DPI Liquidity: 6 Proven Strategies Top Fund Managers Use to Pay Investors in Illiquid Markets

DPI liquidity is the defining challenge of 2026 — with the private equity industry sitting on a record $3.2 trillion backlog of unsold companies, fund managers who cannot manufacture cash distributions risk losing their reputation and their next fund before writing a single PPM.

Ryan Miller BSc., MFin. | Host, Making Billions Podcast | LinkedIn

Key Takeaways

• Understand that DPI liquidity, not paper marks, is the metric LPs, allocators, and institutional investors are demanding from fund managers in 2026, according to this episode of Making Billions.
• Explore how NAV facilities can serve as a fund-level borrowing mechanism to manufacture DPI liquidity without forcing premature exits of high-performing portfolio companies.
• Learn how continuation vehicles allow fund managers to reset the clock on high-conviction assets, returning DPI liquidity to sellers while preserving upside for believers who choose to roll.
• Discover why strip sales, dividend recaps, preferred equity, and collateralized fund obligations each represent distinct tools in the DPI liquidity engineering toolkit, and why selecting the right one requires qualified legal and financial counsel.
• Consider how the managers highlighted in this episode, including examples drawn from Vista Equity, Thoma Bravo, and ClearLake Capital, have approached DPI liquidity manufacturing as a core capital management discipline rather than a reactive measure.

The DPI Liquidity Trap Defining Private Markets in 2026

DPI liquidity has become the most consequential pressure point facing fund managers across private equity, venture capital, and real estate in 2026. According to Ryan Miller in this episode of Making Billions Podcast, the industry is not suffering from bad investments — it is suffering from an inability to convert paper gains into actual cash distributions. The result is what Miller describes as the DPI liquidity trap: funds with green dashboards and 3x marks but empty bank accounts and LPs calling every day asking where their money is.

DPI liquidity pressure is amplified by a structural reality cited in this episode: according to Bain’s 2025 Global Private Equity Report, the industry is sitting on a record $3.2 trillion backlog of unsold companies. That number makes the IPO window or the traditional M&A exit route insufficient on its own for most managers. Fund managers who treat DPI liquidity as a passive outcome rather than an actively engineered result are, as Miller puts it, functioning as “glorified librarians for a portfolio of paper dreams.”

DPI liquidity problems are also fundraising problems. Miller explains that without demonstrated cash distributions, the pathway to a next fund closes rapidly. In a market where LPs are over-allocated and bleeding in their public portfolios, a fund manager’s reputation is now tied to the wire transfer, not the valuation spreadsheet. This episode presents six distinct frameworks, each discussed as educational information only and requiring qualified legal and financial counsel before any implementation, for engineering DPI liquidity when traditional exit routes are closed.

For additional context on the private equity exit environment, the SEC’s Division of Investment Management provides regulatory guidance relevant to fund-level transactions of the type discussed throughout this article.

NAV Facilities: Engineering DPI Liquidity Without Selling Your Best Assets

DPI liquidity does not always require an exit. The first framework presented in this episode is the NAV facility, a fund-level borrowing mechanism that Miller describes as structurally similar to a home equity line of credit applied to a private fund’s portfolio. In a hypothetical scenario presented in the episode, a fund manager holds a SaaS company marked at 10x but faces a 40% haircut in the secondary market. Selling would mean leaving significant alpha on the table, yet DPI liquidity is at precisely zero.

DPI liquidity through a NAV facility works by borrowing against the fair market value of the portfolio rather than liquidating positions. Miller references the example of Vista Equity Partners and Robert Smith, who in 2023 secured a $1.5 billion NAV loan rather than forcing exits from his best companies in Fund 7. According to the episode, that move manufactured DPI liquidity for LPs while preserving the full upside of the underlying portfolio, and it secured Smith’s reputation as a manager who delivers cash in any market environment.

DPI liquidity seekers evaluating this approach should understand the two structural tiers described in the episode. The entry-level move is a standard fund-level revolver, where a lender reviews a diversified NAV across five to seven or more assets and provides a loan at approximately 10% loan-to-value, priced around 200 basis points over SOFR. The pro move is what Miller calls the “no cash sweep PIK toggle,” where interest accrues rather than being paid in cash, preserving portfolio company growth capital while still delivering DPI liquidity to LPs. Typical LTV ranges discussed in the episode are 10 to 25% for buyout funds and 5 to 15% for venture funds, with pricing generally in the SOFR plus 350 to 550 basis point range.

DPI liquidity via NAV facilities requires careful legal review of the fund’s LPA for anti-pledge clauses, and Miller emphasizes that the valuation methodology used by the lender matters enormously. If a liquidation value rather than fair market value is used, borrowing capacity can drop by 50%. The NAV facility market is projected to reach $700 billion by 2030, according to this episode. Providers mentioned for educational reference include 17 Capital, described as a category leader for large-cap NAV loans, Crestline Investors for middle market GPs, and Hark Capital for late-life fund liquidity situations.

For fund managers seeking to understand the broader credit facility environment, Investopedia’s overview of Net Asset Value provides foundational context on how NAV is calculated and applied in fund structures.

Continuation Vehicles: Resetting the Clock on DPI Liquidity

DPI liquidity through continuation vehicles addresses a specific and common tension in closed-end fund management: a portfolio company still in hypergrowth mode when the fund’s legal calendar demands an exit. Miller frames this as the “crown jewel reset,” a mechanism that allows fund managers to manufacture DPI liquidity for LPs who need it while simultaneously preserving exposure for those who want to stay invested. In the episode’s hypothetical, a fund in year nine holds a company on the verge of a breakout, but the LPA requires an exit. Pension fund LPs need their capital returned; family office LPs want five more years.

DPI liquidity in this scenario is generated by selling the company from the old fund into a new continuation vehicle, effectively resetting the fund life while giving each LP a choice: sell and receive DPI liquidity now, or roll into the new vehicle and participate in the remaining upside. Miller references ClearLake Capital’s move with Avanti as a historical example. In 2021, ClearLake moved Avanti into a continuation vehicle valued at $1.25 billion, returned significant capital to early investors, and used that DPI liquidity track record to raise a record-breaking flagship fund.

DPI liquidity via continuation vehicles is now a mainstream institutional practice. Miller cites data indicating that 46% of fund managers are now using continuation vehicles, a figure he describes as evidence that the industry has recognized engineered DPI liquidity as a core operational capability. Assets transacting through GP-led continuation vehicles typically trade at a 0% to 10% discount to NAV, compared to a 30% discount in the broader secondary market, making them a significantly more capital-efficient DPI liquidity mechanism.

DPI liquidity implementation through a continuation vehicle carries specific governance requirements that Miller discusses in the episode. Because the GP is simultaneously buyer and seller, a formal conflict of interest disclosure and waiver from the LPAC, the LP Advisory Committee, is required. Miller recommends engaging a third-party valuation firm such as Kroll to establish an independent price, noting that without it the manager is exposed to self-defeating litigation. Tax structure must also be reviewed carefully to ensure that sovereign wealth LP interests are not reclassified as commercial entity interests. Advisors referenced in the episode include XA Investments and Kim Flynn for evergreen and interval fund transitions, Evercore and PJT Park Hill for price discovery, and Kirkland and Ellis for documentation.

For regulatory context on fund-level conflicts of interest disclosures, the SEC’s guidance on fund manager conflicts is a relevant reference for managers exploring continuation vehicle structures with their legal counsel.

Strip Sales: Precision DPI Liquidity Across a Diversified Portfolio

DPI liquidity through a strip sale offers fund managers a way to generate measurable cash distributions without triggering a full exit on any individual portfolio company. Miller describes the strip sale as “the ultimate de-risking maneuver,” and the logic is straightforward: instead of selling one company entirely, the manager sells a proportional economic interest, typically 10%, across every company in the portfolio to a single secondary buyer. DPI liquidity is manufactured across the board, and no individual company relationship is disrupted.

DPI liquidity produced through strip sales also serves a critical signaling function. Miller highlights the example of Alpinvest Partners, Carlisle’s secondary arm, which has pioneered the liquidity provider model for strip transactions. By buying strips of portfolios, Alpinvest allows GPs to demonstrate a measurable DPI liquidity improvement, roughly a 0.2x DPI bump mid-cycle, that functions as social proof in new fund fundraising conversations. When the IPO window is closed, a strip sale proves that valuations are not purely spreadsheet constructs.

DPI liquidity via strip sales comes in two structural tiers, as described in the episode. The entry-level move involves selling a 10% economic interest across the portfolio, with the proceeds wired directly to LPs and the secondary buyer becoming a passive participant in future upside. The pro move is what Miller calls the “synthetic board observer move,” selling the economics while retaining 100% of voting rights and board seats. DPI liquidity is delivered to LPs, but the GP retains full strategic control over exit timing and company direction for the remaining 90% interest. High-quality buyout strips typically trade at 90 to 95% of NAV according to the episode.

DPI liquidity seekers evaluating strip sales must conduct rigorous legal diligence on three specific areas highlighted by Miller. First, change of control clauses must be reviewed to ensure the 10% fund-level sale does not trigger change-of-control provisions in portfolio company debt agreements. Second, tag-along rights must be analyzed to ensure company founders cannot force a larger sale than intended. Third, confidentiality agreements must be airtight, as secondary buyers will require look-through access to portfolio company financials. Advisors referenced in the episode include Alpinvest Partners’ GP-led solutions team, HarborVest as the largest independent secondary buyer, and Lazard for strip sale pricing advisory.

For additional context on secondary market mechanics, Bloomberg’s coverage of the private equity secondary market offers useful institutional perspective on pricing and liquidity trends relevant to DPI liquidity discussions.

Preferred Equity: Flexible DPI Liquidity Without a Down Round

DPI liquidity challenges sometimes emerge not from fund-level timing pressure but from portfolio company capital needs that cannot be met through senior debt alone. Preferred equity, positioned between debt and common equity in the capital stack, addresses this specific DPI liquidity problem by providing growth capital with a liquidation preference but without the rigid default triggers of senior debt. Miller frames this as a tool for funding acquisitions or bridging a company to an IPO without diluting common ownership or sending a negative market signal through a down round.

DPI liquidity applications of preferred equity are illustrated in the episode through the example of Sixth Street Partners and Apollo Global Management’s hybrid value approach. In 2024, according to Miller, these firms provided billions in preferred equity to companies that were high-quality performers temporarily blocked from the equity markets. DPI liquidity pressure at the fund level was relieved by giving portfolio companies the fuel to grow into their valuations rather than being forced into dilutive equity raises that would impair existing LP returns.

DPI liquidity through preferred equity involves two structural levels described in the episode. The entry-level move is standard participating preferred, a 10% coupon plus a 1.5x liquidation preference. The pro move is the “PIK-only capped return” structure, where no cash interest is paid, interest accrues as payment in kind, and the investor’s total return is capped, for example at 18%. DPI liquidity is preserved for common LP holders because if the company becomes a 10x outcome, the preferred investor collects their capped return and exits, while the full remaining upside flows to the fund’s LPs. Benchmark pricing in the episode is described as 12 to 20% IRR targets.

DPI liquidity via preferred equity requires legal diligence on three structural areas Miller identifies in the episode. Waterfall seniority must be analyzed to determine whether preferred investors get paid before LPs receive their principal. Governance vetoes must be addressed to prevent preferred investors from blocking future sales or IPOs. Conversion rights must be clearly defined to specify the conditions under which preferred can convert to common equity. Providers referenced in the episode for educational context include Sixth Street Partners’ growth credit team, Apollo Global Management’s hybrid value fund, and Oaktree Capital for opportunistic structuring.

For a foundational understanding of preferred equity structures and their position in capital stacks, Investopedia’s overview of preferred equity provides context relevant to fund managers evaluating DPI liquidity solutions with their advisors.

Dividend Recaps: Converting Cash Flow Into DPI Liquidity

DPI liquidity through a dividend recapitalization is the strategy Miller describes as “cash flow is king,” and it applies specifically to fund managers holding profitable, low-leverage portfolio companies where the full exit is not yet optimal. In a hypothetical scenario from the episode, a fund manager owns a company generating $30 million in EBITDA with zero debt, held for four years. The manager wants to return the initial cost basis to LPs so they are playing with house money, but also wants to hold for three more years to maximize the exit value.

DPI liquidity via dividend recap works by using the portfolio company’s cash flow to support borrowing from a private credit lender, with the loan proceeds paid out as a dividend to the fund, effectively returning equity capital to LPs while the company retains its operational momentum. Miller references Thoma Bravo and Orlando Bravo as exemplars of this approach, noting that on assets like SailPoint, Bravo returned significant capital to LPs through dividends years before the final sale event. According to data referenced in this episode, DPI liquidity through dividend recaps surged 60% year over year in early 2025 as managers fought through the exit stalemate.

DPI liquidity via dividend recap comes in two structural forms described in the episode. The entry-level move is a senior bank loan at 3x EBITDA, with proceeds distributed as a dividend while the company continues operating under its existing management and growth plan. The pro move is a unitranche recap with a PIK toggle, higher leverage at up to 5x EBITDA from a private credit lender, with the toggle providing optionality to defer cash interest payments if economic conditions deteriorate, preserving downside cash flow protection while maximizing DPI liquidity today.

DPI liquidity seekers using dividend recaps must address three specific legal and structural risk areas that Miller identifies in the episode. A solvency affidavit must be executed confirming the company remains solvent post-dividend to prevent fraudulent conveyance claims. Restricted payment provisions in existing debt agreements must be reviewed to confirm the company is legally permitted to wire funds to the GP. Covenant compliance must be verified to ensure new debt does not violate negative covenants in existing revolving credit facilities, with target leverage described as 3.5x to 5x EBITDA and interest coverage maintained above 2x. Providers referenced in the episode for educational context include Blue Owl for unitranche recap execution, Ares Management for large-cap dividend recaps, and Lincoln International for mid-market debt advisory.

For context on the regulatory environment surrounding dividend recapitalizations and fraudulent conveyance considerations, The Wall Street Journal’s reporting on dividend recap trends provides useful institutional perspective for fund managers and their advisors evaluating DPI liquidity tools.

Collateralized Fund Obligations: Institutional-Scale DPI Liquidity Through Securitization

DPI liquidity at institutional scale, hundreds of millions of dollars for managers running multiple funds with 15 or more assets, can be addressed through collateralized fund obligations, or CFOs, which Miller describes as turning illiquid private assets into tradable rated debt. The framework involves bundling private equity interests and issuing them as bonds in tranches, senior, mezzanine, and equity, sold primarily to insurance companies that are legally restricted from holding equity but can hold investment-grade rated debt. DPI liquidity is generated at the fund level while the equity tranche, retained by the GP, preserves the upside of the underlying portfolio for existing LPs.

DPI liquidity through CFO securitization is illustrated in the episode through the example of Schroeder’s Capital and Azalea Investment Management, which Miller describes as having turned this approach into an art form. By packaging portfolios of private assets into rated debt securities, these managers accessed massive pools of insurance company capital that would otherwise be completely inaccessible to alternative asset funds. In Miller’s framing, this level of DPI liquidity engineering transforms the GP from an asset manager into a capital solution architect, a distinction he presents as one of the defining separators between institutional-grade managers and the rest of the market.

DPI liquidity through CFOs operates at two structural levels in the episode’s framework. The entry-level move is a private CFO placement with a single large insurance company, a bilateral transaction that avoids the complexity of a full public rating process. The pro move is a publicly rated CFO with a credit rating from S&P, which opens access to the deepest and lowest-cost pools of institutional capital available, with a minimum of 15 uncorrelated assets described as necessary to achieve an investment-grade rating.

DPI liquidity via CFO securitization requires three specific legal and structural considerations that Miller identifies in the episode. A true sale legal opinion must be obtained confirming that assets are legally transferred from the fund into the CFO vehicle, establishing the legal separation required for the securitization structure. Risk retention requirements under Dodd-Frank typically require the GP to retain 5% of the risk. A full rating agency forensic audit, including a deep dive into every portfolio company, is required for publicly rated CFO transactions, and Miller is explicit that this level of DPI liquidity engineering demands the full engagement of qualified legal, financial, and tax counsel before any steps are taken. Providers referenced in the episode include Azalea Investment Management, Schroeder’s Capital, and Goldman Sachs’ asset-backed finance group.

For additional regulatory context on securitization structures relevant to DPI liquidity discussions, the SEC’s securitization regulatory framework provides relevant background for fund managers evaluating this approach with qualified counsel.

From Paper Manager to DPI Liquidity Architect: The Integrated Framework

DPI liquidity is no longer an outcome that fund managers can wait for markets to deliver, and Miller’s closing framework in this episode makes that point without ambiguity. The era of the fund manager who simply selects good companies and waits for the exit window to open, what Miller calls the lucky picker model, has ended. DPI liquidity engineering has become a core institutional competency that separates managers who sustain LP relationships and close successor funds from those who face capital attrition and reputational damage in a market with zero empathy for unrealized gains.

DPI liquidity architecture, as presented across the six frameworks in this episode, is a discipline that requires matching the right tool to the right fund profile, portfolio composition, and LP relationship dynamic. NAV facilities address the cash-poor, asset-rich scenario without forcing premature exits. Continuation vehicles reset the fund clock for crown jewel assets while delivering DPI liquidity to LPs who need it now. Strip sales generate measurable cash distributions and serve as social proof in new fund fundraising conversations. Preferred equity injections provide growth capital without triggering down rounds. Dividend recaps convert operating cash flow into LP distributions while preserving long-term exit optionality. Collateralized fund obligations access institutional-scale DPI liquidity for managers with sufficiently large and diversified portfolios.

DPI liquidity decisions of this complexity require the full engagement of qualified legal counsel, financial advisors, and tax professionals. Miller states this explicitly and repeatedly throughout the episode, framing all six frameworks as educational content only and not as prescriptive advice for any specific fund situation. The episode is structured as an architect’s blueprint, not an implementation checklist, and the appropriate professional team for each manager’s situation will vary based on fund structure, LP composition, portfolio company specifics, and jurisdictional requirements. As Miller states at the close of the episode, the managers who treat DPI liquidity as an engineered output rather than a passive byproduct of market conditions are the ones who will define the next decade of private markets.

For fund managers seeking to understand how institutional LPs evaluate DPI liquidity and distribution performance as part of their manager selection process, Harvard Business Review’s analysis of private equity fund success factors offers useful academic context on LP relationship dynamics and the performance expectations that drive capital allocation decisions.

DPI Liquidity as the Currency of Institutional Trust in 2026

DPI liquidity is the metric that institutional LPs, family offices, endowments, and pension funds are using to evaluate fund managers in 2026, not IRR, not TVPI, and not the green dashboards that Miller warns against mistaking for actual performance. According to this episode, a fund manager’s ability to close a next fund is directly correlated with demonstrated cash distributions, because LPs who are over-allocated and facing liquidity pressure in their own portfolios have no appetite for managers who can only point to spreadsheet multiples. DPI liquidity is the wire transfer that converts a manager relationship into an institutional reputation.

DPI liquidity as a fundraising signal is perhaps the most underappreciated dimension of the six frameworks presented in this episode. Miller makes clear that even a modest 0.2x DPI bump generated through a strip sale, or the return of the initial cost basis through a dividend recap, can be the proof of concept that opens a successor fund conversation with an allocator who would otherwise remain on the sidelines. The institutional LP community in 2026 is not evaluating managers on the potential of their portfolios — it is evaluating them on their demonstrated ability to manufacture cash in a closed exit environment.

DPI liquidity engineering, in Miller’s framework, is ultimately a discipline of professional identity. The managers who master NAV facilities, continuation vehicles, strip sales, preferred equity structures, dividend recaps, and collateralized fund obligations are not simply solving a 2026 liquidity problem — they are building the institutional infrastructure that sustains a multi-decade asset management franchise. As Miller frames it in this episode, the fund managers who stop managing paper and start distributing cash are the ones whose LPs will be on the phone for fund five, fund six, and fund seven.

For further institutional perspective on how DPI liquidity and distribution track records influence LP allocation decisions across alternative asset classes, Forbes Finance Council’s coverage of LP relations and distribution strategy provides additional context for fund managers building their capital raising frameworks.

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Ryan Miller BSc., MFin.
Host, Making Billions Podcast
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About the Host

Ryan Miller holds a BSc. and a Master of Finance (MFin.) and is the host of the Making Billions podcast, one of the leading institutional finance podcasts focused on fund management, capital raising, and alternative asset strategy. Ryan is also the founder of Fund Raise Capital, which provides educational frameworks and resources for alternative asset managers raising capital in the $10M to $500M+ range. Ryan can be found on LinkedIn.

The Making Billions podcast features solo educational episodes like this one alongside conversations with fund managers, institutional investors, and capital markets professionals, all focused on the frameworks and tools that define sophisticated fund management practice. All content produced on Making Billions is for educational and informational purposes only and does not constitute investment advice, legal advice, tax advice, or any form of financial advisory service.