The tide of zombie funds raises a critical question: who remains at the gaming table? A recent report has starkly revealed the underlying vulnerabilities of the private equity (PE) sector. This circle, built upon money, suits, and elitism, has long been considered the apex of the investment industry food chain. Operating from Wall Street, Hong Kong's Central district, and Shanghai's Lujiazui, these firms routinely discuss multi-billion dollar deals. However, the industry, once derided by venture capital as "PPT laborers profiting from spreads," is now undergoing a significant downgrade.
A latest report from Bain & Company indicates that the private equity industry has delivered lower returns to investors for the fourth consecutive year. The distribution ratio for 2025 is projected at a mere 14%, the lowest level since the 2008-2009 global financial crisis. Concurrently, the industry is saddled with a backlog of approximately 32,000 unsold companies, representing a staggering $3.8 trillion in assets, signaling a worsening exit dilemma. When the global PE distribution ratio plummets to 14%—a figure nearing the lows of the 2008 crisis—it suggests not merely a cyclical fluctuation, but a precursor to a potential "mass extinction" event. The financial myth constructed over the past decade on "cheap leverage and valuation premiums" has collapsed. Beside this looming $3.8 trillion asset overhang, PE managers are undergoing a fundamental shift from being "capital players" to "operational laborers."
The exit dilemma: Why can't the $3.8 trillion "logjam" be cleared? For over two decades, PE seemed to have mastered the essence of investing. Major players like Blackstone, KKR, and Carlyle, with their large-scale capital allocation capabilities and mastery of leverage, stood at the top of the hierarchy. Even domestic RMB VCs eyed top-tier dual-currency funds like Sequoia and Hillhouse with envy, particularly their generous travel budgets. While angels and VCs struggled for funding post-regulatory changes, large PE firms maintained an air of established affluence—overseas team-building continued, and internal travel standards remained high. This reflected the stability and security of scale. True top-tier PE figures disdained those constantly posting about overtime on social media; the ideal was signing a billion-dollar check between golf shots. Although large in scale, these firms were often labeled by dollar fund professionals as "lengthy in process and restrictive." However, with the receding tide of dollar funds, this tier is rapidly moving upward, establishing that "those with money call the shots."
Bain's recent report highlights the PE predicament: the global industry is constrained by an immense asset overhang. Roughly 32,000 unsold companies are stuck within the system, representing $3.8 trillion in assets. Exit transaction volume in 2025 did not rebound but fell by 2% year-on-year, extending the industry's liquidity winter. The report shows the average asset holding period has lengthened to about seven years, up from five to six years between 2010 and 2021. The 14% return ice point is causing a dramatic contraction in this hierarchy. The "dollar elite" who once discussed global macro trends over pour-over coffee in Guomao may now find themselves in county-level factories in Shandong or Jiangsu, smoking with workshop managers to discuss how to shave 3% off logistics costs. This sense of "elite disillusionment" is the most accurate portrayal of the current PE circle.
Behind the Bain report lies a core question: Why is there so little cash return despite seemingly substantial book assets? This creates a unique PE portrait: the "gems" have been sold, leaving a pile of "hard bones." In fact, to maintain performance in recent years, General Partners (GPs) have already sold their top-performing assets to the public markets or large corporations. What remains in the portfolio are mostly assets held for over seven years, with awkward valuations, many unable to even meet IPO thresholds. The cost of time is even more critical. Time acts as a killer of the Internal Rate of Return (IRR); funds held for an additional year see their IRR melt away like summer ice cream. The holding period for these remaining assets has stretched to seven years, far exceeding the traditional investment cycle. Under the time-leveraging effect of IRR, each additional day of holding further dilutes returns, widening the gap between book value and actual realization capability.
China's market exemplifies the global exit困境. The A-share IPO market faced its darkest hour in 2024, with only 100 companies successfully listing. The new "National Nine Articles" further raised listing thresholds, while strategic M&A capable of absorbing PE exits remained scarce. In 2025, A-share IPOs only increased to 111. Projects from the 2018-2020 investment peak have普遍 been delayed two or three times,陷入 "exit-less"窘境. ByteDance is a典型案例. In February, Reuters reported that General Atlantic (GA) was selling part of its stake in ByteDance at a valuation of $550 billion (approx. RMB 37,782 billion). The lack of sufficient liquidity in A-shares and Hong Kong markets means even high-quality assets like this struggle to exit via traditional channels, becoming representative "hard bones" in the $3.8 trillion logjam.
Compounding the problem, multiple uncertainties in the 2025 global macro-environment have further tightened the already fragile exit channels. Swings in tariff policies and persistent geopolitical tensions have kept IPO markets dormant and caused M&A market sentiment to brake abruptly. Even brief回暖 in some markets failed to provide effective absorption. With exits becoming the industry's biggest development obstacle, GPs are caught in a dilemma: continue holding as asset returns decline, or force a sale at a significant discount. This liquidity crisis not only delays Limited Partners' (LPs) capital return indefinitely but also stalls the entire PE industry's capital recycling cycle, forming the core issue behind the $3.8 trillion logjam.
Fundraising Darwinism: Who is experiencing a "silent extinction"? The 2025 fundraising market is no longer about equal distribution but "winner-takes-all, zero for the tail." Data shows that 13 giant transactions took 30% of the industry's total capital. This indicates an unprecedented extreme concentration at the top in 2025's global PE fundraising, magnifying the Matthew Effect to its极限. LPs have become extremely panicked and conservative, preferring to wait on backup lists for firms like Blackstone or Apollo rather than consider undifferentiated small and medium-sized funds. As one industry partner stated, a Darwinian survival-of-the-fittest contest is激烈上演 within the industry. The outcome is not dramatic collapse but the silent extinction of中小 managers. This is accelerating the birth of zombie funds. What is a zombie fund? Not dead, but not alive either. Many small and medium GPs haven't "closed down" but have entered a "zombified" state—no new fundraising, no new investments, surviving merely on management fees, endlessly rolling over assets in continuation vehicles (CVs). This state is like "having raised the last fund, but not yet received the obituary."
Globally, top-tier institutions, with their diversified strategy portfolios, deep resource积累, and strong track records, have built robust anti-risk buffers. Giants like Blackstone and Apollo maintain dominance in primary PE while branching into private credit, real estate, and other areas, becoming LPs' preferred choices. The situation is similar in China. In the RMB fund market, state-backed leading institutions also hold absolute advantage, further squeezing the生存空间 for small and medium funds. In stark contrast, small and medium funds face a triple threat, with numerous real cases confirming this "extinction wave." First, fundraising difficulty has become the norm; even with immense effort, reaching targets is tough. Most private fund institutions deregistered by the Asset Management Association of China (AMAC) in 2025 were small and medium funds. Second, they are陷入 zombie化困境; unable to exit projects or raise new funds, these managers can only rely on CVs, losing active investment capability, leading to business stagnation and eventual deregistration. Third, they ultimately face silent extinction; underperforming small and medium funds don't announce closures but quietly disappear from industry lists after liquidating their last assets. For instance, Chunxiao Capital, after exposure to imploded fintech projects, had its manager registration revoked in 2019. Once-prominent firms like CITIC Capital have also become casualties of industry evolution.
Fundraising market polarization is also evident in the dual deterioration of fundraising cycles and capital efficiency. Even for funds reaching their targets, the average fundraising周期 has lengthened to 20 months, nearly double the pre-pandemic 11 months, significantly reducing capital raising efficiency. In discussions with GPs, many investors noted that fundraising cycles are getting progressively longer. "Fundraising is like pulling everyone to run a marathon to the finish line; missing one person means not reaching the end," a Beijing investor in the信创 sector noted. For small and medium funds, this means not only failing to raise money but also being unable to afford the time消耗, ultimately being淘汰 in the winner-takes-all landscape.
The essence of the fundraising difficulty is that LPs, having experienced exit困境 and low returns, have become more cautious, preferring to allocate capital to top-tier institutions that can navigate cycles. This trend, in turn, exacerbates industry polarization, further narrowing the生存空间 for small and medium funds.
Profit paradigm颠覆: 12% is the new 5%. The most critical insight from Bain's report is the颠覆 of PE's profit paradigm. Namely, 12% is the new 5%. The core of this view is that during the low-interest-rate golden era, PE's profit logic was simple and efficient: GPs only needed portfolio companies to achieve 5% annual EBITDA growth. Leveraged with high debt and expanding valuation multiples, this easily generated 2.5x investment returns. Back then, core competitiveness lay in capital operation skills, market timing for buying low and selling high, and financial engineering techniques for leverage. Substantial returns could be achieved without deep operational involvement in portfolio companies. This model created the PE industry's wealth神话 and its golden decade. For example, many dollar funds investing in Chinese internet companies achieved multiples of returns merely through industry valuation increases and simple capital maneuvers.
Now, fundamental changes in the market environment have rendered this profit formula obsolete. On one hand, rising global interest rates have turned high leverage from a profit amplifier into a heavy financial burden. On the other, capital markets have returned to rationality; valuation multiples are no longer expanding and may even be contracting, blocking the path to returns via multiple expansion. In this context, achieving the traditional 2.5x return now requires portfolio companies to deliver 10%-12% annual EBITDA growth. This doubling of the required rate fundamentally rewrites the industry's profit logic. It effectively sentences "financial engineering" to death and宣告 the end of the era of easy money through financial engineering, ushering in a new era of competition centered on operational capability for driving内生 growth.
This means that in the past, a GP could be a "golden collar" by mastering PPTs, valuation discussions, and bank borrowing. Now, a GP must understand supply chain synergy, lean management, and human capital structure upgrades. If you cannot make a company's profit (EBITDA) grow by a seemingly supercharged 12% annually, you cannot cover the financing costs. The "easy money" financier must transform into a "hands-on" entrepreneur. GPs skilled in capital运作 but lacking business operational能力 are being淘汰 by the market. Future industry winners must become "half-entrepreneurs," deeply involved in the daily operations of portfolio companies, forcibly lifting endogenous profitability through substantive operational improvements like enhancing supply chain efficiency, upgrading management teams, and optimizing working capital structures. In the domestic market, the post-investment empowerment provided by some state-backed GPs to semiconductor companies serves as a model, integrating industrial resources and upgrading R&D systems to drive内生 growth, validating the feasibility of the new profit paradigm. The shift from "capital player" to "operations expert" has become a survival必修课 for GPs under the new paradigm, truly returning the PE industry to the origin of value investing.
Conclusion: PE不死, but it's no longer easy. This "Darwinian" restructuring is essentially a "dehydration行动" for the PE industry. Under the叠加 challenges of the $3.8 trillion asset overhang, an extremely polarized fundraising market, a颠覆 profit paradigm, and risky private credit, the global PE industry is undergoing an unprecedented deep adjustment. However, this does not signal the industry's decline but rather a long-overdue industry洗礼—PE不死, it just isn't easy anymore.
For LPs, future investment decisions will no longer simply focus on a GP's book IRR but will prioritize its genuine "operational Midas touch"—its ability to drive内生 growth through substantive operational improvements in portfolio companies. For GPs, only by abandoning past capital speculation mindsets, diligently becoming enablers of business operations, and building differentiated value-creation capabilities can they secure their footing amidst the industry's restructuring. The future winners will no longer be the capital brokers adept at storytelling and chasing trends. 2026 will be a watershed year: whether promises are fulfilled and cash returns materialize will determine who remains as the final hunters at the table and who are the cleared-away泡沫. The golden age of PE has落幕, but the silver age of "value creation" has just begun.
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