The Era of “Illiquid for Longer” in Private Equity

Navigating Liquidity, Valuation, and Risk

When exits slow down, everything else starts to feel tighter. That is where many sponsors are today. In this article, the authors discuss the reasons for the longer exits and ramifications.

Private equity runs on exits. When exits slow down, everything else starts to feel tighter: fund timelines, liquidity planning, and even conversations with investors. That is where many sponsors are today. Exits are taking longer, buyers are tougher on price, and financing is not as easy as it used to be, so more companies are staying in portfolios past the “normal” timeline. That means slower distributions, more pressure from limited partners (LPs), and more questions about when liquidity will arrive, not just how well the assets are performing. When holds stretch out, valuations carry more weight, liquidity plans get more complicated, and governance matters more because everyone is paying closer attention.

A Longer Hold, A Different Equation

The invest–grow–exit playbook still works, it is just taking longer. When a deal drags on, time starts to work against returns. Internal rate of return (IRR) slips, even if the company is performing, fund extensions become more likely and LPs start recalibrating expectations for when they see cash back. At the same time, last year’s valuation assumptions do not hold up for long; exit multiples move, comparables change, and financing terms shift. That is why longer holds force a hard look at quarterly marks. If the model is not updated for today’s market and a more realistic exit timeline, you end up defending numbers that feel outdated.

GP–LP Dynamics in an Illiquid World

Illiquidity does not stay confined to the portfolio. It shows up in investor discussions. LPs are paying closer attention to two things: when they will see distributions and whether valuations reflect the market, not the past. Many are also watching their overall allocation to illiquid assets, especially if they are dealing with the denominator effect or have competing capital needs across their portfolios.

General Partners (GPs), meanwhile, are managing a balancing act:

• Meeting fiduciary obligations to all investors
• Protecting long-term value in portfolio companies
• Addressing near-term liquidity expectations

When distributions slow, the quarterly valuation mark attracts much more attention. LPs are not asking for a technical definition of fair value; they want to know what changed, what you are comparing it to, and whether the timing of an exit has slipped in the model.

Liquidity Tools: Continuation Vehicles and Dividend Recaps

With traditional exits harder to time, sponsors are turning to structures that can create liquidity without forcing a sale in a weak market. Two of the most common are continuation vehicles and dividend recapitalizations, both of which entail valuation and risk considerations that warrant attention.

Continuation Funds and Vehicles

Continuation vehicles/funds (CVs) take one or more portfolio companies out of the current fund and transfer them to a new special-purpose vehicle or fund. LPs usually get a choice: take cash now or stay in and roll their interest into the new deal. They can work well when the assets are performing but need more time. Still, they raise questions quickly, especially since the GP is also setting the terms. Investors want to know whether the price makes sense for both sellers and rollover investors, whether the fees and carry are reasonable, and what guardrails are in place to keep the process fair. That is why these deals often rely on an independent third-party valuation.

Dividend Recapitalizations

Dividend recaps borrow money to pay investors while the fund keeps its stake. They can put cash back in LPs’ hands without selling the company, but they also load the business with more debt, and boards and lenders pay close attention to that tradeoff.

The questions they are asking are straightforward:

• Can the company service the new debt?
• Does the recap leave enough cushion for downturns?
• Is the company still solvent after the transaction?

Those questions often lead to a solvency analysis.

Governance, Legal Risk, and the Need for Independence

Longer holds and more complex transaction structures tend to invite greater scrutiny from investors, auditors, regulators, and, sometimes, litigators. GP-led transactions and related-party deals naturally raise conflict-of-interest concerns. On top of that, the current market can make it harder to pin down fair value. Fewer comparable transactions and wider valuation ranges give stakeholders more room to question whether marks are reasonable. That is why rigor matters and so does independence.

Moving Forward in an “Illiquid for Longer” Era

This does not look like a short-term detour. Many sponsors are planning for extended holds, slower exits, and heightened investor expectations for transparency.

A few realities stand out:

• Valuations need to stay current and reflect today’s market; not the underwriting case from years ago.
• Clear communication builds trust when distributions slow and timelines stretch.
• Independent analysis reduces risk when transactions are complex or conflicts could be perceived.

How Valuation Experts Can Help

Valuation experts can work with sponsors, portfolio company boards, and investors to support decision-making in extended-hold environments and complex liquidity events.

• Reassess portfolio valuations using current market data and more realistic exit timing assumptions to support financial reporting and investor communications.
• Provide independent views on fund extensions, secondary transactions, and recapitalizations so stakeholders are working from a consistent, defensible set of facts.
• Support continuation vehicles with independent valuations and fairness opinions grounded in market data, comparable deals, and scenario-based alternatives.
• Evaluate dividend recapitalizations and other leveraged transactions with solvency analyses/opinions focused on asset coverage, cash flow sufficiency, and capital adequacy.
• Strengthen valuation governance through objective analysis designed to hold up under investor, audit, and regulatory scrutiny.

This article was previously published in CBIZ Insights, December 18, 2025, and is republished here by permission.

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Faisal Lakhani, CFA, is a Managing Director at CBIZ where he is the leader of the firm’s Southeast valuation practice based in Atlanta. He specializes in providing independent valuation opinions, intangible asset purchase price allocations, goodwill, long-lived asset impairment testing, fairness opinions, portfolio company valuations, and complex derivatives and securities valuation, among other valuation services.

Mr. Lakhani can be contacted at (770) 858-4500 or by e-mail to Faisal.Lakhani@cbiz.com.

Tony Kancijanic, CFA, ASA, has extensive work experience in the financial industry. He started his career in 2004 as an Equity Analyst Intern at Argent Capital Management. In 2005, he joined CBIZ Valuation Group as a Managing Director and has continued in this role to the present.

Mr. Kancijanic can be contacted at (216) 242-0800 or by e-mail to Tony.Kancijanic@cbiz.com.