Adriana Hansen/PitchBook News
Private equity funds are holding on to their assets longer than ever, leading to a rise in the number of so-called “zombie funds,” according to new research from PitchBook.
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 seven years or longer, according to Private Equity’s Zombie Problem. This is the third consecutive annual percentage increase and marks the highest proportion of assets held for seven-plus years since 2016.
For limited partners, this exacerbates a longstanding lack of liquidity in their PE portfolios and adds to building frustration about the gap between how assets are marked and what they can sell for. But it also creates opportunities in the secondary market that LPs could exploit as sellers or buyers.
These PE zombie funds are operational and solvent, but hold companies that lack a clear path to a timely exit and a targeted return.
In more favorable times for the asset class, a seven- to eight-year-old fund should have a total value-to-paid-in multiple—which takes into account realized and unrealized gains—of 1.6x to 2x, according to the research. It should have distributed 50% to 60% of that figure in real cash. This is the case for 2010-15 vintages. But for the 2018-22 vintages, that conversion rate has stalled, falling well below historical figures for the same fund ages.
Four years into their fund lives, DPI stands at 0.14x for the 2021 vintage, approximately 30% below the distribution rate that prior vintages generated by the same point in their lives. While assets acquired in 2020 and 2021 aren’t zombies yet, their path to exit is blocked by having been acquired at the top of the market, when borrowing costs were close to zero, and a post-pandemic frenzy that saw PE deal value hit nearly $1.3 trillion across 10,000 transactions.
Most middle-market deals relied on floating-rate private credit for financing. When interest rates rose in 2022, the cost of leverage increased, affecting the profitability of the underlying businesses.
“We looked at the impact of interest rates going up, and for companies that had full loads of debt at floating rates going into the interest rate increases in 2022, we calculated as much as a 0.6x reduction in returns from simply the cost of debt,” said Michael Bego, managing partner at Kline Hill Partners, which invests in LP- and GP-led secondaries in the lower middle market.
The resulting dearth of exit options is driving the secondary market’s sell-side pipeline. Because private equity portfolios rely on distributions from mature assets to fund new capital calls, LPs who are not receiving the cash flow they had modeled are increasingly generating liquidity through secondary sales.
Hamza Khaldi, a principal at placement agent and advisory firm Elm Capital, where he leads LP-led secondary sales advisory and executes fundraising mandates, said stakes in funds eight years or older are typically transacting at 35% to 45% discounts to their reported NAV. Less mature funds, from 2022 to 2024 vintages, can trade close to par or even at a premium, since there is still upside left in the underlying companies.
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Even at a steep discount, selling might make sense for LPs. They should be able to tell in years five to seven of a fund’s life if it is on track to become a bottom-decile performer or a zombie fund candidate, according to analysis by private capital advisory firm Upwelling Capital Group.
There are also opportunities for secondary buyers willing to take more concentrated bets in the GP-led market, which focuses on high-conviction bets in one or a handful of companies, rather than buying diversified pools of fund stakes.
“You can find very good GPs and companies these days that haven’t been able to tap liquidity for various reasons,” said Paul Cohn, partner and founder of Agility Equity Partners, a Pittsburgh-based PE firm that focuses on single-asset, sponsor-led deals.
“You generally have the benefit of getting in at a good value, due to the eagerness of the prior investors to transact and get liquidity.”
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