The Great Lockup

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🧠 THE BIG IDEA

The Great Lockup

Private equity's exit machine just hit a wall. The industry is buying three companies for every one it sells—a 3.14-to-1 ratio that marks the highest imbalance in a decade. More than half of all active PE funds globally have crossed the six-year mark, with timelines stretching toward 15 or 16 years instead of the traditional 10.

Johns Hopkins instructor Jeff Hooke has coined the term "zombie funds" for these aging vehicles. Nearly half of institutional investors surveyed by Coller Capital find themselves exposed to funds with little hope of full liquidity—a reality that would have seemed impossible just five years ago.

The paradox becomes clear when you consider the $1.6 trillion in dry powder still hunting for deals. Capital keeps flowing into an industry that increasingly can't provide the returns it promised when it promised them. This isn't patience—it's a fundamental rewiring of how private equity operates.

📈 MARKET MOVERS

• 🏛️ Trump Signs Executive Order Opening 401(k)s to Private Equity
  President Trump's August 7 order directs federal agencies to ease inclusion of private equity and crypto in retirement plans, targeting the $12 trillion employer-sponsored market. The order specifically aims to reduce litigation risks that have kept plan sponsors away from alternatives, with only 2.4% currently offering private equity access. Read the details →

• 🏢 Carlyle Closes Record $9 Billion Real Estate Fund
  Carlyle Realty Partners X raised $9 billion despite "one of the most difficult fundraising environments for real estate in recent memory," marking a $1 billion increase over its predecessor fund. The strategy focuses exclusively on residential, self-storage, and industrial assets while avoiding office and retail sectors entirely.
  View the analysis →

• 🎬 RedBird's $2 Billion Bet Powers Paramount-Skydance Merger
  The $8.4 billion Paramount-Skydance deal closed with RedBird Capital providing $2 billion and securing 22.5% of voting rights. CEO Gerry Cardinale positions the firm as an "IP monetization engine," promising to cut content production costs by half while leveraging Paramount's century of entertainment assets. Get the insights →

🔍 DEEP DIVE

The Great Lockup: How PE's Exit Crisis Became the New Normal

Private equity once operated on a promise: buy companies, improve them over 5-7 years, then sell via IPO or strategic sale. That model assumed exit options would always exist. In 2025, those assumptions look quaint.

When Math Becomes Reality

PitchBook data tells a stark story. PE firms continue buying and investing in more companies than they can sell, with the investment-to-exit ratio climbing from 2.6 times in 2024 to 3.14 times this year. Over half of all active PE funds globally are now six years or older, up from 52.2% at the end of 2024.

Portfolio companies bear the brunt of this shift. The median age of active PE-backed businesses in the U.S. has reached 3.8 years—the highest level since 2011. These aren't distressed turnarounds requiring extra time. They're investments that should be ready for harvest but can't find buyers at acceptable prices.

Exit activity slowed in 2022 but accelerated after Trump's tariff announcements in April. Kyle Walters, a PE analyst at PitchBook, explains: "The drought in exits really took shape post-Liberation Day." Policy uncertainty created a murky outlook for buyers and sellers alike.

Here's the crucial insight: private equity promised liquidity premiums by being illiquid temporarily. Now it's discovering that "temporary" can stretch beyond anyone's investment horizon. Higher interest rates killed IPO markets while strategic buyers became selective about valuations. Goldman Sachs' Harold Hope identifies the core issue as a "valuation gap" between what PE managers think companies are worth and what buyers will pay.

The Institutional Squeeze

Coller Capital's research exposes the scope of the problem. Nearly half of institutional investors find themselves locked into zombie funds—vehicles that collect fees while managing aging assets with no clear exit strategy. Jeff Hooke describes the predicament: "A zombie fund might still have four or five companies they can't sell. So the fund is just kind of hanging around."

Pension funds and endowments committed capital expecting returns after 10 years. Instead, they watch funds extend to 15 or 16 years while continuing to collect management fees. LPs who showed patience during previous market disruptions are now choosing to sell portions of PE portfolios to secondary funds rather than wait indefinitely.

Portfolio companies face their own challenges under extended ownership. Management teams recruited for 5-7 year transformations find themselves running the same businesses for a decade or more. Strategic initiatives get delayed when exit timelines become uncertain.

This creates operational drift that compounds the liquidity problem.

The industry's adaptation reveals both creativity and necessity. Continuation funds have emerged as GPs "sell" portfolio companies to new funds they also manage, giving existing LPs choice between immediate cash or continued exposure. While these vehicles provide liquidity, they represent PE creating internal markets when external ones fail.

Alternative strategies are gaining traction among managers. Jonathan Hahn at NorthStar Capital observes: "Rolling up and constantly putting equity into larger deals is not something we find attractive going forward." His firm launched a public equities fund, noting that investors increasingly question why they'd choose private markets when public markets offer similar returns with superior liquidity.

Structural Evolution in Motion

The $1.6 trillion in global dry powder creates a market paradox. Capital continues flowing into private equity despite exit challenges, meaning the asset class that once promised liquidity premiums now delivers the opposite while still attracting record commitments.

Scale provides some insulation from these pressures. Larger firms like KKR and Apollo manage better through diversified revenue streams and multiple exit options. Smaller, middle-market firms face more challenging investor conversations when deals stall. As Hahn notes: "They rely on those deals for cash."

Industry leaders increasingly frame this transformation as evolution rather than crisis. PE is adapting to operate with longer hold periods, alternative liquidity mechanisms, and LPs who view private markets as permanent allocations rather than tactical investments. The question isn't whether this model works—it's whether it's what investors originally signed up for.

🧰 TACTICAL TAKEAWAYS

• Evaluate GP continuation fund policies before committing by analyzing their historical use of these vehicles, LP approval processes, and transparency around conflicts between managing both sides of transactions in aging fund portfolios.

• Plan for extended hold periods when modeling PE allocations by assuming 12-15 year fund lives rather than traditional 10-year timelines, particularly for middle-market strategies where exit options remain limited compared to mega-deals.

• Monitor secondary market opportunities as LP impatience creates selling pressure in quality funds with strong underlying assets but extended timelines, potentially offering entry points at discounts to net asset values.

🧵 WEEKEND READS

(Because some light market analysis pairs wonderfully with Saturday coffee)

• 💰 Family Office Deal-Making Slides 60% Amid Tariff Uncertainty
  CNBC reports family offices made only 42 direct investments in July, down nearly 60% year-over-year, as Trump's tariff policies create deal-making hesitation. Nearly one-third of remaining investments went to European companies as American family offices increasingly look overseas for opportunities.
  Read the strategy →

• 🤖 AI Creates Billionaires at Record Pace with $2.7 Trillion in Unicorns
  The artificial intelligence boom has minted dozens of new billionaires through 498 AI unicorns worth $2.7 trillion combined, with 100 founded since 2023 alone. CNBC examines how this wealth creation exceeds previous tech waves while remaining concentrated in Silicon Valley's ecosystem.
  View the analysis →

• 🏛️ Institutional Ownership Hits 88% at Defense Contractor Chemring
  Simply Wall Street analyzes how institutions control nearly 90% of UK defense firm Chemring Group, with BlackRock, Schroder, and Vanguard as top shareholders. The concentration demonstrates institutional appetite for defense exposure amid global spending increases and supply chain reshoring trends.
  Get the insights →

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The OneFund Team

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