(Reuters) – European buyout house Motion Equity Partners has secured new funding from investor HarbourVest, giving the private equity group another four years to try to make money out of its portfolio, a source with knowledge of the matter said.
The deal lifts Motion, which raised 1.25 billion euros ($1.7 billion) for its last fund in 2005, out of so-called “zombie” fund status.
Zombie funds are those which have run out of money to invest in new deals, have little incentive to sell assets – because they don’t expect a particularly good price – and give money back to clients, but continue to exist because they can still rake in management fees.
According to industry tracker Preqin, $116 billion remains trapped in almost 1,200 funds that can be classed as zombies.
Under the terms of a deal with Boston-based HarbourVest, investors in Motion were given the option of selling their stakes at a discount, or sticking with Motion for the next four years as it tries to exit its holdings at a profit, the source said.
About half of investors opted for cash, the source said. It was not clear how much money HarbourVest has committed.
Motion, which was formerly known as Cognetas, declined to comment. HarbourVest did not respond to a request for comment.
Investors stuck in zombie funds face a difficult choice. If they sell their assets to another buyer they face losses, but sticking with the manager can prove controversial.
Deals such as that between Motion and HarbourVest often effectively forget past losses and reset the starting point at which managers can measure their success.
Previous efforts by Motion to raise new capital failed. Talks with Canadian pension fund CPPIB ended last year because of disagreements over the structure of a deal, two sources with knowledge of the matter said.Get your FREE trial or subscribe now to Buyouts to find new deal opportunities, super-charge your fundraising efforts and track top managers.