Private equity’s long bull market is slowly grinding to a halt. Numerous funds are now resembling “zombie companies.” These firms are struggling to raise new funds, are holding aging portfolios, and are leaning on continuation vehicles to keep fee streams alive.
A recent Forbes insight notes that fundraising cycles have stretched from 16 to 23 months. Meanwhile, the number of funds and total capital raised are both sharply down from the 2021 peak. Finally, performance has declined to public-market levels or worse.
Interestingly, just as in the equity market, breadth is narrowing. Capital is consolidating into a handful of megafunds and, crucially, being reallocated away from traditional buyout vehicles toward private credit and infrastructure.
“If existing investors don’t come and support them, new investors are highly unlikely to, ” says Sunaina Sinha Haldea, global head of private capital advisory at Raymond James.
Median distributed-to-paid-in capital (a measure of realized returns) is well below historical norms. Distribution yields have dropped from over 25% a decade ago to around 11%. For many, the problem isn’t just underperformance. It’s illiquidity and a lack of cash back.
Leaning Into Private Lending
The latest research from the National Bureau of Economic Research looks into related markets. In a paper, “Why is Private Lending So Popular?” David Robinson and Melanie Wallskog examine a rising lending trend, especially through business development companies (BDCs).
The rapid rise of private credit is not a separate phenomenon from private equity’s struggles. It is, in large part, a re-wiring of the same ecosystem.
Private lenders are not simply stepping in where banks won’t lend. Instead, they are:
- Deploying complex, PE‑style capital structures that traditional banks can’t or won’t do.
- Financing the debt leg of PE‑sponsored deals that used to be underwritten by banks and syndicated into collateralized loan obligations (CLOs) and other vehicles.
- Often owned or closely affiliated with PE sponsors themselves.
From 2001 to 2023, 70% of total asset growth in BDCs came from PE‑affiliated BDCs. Among independent BDCs, the fastest growth is in those doing complex, non‑bank‑like deals. Those are exactly the kind of instruments that fit with stressed or highly structured PE situations. Even as many buyout funds stagnate, the credit side of the same industry is booming.
From Banks to Private Credit to Households
The combination of zombie PE funds and ascendant private lenders has important implications for how risk is distributed and how policy responds.
Historically, large PE deals relied on bank‑originated loans that were then sliced, syndicated, and securitized into CLOs and other products across the financial system. When things went wrong, the creditor base was dispersed and hard to coordinate.
Yet, the new pattern is different. PE‑affiliated or specialist private credit vehicles originate and hold loans to maturity, often sitting at the same table as the equity sponsor. That dynamic can make restructurings smoother and, in theory, reduce the kind of fire‑sale panic that amplifies downturns through the banking system.
But the research also raises an important question: Who ultimately owns the equity behind private lending?
As institutional investors and wealth platforms push “alternatives” into retirement accounts and other retail channels, household balance sheets are increasingly exposed to private credit funds and PE‑linked vehicles. Thus, the underlying risk is increasingly in the hands of pensions, 401(k)-style products, and individual savers.
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