They won’t eat your brains but they will eat your money—’zombie’ funds run by private equity firms are still collecting fees from investors, mostly pension funds and wealthy clients, even though their earning potential is long gone.
According to industry tracker Preqin, more than 1,200 zombie funds are holding nearly $116 billion in assets that would be better off reinvested elsewhere, put into pension accounts or refunded to clients.
Zombie funds, “represent a clear misalignment of interests between the fund manager and investor,” Ignatius Fogarty, head of Private Equity Products at Preqin, told Reuters.
The potential misuse of these funds by the partners who manage them has caught the attention of the Securities and Exchange Commission, which is already in the midst of a broader investigation into the entire private equity industry.
Zombie funds returned less than 40% of the capital they paid in, compared with a 99% for all private equity funds raised in 2003, according to Preqin. Over 1,700 companies have shares sitting idle in these funds.
If you have a pension or invest in private equity funds, it’s a good idea to make sure your money isn’t trapped in one of these undead accounts.