Private equity firms are grappling with a significant problem of "zombie" companies and funds. Currently, over $860 billion in buyout assets are tied up in funds that are at least seven years old, meaning thousands of portfolio companies are being held beyond their typical exit windows, trapping capital for both sponsors and investors. This issue is particularly pronounced in sectors that saw heavy investment between 2018 and 2022, a period characterized by readily available cheap debt and high valuations.
A significant portion of private equity-backed companies in U.S. sponsor portfolios are aging, with 33.8% (4,568 companies) held for more than five years, and 2,536 of these having exceeded the traditional five-to-seven-year exit timeframe. A "zombie" company is defined as one that is operational and solvent but lacks a clear path to achieving its targeted return or a timely exit. The software sector is heavily exposed, partly due to unanticipated challenges like artificial intelligence, which has led to renewed scrutiny and concerns about disruption, potentially hindering exit valuations for companies acquired at peak multiples in 2021.
The problem extends to funds themselves, with a record $348.5 billion in U.S. private equity assets stuck in funds that are at least a decade old as of the end of 2025. This figure is 3.5 times the amount in 2015. Investors are also anticipating a multiplication of so-called zombie funds, where fund managers prolong a fund’s life past its expiration to maximize management fees, with over half of investors expecting an increase in the next two years, up from 28% in 2024. An additional $512.7 billion in net asset value is held in funds that are seven to nine years old, indicating a growing wave of maturing assets facing similar issues.
Debt maturities further complicate the situation, particularly for software and non-software holdings, which face significant maturity concentrations in 2028 and 2029. Non-software BDC holdings alone have $65 billion maturing in 2028 and another $67 billion in 2029. The consequences of this "zombie overhang" include limited partners waiting longer for distributions and lenders facing concentrated refinancing exposure. While currently considered a growth inhibitor rather than a systemic crisis, the risk could escalate if credit conditions worsen, asset prices decline, or earnings continue to deteriorate, making refinancing and exits even more challenging.
