Private equity fund investors are increasingly turning to structured, debt-like transactions as traditional payouts dry up. Buyers agreed to $9bn worth of alternative deals last year, up from $6bn in 2024, according to Jefferies. These preferred equity arrangements let sellers receive cash advances while buyers collect fund distributions until they recoup their investment plus a minimum return.

The shift reflects a broader secondary market evolution where investors target ageing assets instead of new funds. BlackRock's HPS and Goldman Sachs Asset Management are among the opportunistic credit funds buying these positions. Supply has surged as buyout firms sell fewer companies and return less cash to original backers.

Scott Beckelman, Jefferies' co-head of private capital advisory, notes that private companies are being held longer, creating persistent low distribution levels. Family offices and insurers rather than large institutions are typically cutting these deals. A recent $600mn transaction saw Carlyle Alp Invest acquire fund interests from Federated Hermes on behalf of the UK's BT Pension Scheme.

This trend shows investors becoming more creative with available tools rather than exiting to other asset classes. The convergence of secondary investors, preferred equity specialists, and alternative credit managers has expanded the buyer universe significantly.