As the global exit environment continues to tighten in 2025, private equity firms are increasingly facing a prolonged capital commitment cycle.
What was once a five-year average holding period has now expanded beyond six years for many firms, creating both challenges and opportunities as managers recalibrate their strategies to support aging portfolios.
As Andrea Auerbach, global head of private investments at Cambridge Associates, told affiliate title PE Hub earlier this year, there is now a confluence of events where “LPs aren’t getting the distributions that they expected, GPs are coming back to the market to fundraise and LPs are saying, ‘We need those distributions.’”
It’s a vicious cycle from which many GPs are rightly keen to escape.
The New Normal
According to data from Bain & Company’s 2025 Outlook report, the average PE holding period stood at 6.1 years in 2024, continuing a steady upward trajectory that began in 2015. This can be attributed to an ongoing valuation mismatch between sellers and buyers in recent years, compounded by elevated interest rates and geopolitical uncertainties.
These headwinds continue to stall exit activity, Bain data reveals. While 2024 exit values rebounded 34 percent year-on-year to $468 billion, this level remains materially below the record volumes of 2021 ($855 billion) and 2022 ($594 billion). The pace of IPOs, trade sales and sponsor-to-sponsor deals has dropped markedly, as sponsors struggle to find buyers willing to meet 2021 peak valuations.
The stalling exits market is having some significant knock-on effects, too. For instance, despite sitting on a record $1.2 trillion in dry powder, private equity firms are now facing a significant cashflow crunch. Without timely exits, firms are now challenged to support legacy assets while delivering returns. As of Q1 2025, more than $4 trillion in unrealized assets remains on fund books, according to EY, with approximately 40 percent of investments older than four years.
With limited dry powder remaining in older funds, a lack of recyclable capital due to a decrease in exits, and a preference for avoiding having to support older portfolio companies with capital from newer funds (“cross-funding”), sponsors are in dire need of alternative solutions. In this environment, generating IRR without the benefit of capital recycling has become increasingly difficult.
NAV Loans Move To The Forefront
Faced with this crunch, PE firms are increasingly turning to net asset value-based lending to preserve and grow portfolio value. Once a niche strategy, NAV lending has quickly become a mainstream solution in 2024 and 2025, as firms seek flexible capital alternatives.
Structured against the unrealized value of existing portfolio assets, NAV loans enable sponsors to finance their working capital needs, fund follow-on investments and acquisitions, and provide support capital for portfolio companies requiring liquidity. These facilities have become critical in supporting portfolio companies without resorting to dilutive equity injections or distressed asset sales.
Rede Partners’ 2025 survey noted the quantum of NAV financings experienced a 144 percent increase from 2023 to 2025, with mid-2025 showing a notable uptick in activity. Large credit funds, insurance companies and alternative lenders are entering the space, attracted by strong collateral coverage and rising demand from GPs.
Structurally, NAV facilities are evolving too, developing ever greater sophistication. Lenders are offering bespoke terms, including multi-asset collateral pools of all or a subset of the assets, as well as delayed-draw structures and covenants tailored to specific portfolio dynamics. This flexibility is making NAV-based credit attractive as a tool for proactive capital structure management.
The Secondaries Route
Alongside the growth of NAV lending, the secondary market has also taken off. In Lazard’s 2024 Market Report, the data reported secondaries volume had reached a record $152 billion in 2024, driven by LPs’ portfolio sales and GP-led transactions.
Continuation vehicles serve as complementary tools here, where sponsors are looking to hold onto high-performing assets for longer while also generating liquidity for investors.
NAV loans and continuation vehicles offer fundamentally different paths to liquidity. Whereas NAV loans provide quick, flexible capital without requiring asset sales – making them faster and less complicated – continuation vehicles are slower and more complex, allowing GPs to extend ownership of strong assets and realign incentives around new capital.
The choice often comes down to the amount required, the importance of speed versus a structural reset, agreement on valuation, and the specific needs of the portfolio and LP base.
However, the relative speed, scalability and discretion of NAV-based facilities are helping to position them as a preferred choice for many GPs facing time or market pressure.
"Generating IRR without benefit of capital recycling has become increasingly difficult"
Outlook For 2025 and Beyond
With signs of the IPO market reopening in late 2025, and US exit values rising 45 percent year-on-year through Q1, according to EY, some relief from the crunch may be on the horizon. Still, most managers are planning for extended hold periods and are integrating NAV-based solutions as a permanent fixture in fund management.
Even in strong M&A environments, NAV loans remain valuable tools for addressing interim capital needs, enabling sponsors to fund follow-ons, bridge timing gaps or enhance portfolio company growth without relying on the capacity constraints of their fund commitments. In short, NAV loans provide sponsors with greater optionality.
According to PwC, market stabilization and renewed buyer confidence may restore broader exit opportunities by 2026. Until then, and even looking further ahead, GPs that are able to employ NAV lending and other liquidity tools proactively may well find themselves better positioned to maintain overall portfolio health – and ultimately deliver on those vital return expectations.
The Secondaries Route
Alongside the growth of NAV lending, the secondary market has also taken off. In Lazard’s 2024 Market Report, the data reported secondaries volume had reached a record $152 billion in 2024, driven by LPs’ portfolio sales and GP-led transactions.
Continuation vehicles serve as complementary tools here, where sponsors are looking to hold onto high-performing assets for longer while also generating liquidity for investors.
NAV loans and continuation vehicles offer fundamentally different paths to liquidity. Whereas NAV loans provide quick, flexible capital without requiring asset sales—making them faster and less complicated—continuation vehicles are slower and more complex, allowing GPs to extend ownership of strong assets and realign incentives around new capital.
The choice often comes down to the amount required, the importance of speed versus a structural reset, agreement on valuation, and the specific needs of the portfolio and LP base.
However, the relative speed, scalability and discretion of NAV-based facilities are helping to position them as a preferred choice for many GPs facing time or market pressure.
“Generating IRR without the benefit of capital recycling has become increasingly difficult.”
Outlook for 2025 and Beyond
With signs of the IPO market reopening in late 2025, and US exit values rising 45 percent year-on-year through Q1, according to EY, some relief from the crunch may be on the horizon. Still, most managers are planning for extended hold periods and are integrating NAV-based solutions as a permanent fixture in fund management.
Even in strong M&A environments, NAV loans remain valuable tools for addressing interim capital needs, enabling sponsors to fund follow-ons, bridge timing gaps or enhance portfolio company growth without relying on the capacity constraints of their fund commitments. In short, NAV loans provide sponsors with greater optionality.
According to PwC, market stabilization and renewed buyer confidence may restore broader exit opportunities by 2026. Until then, and even looking further ahead, GPs that are able to employ NAV lending and other liquidity tools proactively may well find themselves better positioned to maintain overall portfolio health—and ultimately deliver on those vital return expectations.