Introduction

The relationship between Limited Partners (LPs) and General Partners (GPs) is the institutional backbone of venture and private capital. LPs supply the capital and set the mandate; GPs deploy that capital and convert it into exits (or not). In times of plentiful exits and easy fundraising the reciprocal relationship is relatively frictionless: LPs accept illiquidity and alignment constraints in exchange for access to top managers and superior long-term returns, while GPs are rewarded with rapid capital formation and lucrative economics. But cycles change. Since 2022–2024 the industry has experienced a sustained slowdown in exits and a meaningful cooling in fundraising that has forced both sides to revisit incentives, governance and liquidity mechanics. This article examines the structural drivers of the tension, how each side is exerting influence, whether LPs have become unduly cautious, and what the empirical data now show about fundraising, GP-led continuity transactions and fundraising timelines. Key data plots and a sourced table are included below to support the analysis.

Why tensions have escalated: liquidity, valuation and incentive mismatches

Two interlocking dynamics explain why the LP–GP relationship is more contested today. First, global private fundraising has contracted materially from the post-pandemic peak. Across private asset classes aggregate fundraising fell sharply between the 2021 peak and 2024, reducing the rate at which new capital flows into managers and lengthening the period over which LPs expect to see distributions. The Bain global private-markets overview quantifies this contraction: aggregate private fundraising fell from the industry’s 2021 high to materially lower levels by the end of 2024, a development that has sharpened LP scrutiny of new commitments and terms.  

Second, the exit environment for many managers has become more constrained. Fewer IPOs and lower M&A volumes for certain segments have reduced near-term liquidity for GPs and compressed the ability to demonstrate realised returns to LPs. That combination creates classic principal–agent tensions: LPs worry that GPs — sitting on committed but unspent capital — will be pressured to deploy at unattractive valuations; GPs worry that excessive LP reticence will delay follow-on fundraising and thereby encumber future economics. The rise in GP-led continuation vehicles and an active secondary market are practical responses to that liquidity mismatch: such structures allow sponsors to create liquidity or extend hold periods while re-pricing assets, but they also raise new governance and valuation questions that LPs are increasingly keen to police.  

How LPs are exerting influence, and how GPs are adapting

LPs have a range of levers. Contractually, investors can demand tighter terms, bespoke reporting, independent pricing mechanics for GP-led deals, or more favourable fee and carried-interest structures. Behaviourally, LPs can extend negotiation cycles, require auction mechanics or insist on independent valuations before consenting to continuation transactions. Practically, many LPs have increased demand for co-investment rights to reduce fee drag and to secure asset-level exposure they can control directly. These behaviours reflect stricter due diligence and heightened fiduciary caution rather than caprice. Empirical evidence shows heavier LP engagement around GP-led processes and a greater insistence on transparency and independent pricing to mitigate perceived conflicts.  

GPs have responded with an array of structural and commercial adjustments. Some sponsors are offering larger, more operationally efficient co-investment programmes and are moderating headline fees for new funds to attract anchor LPs. Others are more proactively using GP-led continuation funds and the secondary market to generate liquidity for existing LPs while giving sponsors more time to realise value. Continuation funds and GP-led secondaries grew into a significant channel of liquidity in 2024, and sponsors — especially those with “trophy” assets — have relied on them to bridge public-market windows. The rapid growth in GP-led activity has in turn provoked stronger LP governance demands, including independent pricing, third-party fairness opinions, and more rigorous auction protocols.  

Are LPs “too cautious”? The trade-off between prudence and paralysis

Whether LPs are “too cautious” is ultimately a question of calibration. From a fiduciary perspective, greater selectivity and an emphasis on liquidity protection are rational responses to weaker distributions, negative mark experiences in some vintages, and the need to demonstrate prudent stewardship to beneficiaries. Industry reporting and institutional commentary characterise the behaviour observed in 2023–2025 as greater discipline rather than simple risk aversion. At the same time, prolonged and blanket under-allocation by LPs risks starving smaller managers and niche strategies of patient capital, concentrating assets in a smaller set of large managers and potentially reducing long-run innovation and competition in the manager universe. In short, appropriate caution by LPs preserves capital; indiscriminate caution risks diminishing the ecosystem that historically produced the highest alpha. 

A sourced data table and three charts have been produced for clarity. The table shown contains the underlying sourced datapoints and the charts visualise (a) global private fundraising 2021 vs 2024, (b) GP-led volume vs total secondary market volume in 2024, and (c) the reported fundraising time-to-close headline for 2024. You may download the images directly: fundraising_2021_2024.png

Key sourced datapoints shown in the table and charts are as follows (each datapoint below is supported by the cited industry source): global private fundraising USD 1.8 trillion (2021 peak) down to USD 1.1 trillion (2024); GP-led transaction volume for 2024 c. USD 76 billion; total secondary market transaction volume 2024 c. USD 162 billion; reported record fundraising time-to-close in 2024 of 19 months. These figures are taken from Bain’s global private markets analysis, specialist GP-led / continuation market reports (HL/Jefferies summaries), BlackRock’s secondary market recap and trade reporting on fundraising timelines. 

Practical implications and recommendations for practitioners

For GPs the constructive path in this cycle is clear: increase transparency, demonstrate independent valuation and pricing processes for any GP-led transactions, operationalise co-investment programmes, and present fee/economic structures that show downside alignment. For LPs practical stewardship should combine rigorous selection and liquidity protections with a strategic, differentiated approach to allocation: preserve options with top-quartile managers and selectively support continuation or GP-led processes only where independent mechanisms validate pricing and governance. Both sides benefit when transactions incorporate institutional safeguards: independent pricing, open auction mechanics for continuation deals, detailed deal-level information and a clear statement of conflicts and allocation protocols.

Conclusion

Power in the LP–GP dynamic is not an absolute but a function of market conditions and institutional design. In the recent slowdown LPs have sensibly hardened oversight and required stronger governance; GPs have innovated with continuation funds, secondaries and bespoke economics to preserve optionality and liquidity. The healthy outcome for the ecosystem is not a one-sided victory but a set of repeatable, transparent processes that protect LP capital while allowing capable GPs to carry out the patient, risk-taking investment work that generates outsized returns. The data from 2024–2025 show a re-balancing through increased LP scrutiny and heightened GP structural activity — a negotiation, not a coup.  

Principal sources and further reading (representative, non-exhaustive)

Bain & Company — Global Private Equity Report 2025 (fundraising trends and 2021 vs 2024 comparison).  

HL / Jefferies / specialist GP-led reporting — 2024 GP-led transaction volumes and continuation-fund commentary.  

BlackRock — FY2024 Secondary Market recap (total secondary market volume 2024).  

Buyouts Insider — reporting on record fundraising timelines (19 months average time-to-close reported for 2024).  

Barron’s / Financial Times coverage of 2024 VC investment and 2021 peak context (industry deal flow trends).