LP survey reveals mounting concern over fund manager quality and undead portfolios
Institutional investors are pulling back on private credit even as they continue deploying capital across private markets more broadly.
That’s according to new research from Coller Capital’s Summer 2026 Global Private Capital Barometer, which also finds a majority of limited partners bracing for a rise in so-called zombie funds within their portfolios.
The survey included 108 LPs overseeing a combined $2.045 trillion in assets under management and highlights investors navigating an increasingly complex landscape shaped by geopolitical uncertainty, liquidity pressure and questions about the quality of private credit portfolios.
Just 29% of LPs said they plan to grow their private credit target allocations over the next 12 months, down sharply from 42% who said the same in the previous Barometer six months ago. Infrastructure also lost ground, with the share of investors looking to increase allocations falling from 39% to 31% over the same period.
The Barometer notes that while the pullback may partly reflect a natural consolidation after years of rapid expansion, recent negative media coverage of private credit risks has clearly weighed on sentiment.
Even so, 87% of respondents still intend to either maintain or grow their exposure to the asset class, suggesting the retreat is calibrated rather than wholesale.
Risk anxiety
Anxiety about risk within existing private credit portfolios is evident in the data.
While 29% of LPs said they are comfortable that risk in the asset class is consistent with their initial expectations and 53% identified isolated pockets of elevated risk, 18% said they believe there is a systemic problem.
The survey also found potential gaps in investor understanding, with just 49% rating their knowledge of expected loss ratios in their own portfolios as good or very good, and 5% describing it as poor.
New managers are bearing the brunt of that caution. A majority of LPs across all regions described recently established private credit funds as less attractive investment destinations over the next two years, a reversal from 2022 when more than half of respondents in both North America and Europe viewed new managers favourably.
Zombie fund concerns mount
The survey's findings on zombie funds, defined as vehicles whose managers are prolonging a fund's life to preserve management fee income rather than exit investments, are stark.
More than half of respondents, 54%, expect the number of zombie funds in their private equity portfolios to grow over the next two years. A further 31% expect the count to remain stable, with only 15% anticipating a decline.
This builds on earlier Barometer data from 2024, when 48% of LPs already reported zombie fund exposure and 28% expected such situations to materialise later in the cycle. The combination of extended holding periods and elevated entry valuations paid before interest rates rose appears to be crystallising into a live problem for institutional portfolios.
When it comes to managing these situations, LPs are largely taking a pragmatic approach. Stepping down the management fee is the preferred response, cited by 54% of respondents. Restructuring manager incentives to encourage timely exits was the next most popular option at 18%, while 11% said they would leave the fund to run its course. North American LPs stand out as somewhat more assertive: 14% said they would seek to remove the manager, compared with 11% across the full sample, and 11% said they would refuse any fund life extension, versus 6% overall.
Geopolitics register differently by region
LPs are continuing to commit capital despite global uncertainty, with a third expecting to accelerate their pace of commitments over the next two years and 57% expecting no change. But the degree to which geopolitics is shaping those decisions varies significantly by geography.
Overall, 37% of respondents said geopolitical factors are influencing their allocation decisions more than in the past, with no one reporting reduced geopolitical sensitivity. Among North American LPs, that figure falls to 23%, while investors in Europe and Asia Pacific are markedly more affected, with nearly half in each region saying geopolitics now carries greater weight.
The data also reflects a broader reassessment of manager relationships. Around 23% of LPs said they expect to reduce the number of GP relationships in their portfolios over the next three years, up from 16% when the question was last asked in 2020.
Continuation vehicles gain permanence
Secondaries and continuation vehicles occupy a growing share of LP thinking as holding periods lengthen and traditional exit routes remain constrained.
When LPs were asked whether GPs are striking the right balance between providing liquidity and allowing portfolio companies more time to create value, 40% said the balance was broadly correct, while an equal 40% said GPs are not returning capital quickly enough, and 22% said strong assets are being sold prematurely.
Continuation vehicles, which allow investors to either exit or roll into a new structure when a fund reaches the end of its life, appear to have moved from a workaround to an accepted part of the market. Even if exit conditions improve, 40% of LPs expect continuation vehicle activity to keep growing, 29% think it will hold steady at current levels, and 31% anticipate a decline.
Among secondary market asset classes, LPs rank private credit as the most likely to see the greatest proportional growth over the next three years, reflecting the expansion of primary private credit and the portfolio rebalancing needs that follow.
AI seen as cost tool, not alpha generator
On artificial intelligence, only 22% of respondents believe effective AI deployment by GPs will become a meaningful source of return outperformance within five years. The majority (70%) expect it to function primarily as a cost reduction tool, with a further 8% viewing it mainly as a risk management application.
Despite that, LPs are not dismissing AI's competitive implications and two thirds expect that how well GPs implement AI will widen the performance gap between top and bottom quartile funds, with only a third predicting it will level the playing field.
As for what LPs themselves would do with time freed up by AI-driven efficiency gains, 54% said they would prioritise strategic and team development, and 49% said they would invest more time cultivating GP relationships. Developing direct investment capabilities ranked last, with just 16% selecting it.
Human judgment is not being displaced in most LP minds. Around 61% said the importance of gut instinct in fund investment and co-investment decisions is unchanged, while 22% said it is actually increasing in significance.
