What allows existing investors to receive liquidity in a preferred equity structure?

The ability of existing investors to receive liquidity in a preferred equity structure primarily comes from the participation of new investors who offer preferred equity. This setup often includes terms that allow existing investors to be paid back or receive distributions when new capital is injected into the fund. The infusion of new funds can create opportunities for liquidity, enabling the existing investors to redeem their initial investments or earn returns on their capital, thus benefiting from the new capital structure.

When new investors enter the structure, they typically subscribe to different classes of equity, sometimes at a preferred level, which can allow existing investors to realize some of their investment while providing the fund with additional cash flow for operations or to pursue growth strategies. This alignment of interests can lead to a liquidity event for existing investors.

In contrast, other choices such as the sale of all fund assets, immediate cash payouts, or restructuring of the entire fund involve different mechanisms that may not directly facilitate liquidity in a preferred equity context. These options might address fund valuation or operational changes but do not inherently imply a straightforward path for existing investors to access liquidity as effectively as the introduction of new preferred equity investors does.