Insights

Why “wait-and-see” strategy is killing $1B funds

During my decade in the digital asset markets, I have noted a consistent gap: even among funds managing between $100m and $1bn, liquidation frameworks often remain less formalized than the initial deal-making. These firms employ brilliant minds to find deals and complex models to track them, yet when an asset is up 10x or 20x on paper, the exit process can become more subjective than institutional standards typically require.

Even for a skilled manager, the transition from long-term conviction to disciplined distribution is a complex balancing act that hasn’t always been supported by a dedicated framework.

This inertia has led to a historic bottleneck. According to Bain, the industry is currently sitting on a $3.8 trillion in unrealized value across 32,000 unsold companies. Distributions as a percentage of Net Asset Value (NAV) have held below 15% for four years running, setting a new industry record for illiquidity. Meanwhile, the average industry DPI is currently a dismal 0.51x.

LPs are no longer satisfied with high IRR on the screen; they demand actual cash back. 21% of limited partners now identify DPI as the most critical measure. This is a 13pps increase from just three years ago.

Even though exit activity appeared to rebound in 2025, the recovery was top-heavy. A mere 13 mega-exits represented 78% of the total exit value. For the average $1bn fund, the mid-market inventory remains stagnant. They see the headlines of $10bn exits but see no path for their own mid-cap assets.

In these conditions, a lack of exit discipline is a fast-track to failure.

The delusion of “long”

The most common excuse for a lack of an exit strategy is the “long narrative.” A GP will say, “We aren’t selling because we are long on this ecosystem.”

This is a category error. You can be long on a narrative while being disciplined about your capital. Every fund has a runway — two years, five years, ten years. Holding an asset longer to “buy time” for growth eventually destroys the fund’s IRR: Bain’s analysis of 15 years of data proves that IRR typically peaks and begins to stagnate at year seven and declines thereafter.

If you hold a winner through a peak and back into a trough because you are long, this means you allowed your gains to vaporize.

Consider a recent cycle in Solana. Assets bought at $8 in early 2023 were trading at $280 just two years later. A disciplined fund would have identified that 35x return as a target threshold. By selling even a portion of the stake at $200, a fund could have returned the entire initial capital to LPs and re-entered the position during the inevitable dip.

Instead, many chose the wait-and-see approach — and watched $280 turn back into $80. In doing so, they lost twice: first, the profit, and then, the chance to double down when the market offered a better re-entry point.

The core components of a professional exit framework

A safe exit strategy does not mean selling everything at the first sign of profit. Institutional discipline begins with reaching investment neutrality. By architecting a tiered exit and liquidating just enough to recover the initial capital, a GP can return the principal to LPs early. This removes the psychological pressure of the wait-and-see trap and lets the remaining 50% of the position run as pure profit.

A professional-grade exit framework rests on three pillars:

The 50/30/20 rule
Firms must use a pre-defined strategy based on specific multiples to trim a position. The 50/30/20 structure is a common institutional standard: if an asset hits a 5x or 10x return, sell 50% to secure the win and appease LPs. At the next milestone, sell another 30%. Leave the remaining 20% to “fly” for outsized returns. LPs are never angry about a 10x return; they are only angry when a 10x return becomes a 1x return because you refused to click “sell.”
The “sleep” ratio
Risk management is often a question of the stomach. A GP should ask: “What is the ratio of crypto-exposure to stablecoins that allows me to sleep at night?” For some, that is 80/20. For others, it is 50/50. A formal strategy mandates that when market movements push that ratio out of alignment, the fund must rebalance, automatically and without emotion.

Rebalancing should happen automatically and without emotion.

3. Secondary market integration
The biggest barrier to exiting is the liquidity trap. In private markets, you cannot always sell when you want to. You can only sell when there is a buyer. A professional firm does not wait for an IPO or TGE to think about liquidity. They use the secondary market as a constant release valve to manage position sizes and ensure they aren’t holding an oversized toxic bag if the narrative shifts.

Why rebalancing beats “wait-and-see”

The wait-and-see approach is effectively a hidden tax on your Net IRR. By holding illiquid assets for 15 years in a 10-year fund, you are dragging down your annualized returns every single day.

This discipline is even more vital in a regime where 12 is the new 5. As macro conditions tighten, the bar for a productive investment has shifted; where 5% annual growth might have satisfied a fund a decade ago, today’s higher cost of capital and asset inflation mean that an investment often requires 12% growth simply to remain viable. If a position is only delivering 5% in this environment, it is effectively a “zombie” asset — its real value is being quietly eroded by the rising tide of inflation.

Disciplined secondary rebalancing means selling stagnant inventory, trimming winners as they hit multiples, and pivoting those funds into higher-velocity sectors (like moving from 2022-era Gaming to 2025-era AI, infrastructure or robotics). This is how you accelerate the velocity of your capital.

Takeaway

Cash distributions, not paper NAV gains, will define allocator confidence in 2026. The primary concern for 2026-2028 remains: can the tech/software-heavy backlog be cleared through a reopening of IPO and M&A channels, or will the stubborn valuation uncertainty and refinancing pressure prolong the liquidity drought?

To insure your gains in this landscape, setting and following a clear liquidation strategy is mandatory, whether you have $1m or $10bn in AUM.

The question for your fund is simple: Do you have a liquidation strategy? Or do you just have a collection of hopes? In a maturing market, the adults in the room choose the strategy.