Private market investors are bracing for a growing population of “zombie” funds even as enthusiasm for private credit cools, and artificial intelligence emerges as a new battleground among fund managers.

A survey of 108 institutional investors overseeing more than $2 trillion in assets suggests private markets may be entering a new phase—one defined less by rapid fundraising and more by questions around liquidity, performance and manager differentiation.

Coller Capital’s Summer 2026 Global Private Capital Barometer highlights a growing concern surrounding zombie funds. Zombie funds are typically defined as vehicles whose managers prolong fund lives while struggling to exit investments, often continuing to collect management fees despite limited prospects for meaningful value creation. More than half of limited partners (54%) expect the number of zombie funds in their portfolios to increase over the next two years. 

Rising interest rates disrupted dealmaking and exit markets. Companies acquired at lofty valuations during the low-rate era have become harder to sell, extending holding periods and delaying distributions back to investors.

Investors are increasingly preparing for that reality rather than expecting a quick return to normal. 

According to Coller Capital, a majority of LPs wish to reduce management fees, while only a small minority favored removing managers or refusing fund extensions outright.

Liquidity remains one of the private market industry’s most pressing concerns. Holding periods have stretched across buyout portfolios, while continuation vehicles and secondary transactions have become increasingly important tools for generating liquidity, the report noted.

Private Credit’s Growth Story Begins To Cool

At the same time, investors appear to be reassessing their enthusiasm for private credit, one of the fastest-growing asset classes in private markets over the past several years.

The percentage of LPs planning to increase private credit allocations over the next 12 months fell to 29% from 42% just six months earlier, according to the survey. While the overwhelming majority still expect to maintain or increase exposure, the decline suggests investors are becoming more cautious after a period of explosive growth.

Recent headlines surrounding valuation concerns, unrealized losses and redemption restrictions across parts of the private credit market may be influencing sentiment. More than half of respondents, 53%, said they believe there are "isolated risks" in private credit beyond what they initially expected, while 18% said they believe the asset class faces a systemic problem.

That caution is also showing up in fundraising preferences. Investors increasingly favor established private credit managers over newer entrants, reversing a trend seen just a few years ago when many LPs viewed emerging credit firms as attractive opportunities.

AI May Create A New Class Of Winners And Losers

Yet while investors are becoming more selective in credit, they are also looking toward a new factor that could reshape competition across private markets: artificial intelligence.

The report found that only 22% of LPs believe AI will become a direct source of investment outperformance over the next five years. Instead, 70% expect fund managers to use the technology primarily as a cost-efficiency tool.

Even so, investors overwhelmingly expect AI to change competitive dynamics. Two-thirds of respondents believe AI adoption will widen the gap between top-performing and lagging managers rather than level the playing field.

That finding suggests LPs see AI less as a magic source of alpha and more as a force multiplier. Firms that successfully integrate AI into sourcing, diligence, portfolio management and internal operations could strengthen existing advantages, while weaker managers risk falling further behind.

A Market Entering Its Next Phase

Taken together, the survey paints a picture of an industry at an inflection point. Private equity managers are wrestling with aging portfolios and rising zombie-fund concerns. 

Private credit is shifting from rapid expansion toward greater scrutiny and selectivity. And AI is emerging as a potential differentiator that could determine which firms thrive in the next cycle.

For investors, the message appears clear: the era of easy growth may be fading, but the competition for performance is only intensifying.

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