It’s time to harvest the portfolio, as limited partners demand exits. But not all sales will give limited partners the results they expect.

First, let’s look at the size of the pile that has built up over the years. The table below shows the vintage of the roughly 7,500 U.S. companies currently owned by private equity funds. Over 50% of these companies have been sitting in funds for at least six years, with many well over 10 years.

These companies will need to find new owners. But how is this pile going to be dismantled?

Go public

There are about 2,300 companies listed on the New York Stock Exchange and about 2,700 listed on the Nasdaq exchange, giving us a total of around 5,000 “real” public companies. There are currently over 7,500 private equity-owned companies sitting inside funds. In a good year, there are a couple hundred IPO pricings. Private equity-owned companies might make up a third of those in any given year. Even if the IPO spigot gushes for the next few years — and there were some indications in the first quarter of this year that this might be the case — it won’t relieve much of the pressure.

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Some may make a case for alternative exchange listings in locations like London or Vancouver, or maybe even Australia. We have heard this before. There isn’t enough liquidity in those markets to handle the volume.

Go strategic

Corporate buyers will always be a great source of exits for the private equity world. But the days of the acquisition-hungry conglomerate are over. The big public companies chasing hundreds of acquisitions to build market share and enter new categories have largely gone away or have at least slowed down.

Corporations have become disciplined. In fact, it is more likely that big public companies will be shedding assets rather than buying them. And increasingly, corporate buyers hate participating in broad auctions, so if you are planning to run a big process to exit your private equity-owned company, you can pretty much count them out.

Go secondary

Then there is the “secondary” market. Not to be confused with secondary buyouts, where one fund sells to another fund, the secondary fund market is another class in the private equity industry with funds buying pieces of or whole positions of other funds at discounted values These purchases provide existing limited partners with cash and reset the clock on the remaining companies in a portfolio, giving them a little more time to achieve full liquidity down the road.

The rise of PE-to-PE exits

Corporate acquisitions as a percentage of all private equity-owned company exits are at the lowest levels in a decade, while secondary buyouts (in which private equity firms sell companies to each other) are at an all-time high. From 2011 through 2013, 41% of all PE company exits were secondary buyouts, while in the boom years of 2005 through 2007, just 36% were passed from one fund to the next. Preliminary data from the first quarter of 2014 show about 45% of all PE exits coming from secondary buyouts. And with PE-backed company IPOs at historically low levels — they accounted for 25% of all IPOs last year, compared to 40% in 2005 — secondary buyouts will likely become the rule rather than the exception.

The PE industry was built on the premise that you could buy a family-owned business, sprinkle in a little debt, and then run it better, faster, and cheaper until it was attractive enough to a buyer, who would pay a nice price for it. The PE fund could then deliver a solid return to its investors. Lately, though, the PE industry is starting to look more like the venture capital market, where a new fund marks up a company’s valuation to benefit the original investors in a new financing round. All you need to do is look at Genstar’s recent sale of portfolio company TravelClick to Thoma Bravo for $930 million, at nearly 16 times its earnings. I imagine this is a great win for Genstar’s investors, but Thoma Bravo’s limited partners must be wondering what’s left for them to do after seven years under Genstar’s ownership. And what are the LPs who are invested in both funds thinking?

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In the last year, PE funds are recapitalizing everything that’s not nailed down to pay dividends to their investors before the debt party stops. BMC Software’s recent $750 million dividend to its investors, paying off 50% of the equity just seven months after the original acquisition closed, is a case in point. Lots of funds are choosing to recapitalize and hold instead of selling companies at a price they deem too low. While this liquidity feels really good after years of recession-era wound licking, funds are piling up the portfolio companies as they keep old ones and buy new ones. But they will eventually have to sell these companies.

Many companies held by PE firms for more than six years aren’t doing well. There are no buyers for them. Why? Maybe they are in an industry that is out of favor. Maybe the downturn hit them and the lenders won’t renegotiate. Or maybe the downturn hit them and they have come back by some measure, but not enough to create any value to the equity holders. In this case, you’re holding onto the false hope that “next year is going to be the year.” Most PE executives that I know are naturally optimistic and it’s really hard for them to capitulate.

But what about the good companies in these portfolios? Why not sell those? Well, they have to “make up” for the losers before the PE fund can generate carried interest. And remember that many of these funds have to achieve a compounded 8% return to their LPs before they get to share in the profits (their carried interest). So the winners get held a little longer in these old funds to make up for the losers.

And don’t forget, when you sell a company, you lose the management and monitoring fees you were charging, so it hurts your fund’s revenue and puts pressure on costs. So, at the zombie funds out there, the incentives to sell before you absolutely have to are low.

There are a lot of PE-owned companies that must be sold in the next few years, but even if exit volumes increase dramatically beyond historical levels, it could take 10 years for the current crop of companies to liquidate, not even counting the thousands of buyouts that close each year. Don’t expect the IPO market or corporate buyers to lead the parade. With all the new money pouring back into private equity fundraising this year and with funds raising increasingly larger pools of capital, PE funds will accelerate their pace of asset swapping and the LPs will be left holding the assets.

Devin Mathews is a managing partner at Chicago Growth Partners.