Limited partners (LPs) today face one of the most complex and uncertain environments in the history of private markets. Holding periods are lengthening, liquidity pressures are intensifying and concerns about transparency and governance are becoming more pronounced. At the same time, macroeconomic shocks and geopolitical tensions are reshaping priorities across funds.
Kroll Fund Solutions has observed these dynamics across global portfolios and brought this conversation to the fore in a recent webinar to help LPs protect value, restore confidence, and realign incentives when misalignment arises. The following five takeaways from our Managing the Managers session provide a clear framework for understanding the challenges LPs face and the available solutions.
Takeaway One: Global Forces Are Reshaping Investment Risk
The investment environment is increasingly defined by external shocks. Supply chains once optimized for cost are now vulnerable to geopolitical choke points. Energy markets remain exposed to volatility in the Middle East and Russia, while rare earth elements are concentrated in China. Technology introduces efficiency but also cyber threats and speculative bubbles. Climate change brings both physical risks and transition costs, while demographic shifts create opportunities in emerging markets but strain infrastructure.
For Limited Partners, these forces translate into heightened exposure and systemic risk. Capital planning must now account for resilience as well as returns. A deep and technical understanding is required by Limited Partners, supported by stress testing frameworks that adequately assess downside risk and ensure governance structures and incentive models are robust enough to withstand volatility.
Takeaway Two: Market Pressures Are Stretching Funds and Liquidity
Deal activity has slowed, IPO markets have contracted and, in some cases, nearly stalled with holding periods almost doubling over the past two decades. At the same time, capital flows have been net negative in four of the last six years, with LPs contributing more capital than they receive back. While secondary markets remain active, they are not sufficient to address systemic liquidity challenges.
The result is a structural imbalance: LPs are locked into funds for longer periods, with reduced visibility on the timing and certainty of distributions. Addressing this challenge requires access to technical expertise that can identify liquidity solutions, restructure portfolios, and negotiate accelerated realizations. With a global footprint, Kroll is able to identify buyers, structure exits, and deliver practical pathways to liquidity when traditional channels stall.
Takeaway Three: Governance Breakdowns Compound Underperformance
Underperformance becomes a critical issue when paired with governance failures. Transparency gaps, incomplete reporting, and evasive communication erode confidence. Misalignment can intensify when managers are no longer in the carry and shift their focus to management fees rather than timely exits. Talent attrition increases when incentives reduce, further weakening portfolio oversight.
For LPs, the combination of underperformance and governance breakdown is the point at which passive observation must give way to proactive intervention. At this stage, the priority is to re establish transparency, strengthen reporting, and ensure that governance structures are fit for purpose. LPs should be prepared to demand clearer information flows, more frequent engagement through advisory committees, and, where necessary, recalibration of incentive structures to restore alignment. The direction of travel is toward a more assertive governance role, not to manage assets directly, but to safeguard long term value by ensuring that managers remain accountable and that decision making reflects the interests of investors.
Takeaway Four: LPs Have a Toolkit of Options
LPs are not powerless in the face of misalignment. Early engagement with managers can often realign incentives and improve transparency. Enhanced information rights, stronger removal provisions and independent oversight mechanisms provide meaningful leverage. In more severe cases, general partner (GP) replacement remains a viable option, though it requires careful documentation, broad LP support and often a negotiated transition.
Kroll’s Fund Solutions practice has led multiple GP transitions globally, advising LPs on negotiation strategies, structuring governance and oversight frameworks and managing reputational risk. Our adopted approach is iterative, flexible and tailored to the specific dynamic of the situation, with the objective of restoring alignment without unnecessary disruption.
Takeaway Five: Specialist Asset Managers Bring Unique Capabilities
Traditional asset managers are set up to raise and deploy capital, but they often lack the resources required when portfolios enter sustained underperformance. Managing distressed or underperforming assets demands a different skill set that combines restructuring expertise, sector-specific knowledge and flexible staffing models capable of stabilizing portfolios and preserving value. Success in these circumstances is measured not by fundraising or track record, but by the ability to deliver practical, outcome-driven solutions that protect investor interests and restore confidence.
LPs should consider whether their managers have the capacity to respond effectively when assets do not perform as expected. The ability to scale resources, deploy technical specialists and unlock value for investors is now critical. This reality underscores the importance of having access to specialist capabilities to support LPs through complex transitions.
Conclusion
LPs today face a more complex and uncertain environment than ever before. However, with the right approach, combining economic insight, governance vigilance and practical intervention strategies, value can be protected, alignment restored and confidence rebuilt.
Kroll Fund Solutions is the market leader in delivering these solutions, helping LPs as they navigate uncertainty, manage transitions and secure positive long term outcomes.
