Private equity does not have a zombie fund problem. It has a hostage fund problem.

Zombie fund was a useful phrase for about five minutes. It describes what these funds look like from the outside: old, tired, wandering around with unrealised assets and no obvious way home. Very dramatic. Slightly Halloween. Not especially useful.

The real issue is structural.

A hostage fund is a fund where capital cannot be freed because no single actor has both the motivation and the power to free it.

The GP may be earning more from continued fees than it can realistically earn from carry.

The LPs may technically have governance rights, but not the coordination, incentives, or economic appetite to use them.

The assets may be marked at values the market will not pay, so selling means crystallising a loss everyone has been politely pretending is not there.

Nobody needs to be evil. Everyone can be acting rationally. That is what makes it worse.

The numbers are not small.

Global AUM in aged PE funds past their natural term has reached $829bn, up sevenfold since 2013.

Median holding periods for PE-backed companies hit 6.4 years in 2025, up 56% from 2007.

LP distributions fell to 6% of AUM in H1 2025, versus a ten-year average of 14%.

And for LPs trying to get out, the ransom gets uglier with age. Secondary pricing drops from roughly 94% of NAV for funds under five years old, to 71% at year ten, to about 44 cents on the dollar by year fifteen.

The longer you wait, the more the door charges admission.

The paper argues that the industry has spent a decade treating this as a performance problem when much of it is actually a governance failure sitting on top of weak operational value creation.

The exit is the proof.

Funds that get out cleanly usually have businesses that actually changed. Revenue moved. Margins improved. The platform thesis happened somewhere outside the board deck. Buyers can see it in the numbers.

The ones that stay trapped often have a different problem: the story aged better than the asset.

I wrote Hostage Funds because “zombie funds” no longer explains enough. It describes the corpse. It does not explain the handcuffs.

Full paper:
https://lnkd.in/gR24mE63