GX Insight | Dead Funds Walking: VC/PE Just Doesn’t Know It

A quiet but brutal reckoning is unfolding across the private equity and venture capital landscape. It isn’t a cyclical downturn; it’s a structural cleansing.

In September 2025, Eisler Capital collapsed under the weight of weak performance and rising costs. Around the same time, 83North, formerly Greylock Israel, announced it would cease raising new funds after closing its eleventh and “final” vehicle. These are not isolated incidents. They are tremors signaling a tectonic shift.

Distributions to paid-in capital (DPI) are anemic. Old funds are unable to liquidate assets, new funds are failing to close, and a flood of GP-led continuation vehicles is rapidly eroding LP trust. A generation of managers with middling returns, no discernible edge, and no clear path to exit is being quietly selected out of the market. Many are already casualties of this new regime. They just don’t know it yet.

The Flywheel Has Stalled: When the Math No Longer Works

The fundamental engine of the private equity industry has seized. The math has turned against it.

U.S. buyout funds now hold a staggering 12,000-plus companies. At the current pace of exits, limited partners (LPs) may have to wait nearly a decade just to recoup their principal.

Simultaneously, a desperate scramble for capital is underway, with over 18,000 funds seeking a collective $3.3 trillion in fresh commitments. The industry’s famed “dry powder” sits near $1.2 trillion, yet almost a quarter of that capital was committed four or more years ago and remains undeployed.

The consequences were predictable and are now unavoidable: primary deal flow has slowed, fund cycles have stretched, and DPI has become the only key performance indicator that matters. The logic is mercilessly simple: if you can’t sell, you can’t distribute; if you can’t distribute, you can’t raise. The flywheel has stalled.

Even industry insiders now concede that the sector has drifted from its core mandate. The consensus is clear: private equity must return to the basic craft of buying, operating, selling, and compounding cash for its investors. Survival will be determined at the next fundraise, and the verdict will depend on a single factor: whether LPs are willing to forgive years of paper gains for the stark reality of empty coffers.

The Illusion of Liquidity: GP Solutions or LP Traps?

Faced with exit gridlock, LPs are moving from frustration to fury. One industrialist LP summed up the mood bluntly: the post-pandemic slowdown in M&A and IPOs has made exits “too hard,” and LPs are “furious”—some haven’t seen a penny in distributions in five or six years.

In response, general partners (GPs) are deploying a toolkit of financial engineering to create the illusion of liquidity:

• Continuation Funds: Selling aging assets from old funds into new GP-led vehicles, effectively extending hold periods and resetting fee clocks. Global volume surged by ~50% last year alone, reaching approximately $76 billion.

• NAV Loans: Borrowing against a portfolio’s net asset value to finance distributions, artificially boosting DPI optics without a true monetization event.

• Tail-End Funds: Warehousing small, illiquid leftovers from expired funds. Assets trapped in these 10-year-plus “tails” have ballooned to an estimated $668 billion, with LPs still footing a bill of $3–$13 billion in annual fees.

  
  

Proponents argue that independent buyers validate asset pricing in these transactions. Critics, however, see an irreconcilable conflict of interest where the seller and buyer are effectively the same entity. The aforementioned LP calls it “the biggest shell game in finance,” recalling pitches to acquire dozens of PE-owned companies and finding “not one worth doing”—too much leverage, too little quality, and too many reverse-merger pipe dreams.

His parting question hangs in the air: “Why should I clean up someone else’s mess?”

The Arrogance of Scale: From Value Creators to Asset Gatherers

For some firms, scale has bred a dangerous complacency. A U.S. pension executive puts it starkly: some of the largest managers stopped caring about their LPs. The partners who generated immense value in Fund II or III are now “on the yacht,” no longer in the trenches. Another LP complains that many managers now spend 90% of their time fundraising and only 10% operating—they “show up to a few boards, host a dinner, and explain away missed plans.”

In a capital-starved environment, certain behaviors rub salt in the wound: GP-led structures that extend fee life, NAV financing that front-loads distributions, and fair-dealing questions around advisors who both opine on value and bid on assets. The balance of power, while shifting, still favors brand-name GPs, even in a weak fundraising market.

Regulators have taken notice. In January 2025, the SEC fined 12 firms a combined $63.1 million—including marquee names—for compliance failures and transparency issues, signaling that the era of lax oversight is ending.

End of an Era: From Financial Arbitrage to Operational Grit

The old playbook is obsolete. The strategy of exploiting systematic mispricing, applying leverage, executing a quick operational uplift, and selling into a rising market worked beautifully when interest rates were near zero and multiple expansion was abundant.

Today, that world is gone. High-quality targets are scarce, and the rest have learned to lever up, hire consultants, and squeeze out efficiencies on their own. Rates are higher, financing is costlier, sponsor-to-sponsor sales face fierce competition, and exit premiums have compressed.

The industry’s center of gravity is shifting from “buy cheap, sell dear” to “run it well and pay us back in cash.” Holding periods are longer, and realized cash matters more than modeled alpha. LPs are asking a simpler, more brutal question: If I give you $1, how many dollars will you actually return, and when?

Double- or triple-money outcomes are no longer the base case. After peaking around 13.5% (quarterly) in 2021, U.S. PE returns have drifted toward a meager 0.8% as of 2024.

2025: Hopes Deferred, Scrutiny Intensified

The much-hyped M&A rebound failed to materialize in 2025. Tariffs and policy uncertainty have dulled animal spirits. Even with a token 25-basis-point Fed cut in September, LPs remain on the defensive. Mega-managers are accelerating their push into “retail” channels like 401(k)s, but this pivot introduces new, untested challenges around liquidity and transparency for Main Street investors.

Meanwhile, capital is bifurcating. Classic PE is slowing down to reprioritize quality, while venture capital is concentrating its firepower into a handful of hard-to-access, AI-native winners. The future belongs to firms at the poles: those that are either truly scaled, able to compete with global banks, or genuinely specialized, with a defensible, alpha-generating niche. The middle is being hollowed out.

What Happens Next

• DPI is Destiny. Performance narratives will matter less than cash returned to LPs.

• Self-Help Under Scrutiny. Expect more GP-led solutions, but with far tighter scrutiny on conflicts, fairness opinions, and fee economics.

• A Flight to Quality. Mid-tier managers without a sharp edge or a proven exit machine will fade. Brand and specialization will dominate.

• Operations Over Engineering. Returns must come from running businesses better, not from financial leverage or multiple expansion.

• LP Power (Selectively) Rises. Not across the board, but in re-ups where DPI has lagged, terms will compress and LPs will regain the upper hand.

  
  

Many VC and PE firms will not survive this new regime. As the tide of cheap money recedes, it is revealing who was swimming naked. The winners will be those who restore the simple, powerful covenant that built the asset class in the first place:

Buy well, create value, and give the money back—promptly, cleanly, and in cash.