Key Takeaways
- • More than half of private equity fund investors now expect zombie funds to proliferate over the next two years, representing a significant shift from 2024 when only 28% of investors anticipated such an uptick, according to a Coller Capital survey.
- • Zombie funds—where managers extend a fund's operational life beyond its stated expiration date primarily to continue collecting management fees—are expected to multiply as dealmaking activity remains subdued in the current market environment.
- • The survey data reflects growing concern among limited partners about fee collection dynamics during periods of reduced acquisition and exit activity, signaling potential tension between fund managers and their investor base.
Summary
Private equity investors are bracing for a meaningful increase in zombie funds over the next two years as the broader dealmaking slowdown persists. According to a survey conducted by secondaries specialist Coller Capital, more than half of fund investors expect the proliferation of these structures—a sharp reversal from sentiment just two years prior, when only 28% of limited partners anticipated growth in zombie fund activity.
Zombie funds represent a structural challenge in private equity where fund managers extend the operational life of vehicles beyond their originally contractual expiration dates, primarily to sustain management fee collections when deal flow dries up. This practice becomes particularly acute during periods of reduced market activity, as managers struggle to deploy capital or achieve exits that would naturally conclude fund lifecycles. The expectation of increased zombie fund activity underscores the severity of the current dealmaking environment and suggests that the prolonged market lull has shifted investor sentiment significantly in just two years.
The survey results indicate a growing divergence between manager incentives—which favor extended fund lives and continued fee generation—and limited partner expectations for efficient capital deployment and timely fund wind-downs. This dynamic could become a flashpoint in fund negotiations and renewals, particularly as institutional investors and family offices increasingly scrutinize fee arrangements and capital efficiency metrics in their private equity allocations.
Zombie funds represent a structural challenge in private equity where fund managers extend the operational life of vehicles beyond their originally contractual expiration dates, primarily to sustain management fee collections when deal flow dries up. This practice becomes particularly acute during periods of reduced market activity, as managers struggle to deploy capital or achieve exits that would naturally conclude fund lifecycles. The expectation of increased zombie fund activity underscores the severity of the current dealmaking environment and suggests that the prolonged market lull has shifted investor sentiment significantly in just two years.
The survey results indicate a growing divergence between manager incentives—which favor extended fund lives and continued fee generation—and limited partner expectations for efficient capital deployment and timely fund wind-downs. This dynamic could become a flashpoint in fund negotiations and renewals, particularly as institutional investors and family offices increasingly scrutinize fee arrangements and capital efficiency metrics in their private equity allocations.
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