LPs, Liquidity & The Fundraising Crunch: What Growth Equity Managers Need to Know

The growth equity landscape has transformed dramatically since 2021’s peak. As we navigate deeper into 2025, fundraising continues to challenge even established managers, with overall private capital raised down 24% compared to 2024. This isn’t merely a temporary blip—it’s a fundamental recalibration that demands strategic adaptation from growth equity firms.

For limited partners (LPs), the math has become increasingly problematic: distributions have slowed to a trickle while capital calls continue, creating what industry insiders call the “private equity liquidity trap.” Without consistent cash flows returning from existing investments, LPs face difficult decisions about new commitments, even to historically strong performers.

At LeverVenture, we’ve recognized this shift early and structured our approach specifically to address these new market dynamics. But before exploring solutions, let’s examine what’s really happening beneath the surface of today’s fundraising environment.

Understanding the Liquidity Squeeze

The data tells a compelling story: distributions from PE funds have plummeted nearly 50% from their 2021 highs, creating unprecedented pressure on institutional portfolios. This distribution drought stems from multiple factors:

• Extended hold periods: The average portfolio company now remains with its PE sponsor for 5.7 years, up from 4.3 years pre-pandemic
• Challenging exit markets: Traditional IPO windows have narrowed while strategic acquirers remain selective
• Valuation disconnects: Many companies acquired at 2021 multiples require significant additional growth to achieve profitable exits
• Rising interest rates: The higher cost of capital has compressed valuations, particularly for growth-stage companies

This perfect storm has left LPs in a precarious position. Many institutional investors now find themselves overallocated to private markets relative to their targets, yet simultaneously receiving capital calls that require them to liquidate public market positions—often at inopportune times.

For growth equity managers, understanding this dynamic is critical. LPs aren’t just being cautious; they’re legitimately constrained by portfolio construction realities and fiduciary responsibilities.

The Consolidation of Capital: Winners and Losers

Perhaps the most significant trend in growth equity fundraising is the flight to perceived quality. Recent data shows the top quartile of managers now capture over 65% of all growth equity capital—a concentration unseen in previous cycles.

This consolidation creates both challenges and opportunities:

• Mega-funds continue growing: Established platforms with strong track records can still raise multibillion-dollar vehicles
• Emerging managers face headwinds: First and second-time funds face unprecedented scrutiny around track record, team stability, and differentiation
• Sector specialists gain advantage: Investors with demonstrable expertise in specific verticals (particularly AI, healthcare, and climate tech) outperform generalists in fundraising
• Operational value creation becomes paramount: LPs increasingly favor managers who can demonstrate systematic approaches to building company value beyond financial engineering

For mid-sized growth equity firms, this environment demands crystal-clear positioning and verifiable value creation capabilities. Generic growth strategies no longer resonate with sophisticated LPs who have abundant choices among established managers.

Alternative Liquidity Solutions Gaining Traction

As traditional fundraising becomes more challenging, forward-thinking growth equity managers are embracing alternative approaches to capital formation and LP liquidity:

1. Continuation Vehicles and GP-Led Secondaries

These structures allow managers to move select assets from aging funds into new vehicles, providing LPs with liquidity options while enabling managers to hold promising companies for optimal value creation. The continuation vehicle market has exploded, with over $75 billion in transactions last year alone.

2. Strategic Co-Investments

By offering LPs direct participation in selected deals, growth equity firms can deploy more capital while giving investors greater control over their exposure. These arrangements typically feature reduced fees and carried interest, creating alignment during a period of heightened fee sensitivity.

3. NAV-Based Lending Solutions

Fund-level credit facilities secured by portfolio value allow managers to provide interim liquidity to LPs without forcing premature exits. These sophisticated financial tools have evolved significantly, with major banks now offering customized solutions for growth equity portfolios.

4. Early Liquidity Programs

The most innovative growth equity firms now explicitly design funds with early liquidity mechanisms. At LeverVenture, we’ve pioneered a year-three liquidity option that allows LPs to receive distributions well before the traditional 7-10 year hold period. Combined with our below-market 1.85% fee structure, this approach directly addresses the primary concerns of today’s institutional investors.

Strategic Imperatives for Growth Equity Managers

Given these market realities, what should growth equity managers prioritize to successfully navigate the fundraising environment of 2025 and beyond?

Demonstrate Clear Value-Add Beyond Capital

LPs increasingly expect growth equity firms to deliver transformative operational expertise. Vague claims about “value creation” no longer suffice; investors demand specific examples and systematic approaches.

At LeverVenture, we’ve built our entire model around identifying and removing the “boulders” blocking portfolio company growth. Our advisory and operational support functions aren’t peripheral—they’re central to how we accelerate value creation and generate returns regardless of market conditions.

Embrace Transparency Around Portfolio Construction

With liquidity at a premium, LPs now scrutinize portfolio construction more carefully than ever. Growth equity managers must articulate clear investment theses and demonstrate discipline around:

• Entry valuations relative to public market comparables
• Projected hold periods and exit strategies
• Cash flow generation potential during the holding period
• Concentration versus diversification tradeoffs

Firms that can show thoughtful portfolio construction aligned with current market realities gain significant fundraising advantages.

Align Fee Structures With Today’s Realities

The traditional “2 and 20” fee model faces mounting pressure as LPs question the value equation. Forward-thinking growth equity managers are innovating with:

• Performance-based fee structures that reduce management fees in exchange for higher carried interest hurdles
• Deal-by-deal carried interest models that allow earlier distributions
• Co-investment rights that effectively lower blended fee rates
• Tiered fee structures that decline as fund size increases

LeverVenture’s 1.85% fee structure represents our commitment to LP alignment during a period where every basis point matters for institutional returns.

Develop Multiple Paths to Liquidity

Perhaps most importantly, growth equity managers must demonstrate creative thinking around exits. The days of relying solely on IPOs or strategic sales have ended. Today’s environment rewards managers who can:

• Cultivate relationships with diverse acquirer universes (strategic, PE, family offices)
• Leverage dividend recapitalizations for interim liquidity
• Structure minority stake sales to provide partial exits
• Position companies for IPO readiness while maintaining flexibility

The LeverVenture Approach: Designed for Today’s Market

The current fundraising and liquidity environment didn’t surprise us at LeverVenture—it validated our founding thesis. We built our firm specifically to address the structural limitations of traditional growth equity models:

1. Early liquidity options: Our year-three liquidity mechanism directly addresses the distribution drought facing LPs
2. Lower fee burden: Our 1.85% fee structure preserves more capital for our investors
3. Operational transformation focus: We systematically identify and remove growth obstacles, accelerating value creation
4. Multi-path exit strategies: We develop diversified liquidity options for each portfolio company from day one

Looking Ahead: The Evolution of LP-GP Relationships

As we move forward, the relationship between growth equity managers and their LPs will continue evolving. We anticipate several important developments:

• Increased co-investment activity: LPs will allocate more capital to direct deals alongside trusted GPs
• More customized separate accounts: Large institutions will favor bespoke arrangements that provide greater control
• Enhanced reporting and transparency: Real-time portfolio monitoring will become standard
• Broader secondaries market participation: LPs will actively manage private portfolios through secondary sales

For growth equity managers, these trends create both challenges and opportunities. Those who embrace the changing dynamics—rather than clinging to outdated models—will thrive even in this constrained fundraising environment.

Conclusion: Adaptation Is Non-Negotiable

The fundraising crunch facing growth equity isn’t temporary—it represents a fundamental reset of LP expectations and capabilities. Managers who recognize this reality and adapt accordingly will continue attracting capital, while those who expect a return to the frothy days of 2021 will struggle.

At LeverVenture, we’re embracing this new landscape by providing what today’s LPs truly need: earlier liquidity, lower fees, operational transformation expertise, and multiple paths to successful exits. We believe this approach represents the future of growth equity—a future where alignment between managers and investors creates sustainable advantage for both parties.

The growth equity firms that thrive in 2025 and beyond won’t be those with the longest track records or the biggest brands, but those who most effectively solve the real challenges facing LPs in today’s complex market environment.

For more insights on our approach to growth equity investing and LP partnerships, visit LeverVenture’s insights page or contact our team directly.