Private equity firms are turning to minority stake sales and other financing strategies to return capital to limited partners ( LPs) as traditional exit routes remain challenging, according to law firm White & Case.

Minority stake sales have become a key source of liquidity across the UK and Europe, particularly while full exits through public markets remain difficult. According to the law firm, these allow private equity funds to sell part of their holding to another investor, reducing investment risk while generating cash that can be returned to LPs.

Low distributions to paid-in capital are making it harder for private equity firms to raise funds. Minority transactions can help by providing an external valuation for portfolio companies, giving investors confidence that a full exit could be profitable later.

Special situations and hybrid capital funds are also receiving attention as sponsors look for flexible funding. These strategies sit between traditional debt and equity, offering investors some downside protection while allowing them to benefit from future growth.

The capital is being deployed both to support acquisitions where conventional debt and equity financing is insufficient and to provide liquidity or balance-sheet flexibility for existing portfolio companies.

White & Case said firms are simultaneously targeting businesses where AI could support growth and value creation.

Fundraising pressures are acute among smaller private equity managers as capital increasingly concentrates around large, multi-strategy platforms. Firms unable to raise new funds risk becoming “zombie funds”, managing their existing portfolios without sufficient capital to make new investments.