Key takeaways
$3.6T in unrealized value. 29,000+ companies competing for buyer attention.
Readiness beats patience. Prepared assets move faster through compressed windows.
Exit channels have multiplied. Choosing the right one requires advance planning.
Exits signal GP quality. LPs now judge managers on how they sell.
The exit backlog reshaping how managers think about timing
Private equity is sitting on $3.6 trillion in unrealized value across more than 29,000 unsold portfolio companies. Hold periods have stretched to six years, yet the industry's dominant instinct remains the same: wait for better conditions to arise.
The problem is that for a growing share of the portfolio backlog, waiting has become its own form of risk. The managers increasingly capturing value tend to be the ones who treat exit timing as an operating capability rather than a market call.
The $3.6 trillion backlog that changed the exit calculus
The numbers frame the challenge. Over 12,900 PE-backed companies sat in sponsor portfolios as of Q2 2025, representing roughly nine years of exit activity at 2024's pace. Median hold periods for exited US companies peaked at seven years in 2023 before easing to six years in the first half of 2025, still well above the pre-pandemic average of 5.2 years.
More assets competing for fewer windows
Sponsors continued buying at roughly twice the rate they sold in 2025. That ratio improved from prior years but wasn't enough to shrink the backlog, and large 2021-2022 vintages are pulling down median portfolio age, potentially masking harder conditions for assets bought at peak pricing.
The practical effect: when a window opens, more companies are vying for the same buyers. EY's exit readiness research reinforces what that dynamic produces: firms with clean data, a tested equity story, and management teams ready for diligence move faster and capture stronger terms. Those still assembling the basics mid-process face compressed timelines and weaker pricing.
Why "wait for the peak" keeps failing
The default PE instinct in slow markets is patience, but for a meaningful portion of today's backlog, that logic is breaking down. Consider how quickly windows move:
Tariff announcements in April 2025 triggered a 24% drop in deal value and 22% decline in deal count within a single month.
The Q1-to-Q2 2025 reversal was equally sharp: exit values dropped 46.4% quarter-over-quarter, though that figure was amplified by the Venture Global LNG listing in Q1 that inflated the baseline.
Even adjusting for that outlier, the deceleration was material.
Fund-life pressure compounds the problem
The macro volatility plays out against structural constraints that patience can't solve:
Approximately 4,000 to 6,500 exits were delayed over the past two years due to inflation and rate instability, creating a queue that penalizes managers who aren't process-ready when conditions ease.
As of Q3 2025, US PE inventory stood at nearly 12,900 companies, with 30% held for seven years or longer and another 37% approaching mid-cycle maturity.
42% of GPs expect deals executed in 2025 to outperform those from the 2021-2022 peak, reflecting more conservative entry pricing. Looking into 2026, that confidence has broadened, with 72% of GPs expecting exits to rise, the highest reading since EY began tracking sentiment.
The implication for peak-vintage assets is less encouraging: if entry multiples were inflated, additional hold time doesn't automatically close the valuation shortfall, and the longer a manager waits, the more fund-life and LP-distribution pressure compounds.
Where exit readiness breaks down
Most PE firms recognize the importance of preparing for exits. Execution is where value leaks.
Up to 88% of firms undertake targeted exit readiness activities, yet 65% report difficulty fully capturing value creation initiatives in exit EBITDA. The data on why is equally revealing:
41% lack sufficient data granularity to support their equity story
72% cite inadequate financial and KPI data as a weakness in EBITDA robustness
63% identify the CFO lacking prior exit experience as a top challenge to the sale process
44% flag capital market strategy as an unresolved issue heading into a process
Nearly half of firms begin readiness assessments 12-24 months before a planned sale, but still encounter data and talent shortfalls that compress timelines and erode pricing.
The cost of readiness is real
Exit readiness absorbs GP bandwidth and spend, particularly around management preparation and data infrastructure, that could otherwise go toward growing the business.
But readiness built as a continuous operating practice, the kind that serves LP reporting, add-on diligence, and refinancing throughout the hold, compounds in ways that episodic, exit-triggered preparation can't replicate. The latter competes for resources and produces work products with a single use. The former creates infrastructure with multiple applications.
With 73% of PE firms expecting exit deal volume to increase over the next six months, firms that haven't invested in readiness face a narrowing window to catch up.
The expanding exit toolkit and what it means for timing
Until the last five or six years, the exit toolkit was narrower and the decision simpler. Now, the expanded toolkit has changed how managers can think about timing.
Continuation vehicles and secondaries have matured
Continuation vehicles represented 14% of global PE exits in 2024. In the US sponsor-backed market, that share rose to roughly one in five exits in H1 2025, amounting to $41 billion in deal value. Global secondary transaction volume hit $162 billion in 2024, with GP-led deals accounting for 44% of total volume.
In 2025, that figure surged to between $225 billion and $240 billion. Early performance data suggests continuation funds carry a lower loss ratio (9% vs. 19% for buyouts), though the sample is drawn from relatively recent vintages and may not yet reflect a full cycle.
Channel selection affects pricing directly
In 2023, strategic buyers paid an average 14.8x EV/EBITDA, compared to 13.2x from financial buyers. While the spread fluctuates by year and sector, the gap illustrates why channel selection affects exit outcomes. The same asset, marketed to different buyer types in different market conditions, can produce meaningfully different outcomes.
The proliferation of channels doesn't simplify the timing decision. It makes timing more complex and rewards managers who understand which channel to activate under which conditions, and who have the data, materials, and management readiness to move through whichever process they choose.
One important caveat: continuation vehicles are sometimes the right strategic choice for assets where the investment thesis is still playing out. Extended holds driven by clear rationale are fundamentally different from unintentional holds driven by lack of preparation.
Exit timing as a fundraising signal
In 2025, global PE fundraising fell to $407.5 billion, down from $611.6 billion the prior year, and fund closes hit their lowest count in over a decade. In that environment, demonstrated exit execution carries more weight in re-up conversations than it has in recent memory.
The credibility problem is structural. Distributions as a percentage of NAV have fallen to historic lows even as portfolio NAV has tripled over the past decade. LPs are placing more scrutiny on exit track records than at any point in recent cycles. The ability to identify a window, prepare the asset, and execute the process, all while articulating the rationale clearly, has become a visible factor in allocation decisions.
How a manager exited the last fund now tells LPs as much about judgment as how they entered. Managers who can walk allocators through the reasoning behind exit timing, the preparation that preceded it, and the communication infrastructure that supported it are sending a signal about capability that extends beyond the current fund.
What fund managers can do now
Exit readiness compounds when it's built into how a portfolio operates, not assembled under deal pressure. Five ways to put the thesis into practice:
Treat readiness as a continuous function, not a 12-month project. Integrate value creation documentation, KPI reporting, and equity story testing into quarterly operating reviews. The infrastructure serves LP reporting and add-on diligence throughout the hold, so it's never single-use.
Build a buyer-lens view of every portfolio company now. In a crowded exit market, competitive exits go to the best-prepared asset. Run mock diligence sessions annually, not when a process launches, to surface and close pricing risks early.
Map each asset to its optimal exit channel before the window opens. With exit channels multiplying, channel selection rewards advance planning over reactive pivoting.
Quantify value creation in exit EBITDA terms, not narrative terms. Maintain a rolling EBITDA bridge that tracks operational improvements, add-on contributions, and margin expansion in terms a buyer's diligence team can verify.
Make exit execution part of the fundraising narrative. With fundraising at decade lows, how a manager timed, prepared, and communicated the last exit carries real weight in follow-on allocation discussions. Document the decision-making process so IR teams can present it as evidence of judgment.
The bottom line
The PE exit market is entering 2026 with stronger momentum than it's had since before the pandemic. Deal value rose 57% in 2025, 72% of GPs expect exit activity to climb further, and secondary volume surged past $225 billion. The market is reopening, but the backlog ensures it won't be uncrowded.
In that environment, the quality of exit materials and the coherence of the value creation story will increasingly separate premium pricing from diluted terms. The fundraising climate makes the stakes clear: LPs are watching how managers execute exits as closely as they watch returns.
Collateral Partners works with fund managers to build the transaction-ready materials and investor narratives that support exits, fundraising, and LP communication. If your portfolio includes assets approaching an exit window, get in touch.
