CHOOSE well, and investing in private equity is a lucrative business. Investors can double their money by tying it up in funds that run for a decade, sometimes more. For their trouble, the buy-out firms keep a 20% wedge of the profits, plus fees on the side. Thrilled by the results, all sides then sign up for another ten years.


If all goes well, that is. In the unprofitable shadows of the industry, zombies roam. Partly as a result of the downturn, many buy-out firms are likely to return less money than was originally entrusted to them. This is bad news for investors. It is graver still for the buy-out firms, which have no profits to look forward to and little chance of raising fresh capital for future funds. These firms are the undead: partly sentient (with little prospect of new business, many have fired the bulk of their staff); hard to kill off; and ubiquitous. (…)


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