By Lee McCabe, Managing Partner, Claymore Partners
The Problem That Needed a New Name
The private equity industry has described its aged, unresolved funds as “zombie funds” for over a decade. The term stuck because it was evocative. It also turned out to be useless. “Zombie” describes an appearance—a fund that looks dead but keeps moving. It says nothing about why these funds persist, what structural conditions sustain them, or what it would take to resolve them. A decade of zombie fund commentary has produced considerable diagnosis and almost no cure.
The inspiration for the Hostage Funds framework was the gap between the volume of analysis and the absence of resolution. By 2024, global AUM (assets under management) in aged PE funds past their natural ten-year term had reached $829 billion—an all-time high, up sevenfold since 2013. Average holding periods had extended to 6.4 years, up 56 percent from 4.1 years in 2007. LP distributions had fallen to 6 percent of AUM in the first half of 2025, against a ten-year average of 14 percent. The numbers had gotten worse every year for a decade. Everyone in the industry knew it. Nobody had fixed it.
That suggested the problem was not being described correctly. A misdiagnosed problem does not get fixed; it gets managed.
What the Framework Gives the Industry
A hostage fund is a fund where capital cannot be freed because no single actor has both the motivation and the power to free it. Three structural conditions create that situation simultaneously:
- The Fee Inversion: The GP’s annual fee income from continuation exceeds realistic carried interest expectations, removing the economic motivation to resolve.
- The Governance Lock: No LP or LP coalition holds sufficient consent authority under the fund’s LPA (limited partnership agreement) to force a resolution unilaterally.
- The Exit Trap: At least one portfolio asset carries a bid-ask spread between GP marks and market pricing that makes a clean exit value-destructive at current marks.
None of this requires a villain. The GP extending a fund because fee income exceeds realistic carry is acting rationally within a structure that permits it. The LP blocking a resolution that conflicts with their liquidity position is doing what their mandate requires. The asset that cannot be sold at marks is simply a disagreement between what the GP believes it is worth and what the market will pay. Rational actors. Broken structure.
The practical value for GPs, LPs, and advisors is that the framework is prospective rather than retrospective. Zombie fund identification happens after the damage is done. The three hostage thresholds are diagnosable before a fund reaches terminal decline—which means intervention is possible while options still exist.
What Comes Next
The Hostage Funds paper identifies the governance failure clearly. But the governance failure is sitting on top of something else, and that is the work Claymore Partners is focused on next.
From 2010 to 2021, approximately 66 percent of PE value creation came from leverage and multiple expansion rather than organic improvement in the businesses themselves. When those tailwinds reversed, the assets that had not genuinely improved were exposed. Many of the funds now sitting in hostage conditions are not simply victims of market timing. They are holding assets where the value creation thesis was never fully executed—or was never validated against the actual operating model before the engagement started.
The exit is the proof. Governance reform can unlock the mechanism. Only value creation earns the exit.
Claymore Partners works with PE sponsors and their portfolio companies to close that gap—building and demonstrating the operational improvements that make an asset credibly exitable, not just theoretically valued. The next phase of work builds directly on the diagnostic framework the Hostage Funds paper establishes.
The full paper is available at claymorepartners.com.
Author Bio:
Lee McCabe is Managing Partner of Claymore Partners, a PE-focused digital value creation advisory. With 25 years of operating experience across big tech, global marketplaces and PE-backed portfolios, he works with private equity sponsors and portfolio companies to build and demonstrate operational value creation.
