Rise of zombie funds reshapes private equity landscape amid declining fund lifespans

The private equity landscape is grappling with a growing phenomenon reminiscent of the protracted decline seen in the television series “The Walking Dead”: the rise of so-called “zombie funds.” These ageing private equity funds, often exceeding 10 years in life and carrying significant unrealised net asset value (NAV), have proliferated in recent years, creating a complex challenge for investors and the industry at large.

According to recent unpublished research provided by TREO Asset Management, the volume of decade-plus-old funds surged to $829 billion in 2024, marking a 24% increase from the previous year and setting a new record for assets under management (AUM) in this category. This follows a steady upward trend, with $668 billion recorded in 2023, itself a 10% rise from 2022. TREO projects that tail-end funds could reach around $1 trillion globally by 2030. While much of this growth has occurred outside North America, North American tail-end fund AUM also expanded by 10% to $441 billion in 2024. The Asia-Pacific region is expected to drive future increases, impacted by decreased limited partner (LP) risk appetite and geopolitical uncertainties.

The rise of zombie funds speaks to a structural shift within private equity. Funds now often remain active for 15 to 16 years, well beyond the traditional 10-year lifespan, while distribution rates have steadily decreased over recent years, with many funds failing to return capital to investors at expected rates. This trend has led to concerns among LPs, with a Coller Capital survey revealing that nearly half of private equity investors admitted to holding zombie funds in their portfolios. Moreover, these funds typically have high NAVs relative to committed capital, sometimes exceeding 20%, and in venture capital, even surpassing 60%.

The persistence of these funds is exacerbated by an industry environment where many managers have not previously faced the need to liquidate challenging assets under adverse conditions. TREO’s Alfston Thomas suggested there may be a looming “reckoning of markdowns,” as the secondary market, though growing, is insufficiently large to absorb the volume of unrealised assets. Research from Upwelling Capital Group underscores that earlier exit strategies might benefit LPs more than adhering to traditional long-term holds, yet many remain locked into enduring funds.

Amid this backdrop of mounting tail-end fund volume and market caution, notable developments have emerged from specific firms. North Asian buyout firm MBK Partners recently held the final close of its sixth flagship fund, MBK Partners VI, at $5.5 billion, about 15-20% below its initially targeted $7 billion. This close came amid a challenging fundraising environment in Asia-Pacific, where the region accounted for just 4% of global private equity fundraising in the first quarter of 2025, down markedly from previous years. MBK’s latest fund, which has attracted significant North American and Middle Eastern LP interest including public pensions, has already deployed approximately $2.9 billion in 2025.

MBK’s fundraising efforts have played out against a backdrop of controversy. The firm’s securitisation of South Korean supermarket chain Homeplus and a hostile bid for Korea Zinc have attracted political criticism and regulatory scrutiny in South Korea. The Financial Supervisory Service has reportedly initiated preliminary disciplinary action against MBK relating to Homeplus’s redeemable convertible preferred shares and their potential impact on investors. MBK has defended its actions, stating that the amendments were necessary to prevent a sudden credit downgrade and to preserve enterprise value, emphasising their commitment to investor interests, including those of the National Pension Service of Korea.

Investment commitments to MBK’s fund have included significant allocations from major institutional LPs such as the New York State Teachers’ Retirement System, which approved a $150 million commitment, and the Canada Pension Plan Investment Board, with a $175 million commitment and a reported NAV of $29.2 million as the fund progresses in its early stages.

Meanwhile, Federated Hermes has successfully closed the first $320 million tranche of its latest mid-market co-investment fund, aiming for a $500 million target. The fund, supported by a diverse range of global LPs, including some of Australia’s largest superannuation funds and pension plans from South Korea and Italy, has already deployed about 30% of its capital. Federated Hermes manages close to $6 billion in private equity assets concentrated on vehicles under $1 billion, continuing its strategy of supporting mid-sized funds with targeted co-investments.

The growth of zombie funds, alongside mixed fundraising performances across regions and firms, paints a cautionary picture for private equity investors. While seasoned fund managers have historically benefited from long-term holdings, evolving market realities and increasing scrutiny may force a reassessment of strategies, with greater attention to timely asset realisation and risk mitigation. The industry faces a critical juncture where the pressures of unrealised assets, regulatory challenges, and shifting LP expectations could prompt significant repricing and structural changes in private equity markets moving forward.