Private equity investors are increasingly expecting a build-up of so-called “zombie funds” as sluggish deal activity and weak exit markets continue to weigh on portfolio turnover, according to report by Bloomberg citing a survey conducted by secondaries specialist Coller Capital.
The findings suggest that more than half of limited partners anticipate a rise in zombie-style vehicles over the next two years, a sharp increase from 2024 levels, when just 28% of respondents expected growth in this segment.
Zombie funds typically refer to legacy private equity vehicles that are extended beyond their original life cycles, often as managers seek to maximise fee income while struggling to fully realise remaining portfolio assets.
The survey, which captured responses from 108 institutional investors overseeing approximately $2tn in assets, highlights growing concern that a prolonged slowdown in distributions is reshaping fund dynamics across the industry.
Industry participants note that a combination of higher interest rates, valuation mismatches and reduced acquisition activity has made it harder to exit investments made during the low-rate era, when asset prices were elevated and financing conditions were more favourable.
Since the tightening cycle initiated by the US Federal Reserve in 2022, private equity markets have experienced a sustained slowdown, with deal activity and fundraising both under pressure. Investors have also pointed to increasing uncertainty around macroeconomic conditions and potential disruption from rapidly advancing technologies, particularly artificial intelligence, as additional headwinds for portfolio companies.
With exit opportunities constrained, a growing number of portfolio companies remain held beyond expected timelines, creating pressure on fund structures and investor liquidity expectations.
Survey respondents indicated that most investors prefer negotiated solutions such as reduced management fees, while others favour adjustments to fund economics to incentivise earlier realisations.
Continuation vehicles—structures that allow assets to be transferred into new funds with fresh capital—are also expected to become more common, with a significant share of investors anticipating increased usage even if exit markets recover in the medium term.
