Of the roughly 10,000 private-equity funds raised over the past decade, at least 200 now qualify as zombie funds, accounting for as much as $100 billion of the $1.5 trillion currently invested in these vehicles, according to consultants TorreyCove Capital Partners LLC, the Wall Street Journal reported today. Zombie funds are among a growing class of financial assets that are hard to price and whose value is difficult to ascertain, part of a lack of transparency endemic in today's financial markets that increasingly challenges investors. Private-equity funds raise money from investors to buy businesses that the funds then restructure and try to sell for a profit, often after just a few years. The idea is that once the businesses are sold, investors will get back their capital plus any profits, minus fees of course. Pension funds and other investors have billions tied up in near-dead buyout vehicles known as zombie funds. The Securities and Exchange Commission is delving into such issues as part of a broad look at private-equity funds and whether investors are being misled. "We're looking at zombielike funds that potentially have stale valuations," says Bruce Karpati, co-head of the SEC's asset-management enforcement unit. "The investigation into zombie funds is an important effort being driven across the country."
