In the wake of the financial crisis, private equity flourished, buoyed by low rates, steady growth, and massive capital inflows.

But the industry now faces an unfamiliar problem: liquidity.

Since the Fed began hiking rates in 2022, the industry has been frozen.

Multiple expansion has stalled. Borrowing costs have surged. M&A activity remains soft.

Together, these factors have driven a record backlog of unsold portfolio companies and pushed distributions to historic lows.

But PE's pain has created opportunities in other areas of the market.

The clearest winner of the liquidity shortage is the secondary market.

On the GP side, PE managers are increasingly turning to continuation vehicles, holding assets longer while giving LPs the option to cash out.

They now account for 14% of PE exits, nearly triple their share in 2021.

On the LP side, investors are offloading fund stakes early, selling to third parties rather than waiting for distributions to rebound.

Together, the two trends have pushed secondaries volume to record highs.

While secondaries have significant momentum, an even larger opportunity may be emerging.

The PE exit backlog, alongside rising stress across leveraged borrowers, has created a growing pipeline of distressed situations:

These factors are creating demand for new capital to support deleveraging and restructurings across distressed borrowers.

This is the ideal backdrop for opportunistic credit funds, which deploy high-yielding debt across the capital stack.

Typical solutions range from secured debt in tricky credits, to flexible junior debt and preferred equity, to rescue and DIP financings.

As distressed borrowers work to address their capital structures, opportunistic credit funds are well positioned to deploy capital and generate strong returns.

Recent fundraising reflects this opportunity.

In March and April, both Ares and Blackstone closed new opportunistic credit funds. Each reached $10B and was well oversubscribed.

The struggles of private equity, and the rise of alternative strategies, reflect the new market reality: liquidity is king.

With distributions dried up and exits stalled, the strategies that solve for liquidity are winning.

PE’s reliance on secondaries is driving record volume. Opportunistic credit funds are ready to deploy flexible capital and reap strong returns.

Private equity’s struggle is now reshaping the broader market.

Thoughts on this week’s write-up? Anything I missed?

Just hit reply. I read every note.

The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. ILLIQUID INSIGHTS LLC, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Furthermore, opinions expressed by participants herein are not the opinions of ILLIQUID INSIGHTS LLC. Copyright © 2026 ILLIQUID INSIGHTS LLC. All rights reserved.