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What’s Behind the Zombie Fund Surge?

Private equity firms are increasingly finding themselves stuck with old investments that they can’t sell. These “zombie funds” drag on years past their expected lifespans—often 12–15+ years—while still charging management fees. Instead of generating exits, they zombify, holding onto illiquid assets that weigh down both managers and their investors.

The Numbers Tell the Story

The ratio of private equity investments to exits has climbed to 3.14× in 2025, marking a decade-high disconnect between capital put to work and actual realized exits. Meanwhile, over $668 billion in assets are trapped in tail-end or zombie funds globally. That’s up nearly 19% in just a year, with more than a third of those aged eight years or older currently worth less than their original investment value.

The exit logjam includes nearly 12,400 unsold companies, representing a backlog of seven to eight years at current pace—delaying both capital return and fresh deployment.

Why Investors Are Growing Impatient

Limited partners—pension funds, insurers, and endowments—are increasingly alarmed. Around 50% already hold stakes in zombie funds, according to a recent survey, with 28% expecting to become trapped themselves soon.

Yet they continue paying $3 billion to $13 billion per year in management fees on these stale portfolios, even when there's little value left to extract. For many investors, this ineffective capital drag pain multiplies when paired with missed returns and lack of transparency.

Fueling the Crisis: Market Headwinds and Structural Flaws

A slowdown in M&A, IPOs, and a tough macroeconomic climate since 2022 have choked off exit avenues. With fewer buyers and stalled capital markets, sponsors are forced to hold onto assets longer, often at the cost of returns.

Compounding the issue are incentive misalignments: managers continue collecting fees with little pressure to liquidate, while investors face limited options to push deals forward.

Are Zombie Funds a Short-Term Hiccup—or a Structural Risk?

Some optimism does exist. Experts note that liquidity and dealmaking may surge again, potentially easing the backlog. Meanwhile, innovative fund structures like continuation vehicles and secondaries markets provide partial relief.

Still, McKinsey warns that the gap between top-performing funds and these laggards is widening. As legacy funds age, capital dries up, valuation models sputter, and LPs grow frustrated with the lack of progress.

What Should Investors Do Now?

• Campaign for transparency: Demand detailed tail-end asset breakdowns and fee schedules.
• Explore secondaries or restructurings: Even at a discount, these can free up capital.
• Use LP advisory committees effectively: Push for fee reductions, independent valuations, or fund wind-downs.
• Model for longer timelines: Traditional cash flow forecasts are often overly optimistic—stress-test projections for delayed liquidity.