The fastest growing corner of private equity isn’t secondaries, evergreens or continuation funds. It’s zombie funds.
So-called zombie funds are those that are more than ten years old, have stopped making new investments and still hold portfolio companies they haven’t been able to sell without recognizing losses or sacrificing incentive fees. Meanwhile, GPs may continue collecting management fees on a net asset value that may be inflated.
Today zombie funds account for about $1.2 trillion, or 12 percent, of global private equity assets under management, according to Treo Asset Management, which calls zombies “tail end” funds.
“It’s a softer way of saying it,” says Finbarr O’Connor, the founding partner of Treo, which focuses solely on managing these assets for both limited partners and general partners. Treo based its analysis on 2026 data from Preqin, PitchBook, and Jefferies Global Secondary Market Review.
“That number has grown 38 percent year over year and has nearly tripled since 2019,” he says. The private equity industry’s massive fundraising between 2018 and 2020 and the subsequent dearth of exits has left a mountain of portfolio companies unsold. Treo expects the value of zombies to grow to $2 trillion in the next few years as those fund vintages age.
Investors in private equity expect the number of zombie funds to continue growing, according to a recent survey by Coller Capital, a secondary private equity firm.
Over half of the respondents to Coller’s survey expect the number of zombie funds — where they say a GP is prolonging a fund’s life in order to maximize management fees — in their own portfolios to increase in the next two years.
Coller attributed the trend to longer holding periods, and the elevated valuations firms paid before interest rates rose, which it said are now “coming home to roost in investor portfolios.”
The average age of the zombie funds tracked by Treo is 14 years. Both large and small private equity firms have zombie funds, which may hold only a few remaining portfolio companies. Sometimes these companies are caught up in regulatory issues or litigation that makes selling them problematic, according to O’Connor.
The rise of zombies raises an issue that allocators didn’t anticipate when they poured money into private equity after the market crash of 2008.
“Your money can get trapped,” says Dan Rasmussen, founder of hedge fund Verdad Advisors and a private equity critic. “I think people didn’t really think about that when they put huge percentages of their money into it.”
You can read the rest of my story here:
https://www.institutionalinvestor.com/article/more-1-trillion-stuck-zombie-private-equity-funds
