First, the exit is a liquidity event. In other words, it is an opportunity for investors to recover the cash investment they made in the fund. This is how the fund realizes returns for its investors. Second, it provides a concrete measure of the performance of the GP--due to the illiquidity of the asset class, it is difficult to assess a GP's performance in the absence of exits. If LPs are satisfied with the past returns, they can commit to the next fund offered by the GP.

One final consideration: Say that you are a pension fund or family office--why do you need a GP? Why can't you do PE investing yourself?