions, meaning GPs without cash to show, regardless of paper returns, will struggle to raise their next vehicle.

Big Picture Drivers:

• Secondaries graduated to a standalone asset class. Goldman's Harold Hope notes the market has grown 100x in a decade, with a path to double again within three to five years.

• Credit secondaries are the fastest growing sleeve. GP led deals now account for the majority of that volume, up sharply from 2024.

• The fundraising barbell is hardening. Mega funds captured the overwhelming majority of H1 2025 capital raised, squeezing the middle market.

• Europe is re-rating without solving DPI. Pre money valuations jumped sharply even as the underlying distribution problem persists.

By The Numbers:

• 8 to 10 percent: annual distributions as a share of NAV, versus a 20 percent historical norm

• $500 billion: projected secondaries market size within three to five years

• 89 percent: share of H1 2025 PE capital raised captured by funds over $1 billion

• 121.9 percent: year over year jump in European PE backed pre money valuations

Key Trends to Watch:

• Secondaries pricing compresses as volume scales. Watch percent of NAV pricing specifically; that compression, not headline volume, is the real sign the market is absorbing supply rather than just growing.

• Middle market consolidation accelerates. A barbell this pronounced typically resolves through M&A between managers, not organic recovery for the squeezed middle.

• European exits, not valuations, are the real test. A re-rating without actual exit activity is a paper gain that does nothing for the DPI problem driving this entire theme.

• GP led share of credit secondaries keeps climbing. A move past 70 percent would confirm credit secondaries are structurally converging with PE secondaries rather than remaining a distinct niche.

The Wrap: 

DPI just replaced IRR as the only number LPs actually believe. GPs that cannot produce cash, not just marks, will find 2027 fundraising a lot harder, and secondaries are now permanent infrastructure, not a break glass option.