The market's liquidity crisis is driven by a fundamental disagreement. Limited Partners (LPs) suspect that long-held assets are overvalued, while General Partners (GPs) refuse to sell at a discount, fearing it will damage their track record (IRR/MOIC) and future fundraising ability. This creates a deadlock.

Many sub-$500M venture funds are over-invested and under-reserved. While venture capitalists like Josh Wolfe predict a 50% failure rate for these "minnows," the Limited Partners (LPs) who fund them are even more bearish, believing the involuntary extinction rate will be closer to 90%.

The traditional PE model—GPs exit assets and LPs reinvest—is breaking down. GPs no longer trust that overallocated LPs will "round trip" capital into their next fund. This creates a powerful incentive to use continuation vehicles to retain assets, grow fee-related earnings, and avoid the fundraising market.

Limited Partners (LPs) value fund managers who are willing to listen and internalize market feedback, even if they ultimately follow their own strategy. This openness is a key positive signal, while a refusal to listen is a major red flag that often appears early in the relationship.

The private equity market has abundant capital and willing companies, yet transactions are stalled. This is because General Partners (GPs) fear selling at low returns and Limited Partners (LPs) fear over-commitment due to liquidity concerns, creating a gridlock where no one wants to act.

GPs are holding assets longer not just due to market conditions, but out of fear for their own business. They believe extending the hold period will allow underlying business growth to eventually hit their crucial Multiple on Invested Capital (MOIC) targets, which is critical for successfully raising their next fund.

While limited partners in venture funds often claim to seek differentiated strategies, in reality, they prefer minor deviations from established models. They want the comfort of the familiar with a slight "alpha" twist, making it difficult for managers with genuinely unconventional approaches to raise institutional capital.

VCs face a paradox with LPs. For early funds, LPs complain about the lack of distributions (DPI). For later funds, after the VC has made money, LPs question if they are 'still hungry enough,' creating a no-win situation.

It's easy for a General Partner (GP) to be a good partner when markets are strong and profitable. A GP's true character, integrity, and alignment with Limited Partners (LPs) are only tested when a downturn forces difficult conversations about shrinking profits and unmet expectations.