The zombie fund problem is getting worse

The zombie fund problem is getting worse

Mon, August 17, 2026 at 10:25 PM GMT+3 2 min read

It is very hard to kill a private equity firm. But large numbers of managers have slipped into a state of pre-mortem known as zombification.

The problem is getting worse, not better, according to Private Equity's Zombie Problem, a new piece of research by PitchBook.

A zombified PE firm is operational and solvent, but lacks a clear path to a timely exit of its assets and has no clear way to achieve its target returns. Many, though not all, have proved unable to raise a new fund.

At the end of 2025, roughly 40% of PE-backed companies in the US, representing more than $860 billion in net asset value, had been held for more than seven years. This is the third consecutive annual percentage increase and is the highest level since 2016, when the exit market was contending with a glut of companies whose value-creation plans had been derailed by the Great Financial Crisis.

It is also well past the three- to five-year hold period that has long defined private equity's pitch to investors.

"I think the three- to five-year hold as a hard rule is gone now," said Hamza Khaldi, a principal at placement agent and advisory firm Elm Capital, where he leads LP-led secondary sales advisory and executes fundraising mandates. "It was arguably always more aspirational than real."

The problem is particularly acute for PE funds deploying capital between 2018 and 2022, a period marked by low borrowing costs and fiscal stimulus that freed up capital and enabled sponsors to pursue acquisitions that, in many instances, proved overvalued. Funds that began investing in 2021 have returned just 0.14x investors' initial commitments, far below funds of earlier vintages at the same point in their lives.

Perhaps most alarmingly, of the 6,437 US PE-backed companies held for more than five years, more than half have not completed any deal since the end of 2021. This means no add-on acquisitions, no recapitalizations, no refinancings or anything else in more than four years.

The upshot is continued weak distributions to investors and "growing questions about mark credibility as paper value stubbornly refuses to convert to cash," according to Kyle Walters, a private equity research analyst at PitchBook and the author of the report.

This article originally appeared on PitchBook News