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Zombies at the Gate

March 21, 2013

“The funds that will not die” “Zombies at the gates” in The Economist Print Edition:

In the unprofitable shadows of the [private equity] industry, zombies roam.

The incentive for zombies to keep going is simple: though there are no profits to split, and no long-term future to look forward to, there are still juicy fees to be had.

Zombies exist partly because of the peculiar way in which private equity is structured. Those who put up the money agree to stay in the background as “limited partners”, mainly for tax reasons. Unlike investors in hedge funds, they cannot redeem their cash whenever they want to but have to wait until the lifetime of the fund expires, short of finding a willing third party to buy them out. If they want their money sooner, their only leverage with the buy-out firm is to threaten not to invest in future vehicles. Zombies, knowing there is no future for them anyway, are impervious to this threat.

Industry estimates put assets being managed by zombies at around $100 billion. Many think this will balloon in future, as funds that raised money during the peak of the credit bubble slowly become the living dead.

Another solution is for an outsider to inject fresh money. Vision Capital, based in London, specialises in buying entire portfolios of companies previously owned by private-equity firms, thereby taking over the assets of a zombie fund.


For many investors in zombie firms, however, the horror will continue.

The title of this article seems an allusion to the classic “Barbarians at the Gate” – “about the leveraged buyout (LBO) of RJR Nabisco.”

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  1. Raid the Zombies @BeneschLaw @Indians | zombielaw

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