Private equity firms adopt structured equity to manage exit backlog

Private equity firms are increasingly adopting structured equity and hybrid financing to address a growing exit bottleneck. With global private equity managers holding approximately $3.8 trillion in unsold assets and average investment holding periods stretching to roughly seven years, traditional exit routes like public markets and conventional debt-financed sales have become less reliable due to higher interest rates.

Structured equity allows firms to provide liquidity to investors without requiring a full sale of the underlying company. This method enables portfolio businesses to raise capital without the high leverage associated with traditional dividend recapitalizations. Firms such as Apollo and Bain Capital are among those utilizing these instruments, which can offer returns in the mid-teens and typically rank ahead of common equity during financial distress.

While these tools help improve fund performance metrics and generate distributions, critics suggest they do not solve the fundamental issue of the exit backlog. Additionally, institutional investors may face questions regarding whether immediate liquidity outweighs the potential for higher long-term returns if the transaction structure alters the investment's ultimate outcome.