“There are entire sectors like private equity, like real estate, that are constipated. They can’t sell.” – Victor Khosla – Founder of credit investor Strategic Value Partners at SuperReturn Berlin 2026
Capital that cannot circulate starts to decay. In private markets, the inability to sell assets on a reasonable timetable is no longer a cyclical annoyance but a systemic constraint shaping strategy, governance, and even the survival prospects of whole franchises.1 Funds that once relied on brisk exits to prove their worth and raise ever larger vehicles are now confronting portfolios that linger, values that look aspirational rather than realisable, and investors whose patience is being measured in years rather than quarters.1,3 The blockage is not confined to a few misjudged deals; it runs through core sectors such as buyouts and real estate, where the exit machinery that underpinned the boom has stalled.
The anatomy of a blocked exit pipeline
The immediate problem is mechanical: there are too many assets that were acquired at peak or near-peak valuations and too few buyers willing to pay prices that preserve those marks.1,3 During the era of cheap money, sponsors could rely on abundant leverage, aggressive growth forecasts, and liquid secondary demand to justify paying high multiples for businesses and properties.1 When policy rates rose and financing costs reset, the arithmetic that once supported these prices no longer added up, but the portfolios built on the old assumptions remained.1
Industry data show that the value of private equity sales has dropped by roughly a fifth in the recent period, even as the stock of unsold assets has accumulated.12 Managers are continuing to hold companies that, according to pre-2022 playbooks, would have been exited via trade sale, sponsor-to-sponsor deal, or IPO after a holding period of four to six years.1,3 Instead, those assets are being extended, refinanced, or shifted into continuation vehicles, often without crystallising the type of gains that limited partners had come to expect.10,12
The same blockage is evident in institutional real estate, where higher interest rates compress valuations and increase financing costs, particularly for leveraged, income-producing assets. Buyers demand discounts to compensate for uncertainty and higher yields, while sellers are reluctant to transact at prices that would lock in visible write-downs. The result is a bid-ask spread that is wide enough to choke off volumes, leaving many buildings and portfolios in a state of limbo: not obviously distressed, but not evidently worth prior valuations either.
Victor Khosla and the vantage point of distressed credit
From the perspective of distressed and opportunistic credit investors, the current blockage is as much an opportunity as a diagnosis of systemic strain.1,2 Victor Khosla, founder and chief investment officer of Strategic Value Partners (SVP), has built his franchise precisely around capitalising on moments when traditional owners can no longer carry assets or debt structures set up under rosier assumptions.2,5,8,14 SVP specialises in distressed and deep value situations across corporate credit, private equity, and special situations, giving Khosla a panoramic view of where pressure is building and how it may resolve.2,5,8
His characterisation of sectors such as private equity and real estate as effectively frozen speaks to more than a cyclical slowdown.1 It signals a view that many sponsors are trapped by their own historical decisions: valuations that were underwritten in a world of low discount rates and abundant leverage have become psychological anchor points that slow down the recognition of new realities. For opportunistic credit funds, that hesitation creates the potential for negotiated restructurings, discounted secondary trades, and control transactions once forced sellers emerge.
SuperReturn Berlin and the politics of liquidity
The comments arose at SuperReturn, the flagship gathering of the private capital industry in Berlin, where thousands of general partners and limited partners meet to negotiate, market, and assess the state of the asset class.1,3,6,9,15 This is not a neutral academic forum; it is where capital providers confront managers about delayed distributions, extended fund lives, and the apparent disconnect between reported valuations and observable exit outcomes.3,12 Against that backdrop, describing entire sectors as unable to sell pins the problem firmly on the supply side: sponsors unwilling to adjust, rather than a mysterious absence of buyers.
Several large buyout executives at the event emphasised that private equity will have to start capitulating on valuations to clear the backlog.1 The idea of capitulation implies not just incremental discounts but a recognition that the previous equilibrium on pricing was artificially supported by low rates and exuberant competition. For LPs, the politics of liquidity are now central. They entered the asset class on the promise of illiquidity premia and diversification, not of indefinite lock-up with opaque marks. Conferences that once celebrated record fundraising now feature sessions dedicated to portfolio liquidity, continuation vehicles, and secondaries as release valves.3,12
From virtuous cycle to negative feedback loop
In the boom era, private equity operated in a self-reinforcing loop. Strong distributions and mark-ups allowed LPs to recycle capital into new funds, which in turn justified higher fundraising targets and more aggressive deal-making. As long as exit markets remained open, the cycle sustained itself, even if leverage and valuations crept steadily upward. When exits slow materially, that virtuous loop can flip into a negative feedback process.
LPs with limited cash inflows from distributions become more selective, committing less to new vehicles or insisting on tighter terms and more conservative pacing.3,12 GPs, facing slower fundraising, are pressured to generate liquidity to preserve their franchise value, but they can only do so by selling assets at prices that may require write-downs. If they resist, they risk sliding into the category of so-called zombie funds: vehicles that hold ageing assets, charge fees, but generate little in the way of exits or performance fees.10
One can view the situation through a simple cash flow lens. Let CF_t represent the net distributions to LPs at time t, net of capital calls. In the expansion phase, many funds operated with patterns where CF_t \gt 0 for most post-investment years, allowing LPs to maintain or grow commitments without increasing their net exposure. As exits have stalled, CF_t has turned negative for many investors, even as their reported net asset value remains high. The resulting denominator effect, where private market allocations swell relative to public portfolios due to market moves and valuation lag, further constrains their capacity to recommit.
Real estate: the silent partner in the blockage
Real estate, especially in sectors affected by structural shifts such as offices and certain retail formats, amplifies this dynamic. Rising financing costs and changing usage patterns have forced investors to reassess long-term income assumptions. Yet many portfolios are still carried at values that assume moderate yield expansion and stable occupancy, rather than a more fundamental repricing. This creates a situation where transactions that would reveal more dramatic value adjustments are avoided, reinforcing the freeze.
For leveraged owners, the core equation linking asset values, loan-to-value ratios, and covenant headroom has shifted. If one denotes the market value of a property as V and the outstanding debt as D, covenants may require that D/V \leq L_{max}, where L_{max} is the maximum permissible leverage ratio. When values fall while debt remains fixed or only slowly amortising, owners can find themselves breaching or approaching breach, even when cash flows have not yet collapsed. This increases dependence on lender forbearance or restructuring and makes it harder to transact at realistic values without triggering technical defaults.
In turn, lenders and debt investors must choose between extending and pretending, injecting additional capital, or forcing asset sales into thin markets. Distressed and opportunistic funds are watching closely, as each of these choices can convert illiquid mark-to-model valuations into executable deals, often at prices that reflect distress rather than orderly value.
Strategic responses: write-downs, secondaries, and continuation funds
One of the major tensions highlighted by the current environment is between short-term reputational pain and long-term franchise survival. General partners who accept material write-downs today may suffer in near-term performance league tables and carried interest prospects, but they regain the ability to sell assets, return capital, and reset expectations.1,10 Those who hold onto legacy valuations may postpone the day of reckoning but risk compounding the problem as fund lives lengthen and LP pressure grows.
The secondary market has become a crucial adjustment mechanism. LPs seeking liquidity can sell their fund interests at discounts to net asset value, transferring the risk and potential upside of ageing portfolios to specialised buyers. Similarly, GP-led secondaries and continuation vehicles allow sponsors to extend ownership of particular assets while providing partial liquidity to existing investors. Yet these structures are themselves constrained by the same valuation debate: at what price should stakes be transferred, and to what extent should discounts acknowledge the illiquidity and uncertainty embedded in the asset?
Continuation funds in particular raise governance questions. When a GP sells an asset from one of its funds into a vehicle it also controls, conflicts become inherent. Independent fairness opinions and auction processes are used to mitigate these issues, but if underlying assets are marked aggressively, continuation transactions can be perceived as a way of avoiding the full recognition of market-clearing prices rather than a genuine value-maximising strategy.
Technological and structural drivers behind the blockage
Beyond interest rates and valuations, there are deeper technological and structural forces contributing to the logjam. In some sectors, especially software and digital infrastructure, business models that were once rewarded with very high growth multiples have shifted into slower, more cash-generative phases. Sponsors that underwrote deals on the assumption of sustained hyper-growth and rapid multiple expansion now face businesses that are solid but not explosive, making the exit case less straightforward.
At the same time, the rise of direct investing by large institutions, sovereign wealth funds, and family offices has altered the buyer universe. Some of these investors are less willing to participate in sponsor-to-sponsor trades at high multiples, preferring direct origination or co-investments where fees and governance are more aligned. This reduces one of the key exit routes that underpinned the previous boom, increasing dependence on trade buyers and public markets, both of which are sensitive to macro conditions and sector-specific narratives.
Advances in data and analytics, while powerful, also create more scrutiny. Prospective buyers now have access to richer operational and market datasets, enabling more granular stress-testing of revenue, margin, and cash flow scenarios. In a risk-off environment, such tools often lead to more conservative underwriting rather than more aggressive bidding, as buyers quantify downside scenarios more explicitly. The informational asymmetry that once allowed sellers to market a growth story with limited transparency has narrowed, making it harder to justify top-of-cycle valuations.
Debates and objections: is the problem overstated?
Not everyone accepts the narrative of pervasive constipation. Some argue that the industry is simply adjusting to a new rate regime and that exit volumes, while lower than peak, remain within historical norms when viewed over a longer horizon. They point out that selected sectors, such as energy transition, infrastructure, and certain niches in technology and healthcare, continue to see robust activity at sensible valuations. From this perspective, the blockage is concentrated in specific vintages and strategies that overreached, rather than an indictment of the asset class.
Others emphasise that the illiquidity of private markets is part of their design, arguing that an excessive focus on near-term exits risks undermining the long-term value creation thesis. They highlight cases where patient capital and operational improvement over extended holding periods have yielded strong outcomes, even without rapid flips. According to this view, pressure from LPs for faster distributions may be partly driven by their own allocation and liquidity management issues, rather than by an inherent failure of private equity or real estate strategies.
A further objection is that commentary from distressed and opportunistic investors is not disinterested. Those who stand to benefit from forced selling have an incentive to emphasise the scale of the problem and to urge capitulation on price. While this does not invalidate the diagnosis of a backlog, it suggests that statements need to be interpreted in the context of strategic positioning: what is a blockage for one segment of the market is a source of deal flow for another.
Why the blockage matters for the broader financial system
Despite those objections, the build-up of unsold assets in private equity and real estate has implications that go well beyond individual firms or funds. Institutional portfolios globally have significant exposures to private markets, often via defined benefit pension schemes, insurers, endowments, and sovereign funds. When exit channels narrow, these investors face a mismatch between their assumed liquidity profile and realised cash flows.3,4,7 For pension schemes in particular, the experience of backlogs in other risk-transfer markets, such as bulk annuity transactions, underscores how a crowded pipeline can delay strategic plans.4,7
If LPs find themselves over-allocated to illiquid assets for prolonged periods, they may respond by reducing future commitments, driving a downshift in fundraising across the industry. Managers with strong track records and differentiated strategies may adapt, but marginal players could struggle to survive, leading to consolidation or outright failures.1,10 Bank and non-bank lenders with significant exposure to leveraged loans and commercial real estate debt must also manage the risk that delayed exits extend credit risk horizons and increase the probability of restructurings or losses.
There is also a macroeconomic angle. When significant pools of capital are trapped in assets that cannot be repriced or redeployed efficiently, capital allocation across the economy becomes less dynamic. Companies that might benefit from new investment may struggle to attract it if capital remains locked in legacy deals, while real estate that could be repurposed or redeveloped remains under the control of owners reluctant to crystallise losses. Over time, such frictions can dampen productivity, slow the reallocation of resources, and hinder the adjustment to new technological and societal patterns of demand.
Paths to resolution: price discovery and structural change
Ultimately, resolving a systemic backlog in private markets requires price discovery. As more transactions clear at realistic levels, valuation benchmarks will adjust, and the psychological barrier to accepting lower prices will weaken. This process can be painful, particularly for vintages funded at the peak of the cycle, but it is a prerequisite for restoring the circulation of capital. Several mechanisms are likely to play a role.
First, a wave of consensual restructurings and recapitalisations can realign capital structures with current cash generation and asset values, often accompanied by new equity injections from opportunistic investors. Second, distressed sales triggered by covenant breaches, fund-life constraints, or lender pressure will provide transparent reference points for pricing, even if they occur under duress. Third, regulatory and accounting developments that encourage more conservative valuation practices can push managers to update marks closer to observable transaction levels, even in the absence of exits.
On a structural level, the industry may move towards vehicles with more flexible liquidity features, such as evergreen funds, listed private markets vehicles, or hybrid structures that blend open-ended and closed-ended characteristics. While such innovations cannot eliminate the fundamental illiquidity of underlying assets, they may distribute the timing risk more broadly and reduce the concentration of exit pressure at the end of traditional fund lives.
There is also scope for more integration between public and private markets. Dual-track processes, public-to-private cycles, and the use of listed feeders or co-investment vehicles can create additional degrees of freedom for sponsors and investors. However, these tools work only if public markets are themselves receptive and if valuations in public and private domains converge sufficiently to allow arbitrage-free transitions.
Why the metaphor resonates now
The characterisation of private equity and real estate as jammed speaks to a larger anxiety: that a model built on constant motion has met a structural speed limit. Years of easy money encouraged an expansion of private markets that outpaced the development of corresponding exit channels. As the cost of capital reset, the imbalance became visible. Whether the current phase is remembered as a temporary blockage or as the tipping point towards a smaller, more disciplined industry will depend on how quickly sponsors accept new pricing realities and how effectively capital can be redeployed.
For LPs, regulators, and policymakers, the episode is a reminder that illiquidity is not a passive characteristic but an active risk factor. Promises of double-digit returns and diversification benefits cannot be divorced from the practical question of when and how capital comes back. The answer, in the coming years, will depend on the willingness of managers to trade short-term discomfort for long-term viability, and on the capacity of specialised investors to absorb, restructure, and eventually recycle assets that others can no longer afford to hold.
References
1. “Private Equity Faces Reckoning With Struggle to Clear Buyout Backlog” – https://financialpost.com/pmn/business-pmn/private-equity-urged-to-capitulate-to-clear-buyout-backlog
2. Private Equity Faces Reckoning With Struggle to Clear Buyout Backlog – 2026-06-10 – https://www.bloomberg.com/news/articles/2026-06-10/private-equity-urged-to-capitulate-to-clear-buyout-backlog
3. Victor Khosla – Alternative Investment Management Association – https://www.aima.org/widgets/team_members/teamMemberDetails/?id=48AA2F07-8A34-4CB0-B8356966FA64D32B
4. Private Markets Elite Gather in Berlin With Not-So-Super Returns – 2026-06-08 – https://www.bloomberg.com/news/articles/2026-06-08/private-markets-elite-gather-in-berlin-amid-not-so-super-returns
5. The buyout backlog may leave many pension schemes needing a … – 2023-07-03 – https://www.pensions-expert.com/defined-benefit/the-buyout-backlog-may-leave-many-pension-schemes-needing-a-plan-b/64306.article
6. Victor Khosla – Milken Institute – 2025-05-05 – https://milkeninstitute.org/events/global-conference-2025/speakers/victor-khosla
7. SuperReturn International | Private Equity Event – Informa Connect – 2026-06-10 – https://informaconnect.com/superreturn-international/
8. Record buyout conversions fail to reduce growing insurer backlog – 2026-04-15 – https://www.reinsurancene.ws/record-buyout-conversions-fail-to-reduce-growing-insurer-backlog-barnett-waddingham/
9. Our Firm – SVP Strategic Value Partners – 2025-03-31 – https://www.svpglobal.com/our-firm/
10. SuperReturn International | Institutional Limited Partners Association – 2025-02-19 – https://ilpa.org/industry-event/superreturn-international/
11. The clog in PE’s exit pipeline is getting tougher to clear – 2026-03-13 – https://www.buyoutsinsider.com/the-clog-in-pes-exit-pipeline-is-getting-tougher-to-clear/
12. SVP’s Victor Khosla Sees ‘Lots of Pressure’ in Credit Market – YouTube – 2026-05-05 – https://www.youtube.com/watch?v=i5S-BeNaA_U
13. Private Markets Elite Gather in Berlin With Not-So-Super Returns – 2026-06-09 – https://www.wealthmanagement.com/alternative-investments/private-markets-elite-gather-in-berlin-with-not-so-super-returns
14. Clearing an M&A Integration Backlog in 6 Weeks – West Monroe – 2026-05-11 – https://www.westmonroe.com/client-results/clearing-an-m-and-a-integration-backlog
15. Our Team – SVP Strategic Value Partners – 2026-06-01 – https://www.svpglobal.com/our-team/
16. Deloitte at SuperReturn International – 2026-06-08 – https://www.deloitte.com/global/en/industries/investment-management/events/deloitte-at-super-return-international.html
