Key Shifts in LP Behavior: Public Pension Pullbacks, Soaring Secondaries & Exit Expectations

The private equity limited partner (LP) landscape in 2025 demonstrates both a cautious optimism and strategic repositioning, underpinned by heightened activity in both primary commitments and secondary liquidity mechanisms.

Primary Commitment Patterns: The New Mexico State Investment Council emerged as the most prolific LP in 2025 with 45 commitments, followed by the European Investment Fund at 36. Washington State Investment Board also stood out, making five of the 15 largest PE fund commitments, totaling approximately $2.5 billion. These are signals of institutions aggressively seeking exposure despite macro concerns.

That said, institutional behavior is not uniform. About 25–32% of LPs—especially public pension plans—opted to reduce PE allocations over the year. These cuts stem from liquidity constraints, stretched valuations, and a lack of near-term exit visibility.

Sentiment & Exit Environment: Rede Partners’ RLI showed a meaningful rebound, climbing from the sub-50 range in 1H 2025 to 57 in 2H 2025. Most notably, exit sentiment surged to 73, the strongest since 2H 2021, reflecting expectations that distributions will improve in the short term. However, 71% of LPs still identified slow exit volume as a key concern—indicating that hopes are tempered by ongoing operational and market challenges.

Secondary Markets & Liquidity Innovation: A standout feature of 2025 was the acceleration in secondary market activity. Evercore’s reporting showed deal volumes hitting an all-time high of $226 billion, up 41% from 2024. LP-led portfolio sales accounted for roughly $120 billion of that total, while GP-led continuation vehicles and other manager-led transactions made up approximately $106 billion—both seeing large annual growth. New structures—such as multi-asset continuation vehicles and CVx2 roll-throughs—are becoming more mainstream in response to liquidity needs.

Geographic & Strategy Reallocation: There are clear signs LPs are diverting capital away from North American-focused funds toward Europe and Asia-Pacific. Inbound sentiment toward North America remains in contraction territory, while Europe remains in expansion and Asia-Pacific is approaching breakeven. Strategy alignment also shifted: increasing interest in secondaries, GP-led deals, growth equity, and venture capital mixed with resurgent interest in healthcare and tech, though still below peak 2021 levels.

Strategic Implications: For GPs, this means inertia may cost fundraising momentum unless they can deliver liquidity, transparent valuation, and solid exit execution. Emerging managers may find openings given LPs’ expressed intent to deploy more to new relationships. But because LPs are also sensitive to quality and risk, first-time funds will be under scrutiny and may need to accept fee pressure or tighter terms.

Open Questions: Will exit volume (M&A, IPO, trade sale) follow through on elevated expectations or remain constrained by macro and valuation gaps? Can secondary markets continue scaling without creating distortions in pricing or overvaluation? And finally, will public pensions maintain their PE allocations if funded ratios or contribution pressures turn against them?