DEER ISLE: Insights, Flows & Investment Trends
Zombie Funds – Dead or Alive?
Zombie funds are no longer a joke — they’re an expensive, systemic problem. With over 1,850 funds globally that haven’t made a new investment in more than a year, the private markets are sitting on an estimated $668 billion in stranded assets, with investors paying up to $13 billion annually just to keep them on life support1,2,3. LPs are frustrated, liquidity is choked, and reputations are quietly eroding. The damage is not just financial — it’s institutional.
Here’s the twist: for GPs managing one of these undead vehicles, the critical question isn’t simply whether the fund is still alive — it’s whether the GP can embrace new approaches to breathe life into a fund and portfolio companies that appear lifeless. Zombie status often reflects not just asset stagnation, but a GP who has lost the incentive, patience, or will to create resolution — not only for the fund, but for LPs, employees, and the GP’s own brand. For GPs who are willing to act, this moment offers a rare chance to reset the narrative: from someone who “let it happen” to someone who took control of outcomes.
In a near-death state, the multiple strategic paths available — from GP-led continuation vehicles to portfolio-level M&A, fund recapitalizations, and even strategic spinouts may seem out of reach. That’s where technology becomes a lifeline.
Tools like Deer Isle’s Beacon fintech platform help GPs map the capital landscape across 17,000+ institutional capital providers — including secondaries, M&A targets, and future LPs — and engage with these important constituents with the ability to reach the relevant capital provider universe with 99% deliverability into their emails in weeks, not months. It’s not just about surviving; it’s about broadening the exit universe: targeted outreach for M&A, deal-by-deal liquidity, and strategic next-fund visibility.
GPs need to switch from using old, tired techniques to embracing a technology-enabled strategy to take themselves off life support and chart a controlled, credible path forward.
Capital Provider Interest: Capital providers are actively seeking to acquire multifamily real estate assets in the $30–$40 million range. These investors are largely geography-agnostic and focused on compelling fundamentals and risk-adjusted returns. Demand includes both stabilized and value-add opportunities.
Growth Buyout – Growth Buyout funds are gaining recognition as a distinct category; increasingly defined as acquiring control of later-stage venture-backed companies at discounted valuations. These strategies seek to deliver “better than” private equity-style returns with reduced venture risk. Many of these transactions involve platform acquisitions sourced from or related to Zombie Funds.
Private Equity: In response to fundraising headwinds, GPs are increasingly offering “Stapled Deals” that pair co-investment opportunities with future fund commitments. These structures often include reduced (1/10%) or even zero (0/0%) fee economics to attract LPs who may not be current LPs in order to attract new LPs to commit to the next fund.
Private Credit: Since many middle market private credit lenders rely on sponsor-led transactions, a slowdown in middle market private equity capital raising could make lending to sponsors less attractive and more competitive since fewer middle market transactions will occur if there is less capital being raised. The result would be increased selectivity and competition for quality credits.
