New York (HedgeCo.Net) – Reuters reports that new data from Preqin shows that there are approximately 1,200 private equity funds that can be described as zombie funds sitting on $116 billion in assets.
In a zombie fund, the GP is sitting on their assets past their expected holding period with no intention of making realizations and no plans to raise a successor fund, while continuing to collect management fees from their investors.
“No one is a winner when zombie funds are involved and they represent a clear misalignment of interests between the fund manager and investor.” Ignatius Fogarty – Head of Private Equity Products at Preqin said in a statement, “Consequently, GPs should be eager to realize investments and return capital to investors so that there is no reputational damage that adversely affects their ability to raise a follow-on fund. The secondary buyout market goes some way in offering a solution to return capital to investors.”
Secondary buyouts can offer a solution, Preqin says, with a fund manager taking over the assets of a zombie fund and creating an exit opportunity and liquidity to the primary vendor.
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