Zombie funds, in financial markets and applicable to crypto investment, refer to private equity or venture capital funds that are past their initial investment period but continue to operate, often holding illiquid assets, struggling to make distributions, or facing difficulties raising new capital.
Mechanism
These funds typically hold a portfolio of underperforming or illiquid assets that are difficult to exit, leading to extended fund lifecycles. Management fees may continue to accrue, further eroding residual value for limited partners. The fund remains active but lacks the vitality of new investments or successful exits.
Methodology
Managing exposure to zombie funds in crypto investment involves rigorous due diligence on fund managers, clear exit strategies, and transparent reporting on portfolio liquidity. Investors often seek secondary market opportunities to exit positions or pressure general partners for more active asset management and dissolution.
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