Zombie funds, those that still hold some or all of its assets beyond its intended holding period, usually as it is struggling to sell investments for a profit, has risen this year.
The number of private equity zombie funds in investor portfolios has risen to 1,180, up from 1,049 in July last year. Research from information provider Preqin also shows that the value of unrealised assets being held by zombie funds has also risen, from $80.9bn (€74.4 billion) in 2013 to $126.6bn in 2015.
One reason cited by Preqin for the rise in both number and value of zombie funds is the inclusion of 2008 funds, where investors would have invested their capital before the global financial crisis.
Aside from the 2008 zombie funds, which have the most unrealised assets held in them, funds started between 2006 and 2008 have over $100 billion of assets between them. A further definition of a zombie fund is any fund from 2003–2008, managed by an active firm which has not had any successful fundraising for a follow-up fund since 2008. Funds prior to this are assumed to have been liquidated, according to Preqin.
There are various types of Zombie funds, venture capital funds account for over half (54%) of all zombie funds. This compares to 21% of zombie funds which are buyout vehicles and 10% which are growth funds.
“Zombie funds are a point of contention within the private equity market. If they are struggling to sell the assets in their portfolio for a profit, firms can sometimes find themselves extending the life-cycle of a fund far beyond what they originally intended. As they continue to take management fees on the assets they hold, managers can come under increased pressure from investors to liquidate the fund,” says Christopher Elvin, head of private equity products, Preqin.
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