Key takeaways
The recovery is uneven. Capital and exit value are concentrating at the top, not recovering across the market.
LP constraints drive consolidation. Overallocated investors are backing fewer managers, not better ones.
CVs need clear communication. LP scrutiny of continuation vehicle rationale is rising as disclosure requirements fall.
Preparation wins the re-up. Fundraising is decided between cycles, not during them.
The market has split, not recovered
PE-backed IPO exit value nearly doubled in 2025. Deal value hit $2.6 trillion, a 19% increase. By most headline measures, a recovery is underway. Yet in the same year, the top ten US PE funds captured 46% of all capital raised — the highest concentration since 2014. Exit value rose, but exit count fell 15%. The recovery is real. It is not evenly distributed. And the mechanisms driving concentration are not the ones a recovering market will fix.
The IPO window is open, but the threshold has moved
The 2025 IPO recovery is real but narrow. Sponsor-backed listings represented just 8% of deal count yet generated 36% of global IPO proceeds. In the US, nearly a dozen deals raised over $1B, accounting for the bulk of the $47.4B in proceeds, up from $33B in 2024. The market below that threshold hasn't materially changed.
Smaller listings aren't underperforming because of sentiment. They're structurally disadvantaged:
The $500M–$1B IPO cohort posted a 99.7% weighted average price increase; at 2024 year-end; the $50M–$100M cohort posted a 31.5% decrease
The number of listed US companies has halved since 1996, and brokerage consolidation has made research coverage for smaller listings uneconomic
A recovering market doesn't fix either of those conditions
For GPs, the consequence is that timing an IPO is no longer the central planning variable. Scale, sector, and LP-visible momentum all function as pre-conditions for whether the window is genuinely open for a given asset. A GP whose exit optionality rests primarily on IPO readiness is increasingly read by allocators as under-prepared, not unlucky.
Continuation vehicles solve one problem and surface another
Private equity is sitting on a record backlog — 32,000 unsold companies valued at $3.8 trillion as of early 2026, with more than half of buyout-backed assets held for four years or longer. The improving exit headlines don't resolve this; they reflect a small number of large transactions clearing while the broader inventory keeps growing.
Continuation vehicles have become the industry's primary pressure valve. Around 1 in 5 PE exits in H1 2025 went through CVs, and their risk-adjusted track record is defensible: a 9% loss ratio compared to 19% for buyouts. But volume alone doesn't signal LP approval. Three dynamics are making the tension harder to ignore:
In a recent ILPA webinar poll, more than 60% of LP participants said they preferred traditional exits even at a discount to CV valuations
The Fifth Circuit's 2024 decision removed mandatory fairness-opinion requirements, reducing GP disclosure obligations at exactly the moment LP scrutiny is sharpening
The FCA has separately flagged conflicts of interest in GP-led transactions as an active area of review
LPs are increasingly factoring CV governance into how they assess a GP's judgment overall. How a GP communicates the rationale for a CV — why it was chosen over a strategic sale, what governance protections are in place — is not a secondary consideration.
Secondary investors and LPs are actively distinguishing between CVs structured to capture long-term value and those structured to manage distribution pressure under duress. That distinction lives in the communication as much as the structure.
Why LPs are consolidating, and what GPs get wrong about it
The standard explanation is that investors are "flying to quality." That's only part of the story. LPs don't have much cash to deploy. Distributions as a share of NAV fell to 11% in 2024 — the lowest rate in over a decade, down from a 29% average a decade earlier.
When existing portfolios aren't returning capital, investors can't freely commit to new relationships, regardless of how interested they are. At end-2024, nearly half of LPs reported being overweight PE already. There's no room to add.
The result: capital flows to whoever is already on the approved list. Mega-funds captured 49.2% of US PE capital in 2025 — the highest share since 2008 — not because smaller managers got worse, but because LPs are consolidating to fewer relationships when bandwidth is tight.
What LPs are actually evaluating when they do have capacity is whether a GP has returned real cash — DPI, not paper marks. GPs who have distributed capital consistently are getting faster re-up conversations. Those who haven't are getting polite deferrals.
The practical consequences for IR:
The fundraising conversation doesn't start when the fund launches — by that point, LPs have already formed a view.
The managers closing fastest are the ones who maintained consistent, substantive contact between cycles, not the ones with the best deck.
That relationship infrastructure takes 12 to 18 months to build and can't be compressed into a roadshow.
Smaller deals are getting less attention and better prices
While mega-deal value hit record levels in 2025, the middle market had its weakest year since 2020. Fewer deals, less competition, and less institutional attention. That's not just a difficult environment — it's also where assets are more likely to be mispriced.
When capital concentrates at the top, everything below it gets less scrutiny and trades at a discount. That discount isn't always justified. Deal multiples for larger transactions far exceed those of smaller deals, and the swelling pool of capital targeting large assets has driven entry valuations higher while compressing the room for operational improvement.
Smaller managers who source deals directly outside bank-run auctions can access that mispricing. Their edge is real, but it only exists at a certain scale. Smaller PE funds built their track records on proprietary deal sourcing and direct founder relationships. When they moved upmarket during the fundraising boom, they found themselves competing in bank-run auctions against better-capitalised firms for the same assets. Many are now pulling back, which is less a retreat and more a return to where their actual advantages sit.
Some allocators have already noticed. Family offices with flexible mandates are among the most PE-heavy LP segments, allocating an average of 22% of assets to private equity, and unlike pensions they aren't constrained by formal pacing models that lock them into established manager lists. Many are actively looking below the mega-fund threshold because they understand that concentrated capital at the top compresses future returns in that segment.
The challenge for smaller managers is articulation in the space of opportunity, giving a precise account of where the return sits, how access to it is maintained, and why it can't be replicated at a larger scale. That case needs to be clear in the materials, too. An allocator taking it to their investment committee needs to be able to make the argument without the GP present.
Bottom line: Preparation often beats timing
The GPs best positioned for the next cycle have stopped treating fundraising as an event. LP relationships are maintained between cycles, not activated at fundraise, and the quality of investor communications between raises is now one of the clearest signals allocators use to separate conviction from pitch.
For managers competing below the mega-fund threshold, the sourcing mechanism, the competitive moat, and the reason returns are accessible at that end of the market need to be named explicitly in investor-facing materials.
Capital flowing to the top of the market leaves a valuation gap below it, and that gap is not always earned. Which side of that trade a manager ends up on has less to do with market conditions than with how clearly and consistently they've positioned themselves before the cycle opens.
If you're preparing for a raise or reviewing how your current materials communicate your edge, Collateral Partners works with fund managers on the investor communications and positioning infrastructure that makes that positioning legible to allocators before the fundraise begins.
