Investor Relations

Zombie Funds On The Rise

More than $120 billion is tied up in private equity fund assets that managers are having a hard time realizing a profit on.
Katie Kuehner-HebertJuly 30, 2015
Zombie Funds On The Rise

Despite a pickup in M&A activity this year, some private equity funds are having a hard time exiting investments and returning money to their investors.

The number of such “zombie” funds is increasing, according to a Preqin report released Thursday.

Zombie funds hold some or all of their assets beyond their intended holding period, usually as they struggle to sell investments for a profit, the New York City alternative asset data and intelligence firm said in its report.

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An estimated 1,180 zombie funds are being held in institutional investors’ portfolios, an increase from the 1,049 estimated by Preqin as of a year ago, and a further increase from the 999 in existence as of July 2013.

The value of unrealized assets being held by zombie funds has also risen, from $80.9 billion in 2013 to $126.6 billion in 2015.

The analysis now includes funds with a 2008 vintage, many of which would have been making investments at the peak of the pre-financial crisis boom, according to Preqin’s head of private equity products, Christopher Elvin.

As such, these funds are likely to have found it difficult to realize assets for a profit, resulting in an estimated 250 funds becoming zombies.

“Zombie funds are a point of contention within the private equity market,” Preqin’s Elvin said. “If they are struggling to sell the assets in their portfolio for a profit, firms can sometimes find themselves extending the life-cycle of a fund far beyond what they originally intended. As they continue to take management fees on the assets they hold, managers can come under increased pressure from investors to liquidate the fund.”