Happy Thursday and welcome. Diving into a divisive one today - so if I’m wrong, hit reply - I want to hear your take.

We’ll start with one of my favorite investors of all time, Charlie Munger. He famously said:

There's nowhere in private equity where this is more painfully obvious than with zombie funds. And I'm not talking about the dusty, 14-year-old tail-end vehicles. I mean the real LP definition - the one we actually use:

A zombie fund = a GP that fails to raise their next fund, even though the current fund is only 5–6 years old.

The fund still exists.

The GP franchise is on life support.

As an LP, you start noticing the signs long before it becomes official. The "fundraise pushed to next year," and the growing defensiveness in quarterly calls. Eventually, the market stops pretending: this GP is not raising again.

And the moment that happens, everything changes.

If you strip private equity to its essentials, it runs on aligned incentives.

But when the GP is no longer raising:

And the GP quietly shifts from trying to maximize value to trying to maximize survival.

Survival usually means holding on to portfolio companies for as long as possible, because management fees on invested capital are suddenly the only reliable economics left.

You can feel the behavioral shift almost immediately:

Deals that would've been sold now get "another quarter" - which turns into 12 or 18 months of "fixing a few things and getting it ready for market." Exit conversations become defensive rather than strategic. NAV becomes something to protect rather than something to grow.

It's uncomfortable, but it's rational.

The incentives changed.

The next thing that happens is subtle but devastating: the team starts leaving.

Anyone with ambition and career runway wants to be part of a platform with a future. So they move on:

And once the A-players leave, the B-players stop being pushed - and the C-players become invisible.

What remains is usually a smaller, older team trying to keep the wheels on.

No fresh thinking. No stretch ambitions. No real urgency.

The portfolio feels this long before LPs do.

Before the evolution of GP-led secondaries, LPs had two tools:

More calls, more pressure, more "exit reviews," more soulless meetings.

I sat through a lot of these. You're asking "what's the exit plan for Company X" and getting back "we're exploring options" - which is code for "we're hoping something changes." In practice, monitoring doesn't fix misaligned incentives. It just documents them.

To all GPs reading this: Don’t worry! This only works in theory.

In reality, LPs almost never align well enough to execute it. Outside extreme cases like Abraaj, coordinated removals across an LP base of +10 investors, this simply doesn’t happen.

Trying to sell your stake is technically an option, but good luck getting fair value for a sub-scale fund run by a fading GP. The secondary market knew exactly what was going on.

For years, zombie funds were a holding pattern.

LPs waited. Grew frustrated. Assigned responsibility to junior members…

… And hoped portfolio companies could limp their way to acceptable outcomes.

That's where part I ends: with the incentive problems clear, the team weakened, and LPs historically stuck.

And then GP-led secondaries arrived - solving the zombie problem in a bittersweet way by creating an entirely new set of conflicts.

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