Private equity’s $860 billion zombie company problem

Private equity’s got a zombie problem.

No, not the rancid, brain-devouring living dead of horror movies—we’re talking about zombie portfolio companies, which have been proliferating across the $3.8 trillion private equity industry.

Consider these numbers: Among the 13,509 companies backed by U.S.

PE firms, about 33.8% have been held for five years or more, according to new PitchBook data.

This means there are north of 4,500 PE-backed companies in some zombie stage right now, which shakes out to a wild number: There’s about $860 billion in zombified net asset value in U.S.

PE, among funds that are more than seven years old, PitchBook estimates.

There are many kinds of zombies.

By age, for one: At five years, the zombie company is already feverish, and at ten years, it’s a full-fledged hungry zombie.

There are also distressed zombies, and those that are just surviving, but the general definition of a zombie is clear, Kyle Walters, PitchBook’s private equity analyst, told Fortune .

“You have a large number of companies that theoretically should’ve been exited by now,” said Walters.

“Capital should have been returned to investors, but instead you have more companies in that seven to ten year-age bucket than we’re traditionally used to, with seemingly no way of realizing a successful exit.

And so, we’re stuck with these zombies.” The zombie problem dates back to the ZIRP (zero-interest-rate-policy) era, when debt was mega-cheap, capital was flowing, and the private markets got themselves into some exuberant trouble.

In PE, especially, cheap debt fueled a buyout boom.

“Post-COVID in 2023, when you get rates going to their highest in 40 years, you’re no longer able to rely on that financial engineering,” said Walters.