Private equity firms are sitting on more than $860 billion in buyout assets in funds at least 7 years old, as thousands of portfolio companies linger beyond traditional exit windows, trapping capital for sponsors and investors.

The problem is particularly acute in sectors that attracted heavy investment during the private equity boom of 2018 through 2022, when cheap debt and lofty valuations fueled aggressive dealmaking, according to a recent report from PitchBook.

Of the 13,509 private equity-backed companies currently in US sponsor portfolios, 4,568, or 33.8%, have been held for more than five years. Another 2,536 have exceeded the traditional five-to-seven-year exit window.

PitchBook defines a "zombie" company as one that remains operational and solvent but lacks a credible path to achieving its targeted return or reaching a timely exit. The problem is unevenly distributed across sectors, with software among the most exposed.

AI Adds to Software’s Exit Problem

The sector faces a challenge sponsors could not have fully anticipated when many of these investments were made: artificial intelligence.

"Software has come under renewed scrutiny in recent months, driven primarily by AI-disruption fears," PitchBook said, adding that the concerns have created "secular uncertainty" around a sector once viewed as capable of delivering durable growth and premium exit multiples.

Many software companies were bought at elevated valuations, while potential buyers may now be less willing to pay the same prices for businesses whose growth could be disrupted by AI. 

Of the 293 IT companies from the 2021 vintage that remain in sponsor portfolios, many were acquired at peak software multiples that may be difficult to replicate in today’s market, PitchBook said.

Debt Maturities Add Pressure

Debt maturities add another layer of pressure. Software debt held by business development companies is heavily back-loaded, with 22% of principal maturing in 2031 and another 20% in 2032 or later. Software and nonsoftware holdings also face significant maturity concentrations in 2028 and 2029.

B2B has the largest concentration of aging private equity assets by company count, with 967 companies held for six to eight years and another 351 held for nine to 11 years. B2C has 452 companies in the six-to-eight-year range and 165 in the nine-to-11-year bucket.

Healthcare also has a sizable aging cohort, with 311 companies held for six to eight years and 95 held for nine to 11 years. Those businesses face reimbursement pressure, regulatory scrutiny and elevated staffing costs, according to PitchBook.

2021 Deals are Still Waiting for Exits

The problem is especially visible among the 2021 vintage. Of roughly 2,500 platform LBOs completed that year, 1,869, or 75%, remain in sponsor portfolios.

"Not every company in that cohort was acquired at peak multiples with flawed underwriting assumptions," PitchBook said. "Sponsors did not know they were buying at the peak, and some are now unable to sell because of it."

The consequences extend beyond private equity firms. Limited partners are waiting longer for distributions, while lenders face concentrated refinancing exposure. Nonsoftware BDC holdings alone have $65 billion maturing in 2028 and another $67 billion in 2029.

"The zombie overhang is a growth inhibitor, not a systemic crisis—for now," PitchBook said. But the risk could grow if weaker credit conditions, falling asset prices or sustained earnings deterioration make refinancing and exits even harder.

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