Underperforming VC firms persist because the 7-10+ year feedback loop for returns allows them to raise multiple funds before performance is clear. Additionally, most LPs struggle to distinguish between a manager's true investment skill and market-driven luck.

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.

VC funds between $50M and a few hundred million can be a 'dead zone' for general partners. They are too large to benefit from the quick-carry potential of small funds but too small to generate significant management fees like mega-funds, making the personal economics challenging for managers.

PE firms are struggling to sell assets acquired in 2020-21, causing distributions to plummet from 30% to 10% annually. This cash crunch prevents investors from re-upping into new funds, shrinking the pool of capital and further depressing the PE-to-PE exit market, trapping investor money.

Momentum investor Gerald Tsai's strategy made him a star, attracting huge inflows. Even after his performance collapsed, placing 299th out of 305 funds, assets continued to grow due to his past reputation. This highlights the misaligned incentives of AUM-based fees, where managers can profit long after their strategy fails.

Some BDC management teams refuse to buy back their stock at massive discounts to net asset value (NAV). This preserves the fund's asset size, on which their fees are calculated, prioritizing compensation over creating significant shareholder value.

An estimated 15-20% of all private equity "distributions" in the last two years were not traditional sales or IPOs, but "inorganic" transactions like continuation funds and NAV loans. This means the actual yield from organic, market-driven exits is even lower than the already-dismal headline numbers suggest.

Unlike European waterfalls that pay carry only after all capital is returned, an American waterfall allows for deal-by-deal carry distribution. This creates a significant risk for junior employees who might receive a large payout early in a fund's life, only to have it "clawed back" years later if the fund ultimately underperforms its hurdle rate. They may have to repay money they've already spent and paid taxes on.

Shifting to a performance-fee-only model meant unpredictable revenue. The firm consciously went into the red, relying on its balance sheet and shareholder support to survive for four years until the investments matured and generated profits. This was a long-term bet on their own performance.