⚠️ Private equity is facing a new wave of pressure: The Fed’s Wednesday rate hike is expected to deepen the problems already weighing on private equity, where a record $349 billion is tied up in so-called “zombie funds.” These are private-equity funds that have held companies for more than the typical 10-year period but are still struggling to sell them and return the money to investors. Higher rates exacerbate the issue by increasing borrowing costs for the companies owned by these funds, while also making potential buyers less willing to pay high prices. The amount of capital stuck in these funds surged ~65% from the end of 2021 through the end of 2025, after private-equity sales slowed following the Fed’s rate hikes in 2022. Meanwhile, private-equity firms now control more than $2 trillion in assets in the US, while private credit could come under increasing stress as higher rates raise borrowing costs for companies and make it harder for borrowers to service their debt. The bigger the backlog becomes, the harder it could be for private-equity firms to raise new funds and generate the fees they rely on. The longer rates stay elevated, the greater the risk that private equity faces a broader squeeze on fundraising, valuations and returns.