This article appears in the April 2026 issue of The American Prospect magazine. Read more from the issue.
Illustrations by Arif Qazi
For 14 years, the Abu Dhabi Investment Council (ADIC) remained silent about John Raymond’s woefully underperforming Houston private equity firm Energy & Minerals Group (EMG). The $330 billion sovereign wealth fund’s leadership made no public pronouncements when Raymond, son of the iconic Exxon chief executive who masterminded the merger with Mobil, agreed to invest some $3 billion in the new venture of extravagant fracking mogul Aubrey McClendon, who’d just been forced out of the company he’d founded for looting corporate coffers, including siphoning $12 million for a personal collection of rare maps. They raised no alarm bells when McClendon and his new company American Energy Partners were sued a few years later for stealing trade secrets, or when the next year he was indicted for orchestrating a vast bid-rigging conspiracy, or when following his spectacular death the day after the indictment by driving 75 miles per hour into an overpass wall, EMG’s investments were themselves set ablaze. And they said nothing as EMG hired top-shelf bankruptcy lawyers to put other chunks of McClendon’s fracking empire—White Star Petroleum, Sable Permian Resources—into Chapter 11, wiping out so much investor cash Raymond lost most of his fees with it.
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But last October 23, Raymond’s firm sent ADIC and other members of an investor advisory board a cursory “announcement” that would break the proverbial camel’s back. The good news was that EMG had found a buyer for Ascent Resources Group, the natural gas supplier formed from the wreckage of McClendon’s fracking empire. The bad news was that the buyer was … EMG. Specifically, the firm had set up a “continuation fund,” an increasingly common tactic to transfer portfolio companies into new vehicles and restart the clock on what is traditionally a short-term investment. EMG offered to buy Ascent from itself for $5.5 billion; existing investors could either cash out or roll their money into the new fund.
The advisory board had to approve the deal before it was presented to all investors. EMG called a board vote for October 30, just five business days after the announcement, and for reasons unspecified claimed it could not be delayed. When members asked what the urgency was about, or why EMG could not simply put Ascent up for sale, they were met with a Thatcherian response: “There was no feasible alternative path to liquidity.” Ascent had no viable buyers, and an initial public offering was deemed “inactionable.” This was reinforced in a follow-up presentation by a third-party adviser known as a “fairness opinion,” and a FAQ delivered just hours before the vote. The company was underperforming compared to its peers, EMG claimed, justifying an exit price that would have hit investors with a loss.
Yet the pessimism didn’t make sense, given that EMG was proposing to invest more of its own capital into Ascent. And why was EMG warning advisory board members not to discuss the situation with one another? “We are the only ones that truly have the facts and all relevant and accurate information,” one email from EMG to board members read.
At the October 30 virtual meeting, EMG gave the advisory board just 20 minutes for questions and then called a vote. Only three of the 43 members agreed to approve the continuation fund, with ADIC and the rest demanding more time to consider the facts. One board member requested an internal discussion without EMG in the Zoom room; EMG incredulously said that would be “technologically impossible,” because it couldn’t transfer the meeting host to someone else.
The meeting broke up, but the vote was never closed. EMG started contacting board members individually to encourage a yes vote. After nine days of ADIC requests, on November 8 EMG finally granted access to a “virtual data room” with more information about the sale. That’s where board members discovered that EMG was giving prospective investors in the continuation fund a vastly different story: Ascent was doing great, it had much more natural gas reserves in the Ohio shale formation than the board was told, an IPO or merger was quite possible—the “expected case” by one estimate—and EMG would reap a fortune from the deal, by imposing new fees on legacy investors and earning carried interest from the transaction.
In 2025, nearly 1 out of every 5 private equity asset sales was to a continuation fund, which have been criticized for enabling potential self-dealing.
Before advisory board members could make sense of the discrepancies, on November 11, three days after opening the virtual data room, EMG announced that it had received enough votes to approve the sale, adding that it would “circulate full minutes of the meeting shortly.” Those minutes would eventually be sent at 11:30 at night two weeks later, showing only the three positive votes from the October 30 meeting, with no indication of when it obtained the subsequent approvals. By November 20, all investors in EMG’s funds received an election form, asking whether they wanted to exit their Ascent investment or join the continuation fund. They had 20 business days to decide.
All of the above information comes from a lawsuit ADIC filed in Delaware Chancery Court, one of the first cases by a limited partner to challenge what has become an epidemic of private equity funds selling portfolio companies to themselves. In 2025, nearly 1 out of every 5 private equity asset sales was to a continuation fund, which have been criticized for lacking transparency and enabling potential self-dealing. While experts have told the Prospect that the ADIC complaint is a long shot, it does offer a window into the sweaty desperation at the heart of these circular arrangements. The real question is: Why are private equity firms going to such great lengths to make them?
OVER THE PAST FIVE YEARS, America has reached Peak Rollup. Price-gouging, headcount-slashing firms in the $7 trillion private equity industry had long since consolidated the small businesses that once operated cheerleading gyms, ran dermatology clinics, and supplied clean napkins and tablecloths to restaurants. Then they moved into ice supply, font licensing, and the yarn wholesalers that supply craft shops and knitting clubs and the now-defunct JoAnn Fabrics. This inexorable death march can create the impression that private equity is not only ruthless but unstoppable, destined to slurp up every company in the country and bleed them dry, leaving customers exhausted, workers on the unemployment line, and everybody but private jet manufacturers unhappy.
But under the surface, the masters of the universe seem a bit frantic.
The problems started with a generation-defining bet. It’s hard to remember now, but as the pandemic began, the nation’s financial elites broadly assumed it would unleash a tsunami of corporate bankruptcies, not because anyone knew lockdowns would last years, but because the balance sheets of American companies had never been more burdened with unsustainable debt after two decades of private equity looting and stock buybacks. The COVID recession worsened this as retailers, restaurant chains, and anything relying on foot traffic struggled to survive. The Federal Reserve took two consequential actions to stanch the bleeding: cranking interest rates back to zero and bailing out equity investors by announcing major buys of corporate debt. Instantly and shockingly, the stock market popped 30 percent, increasing asset values across the economy.
It was a perfect opportunity for private equity. Their existing slate of companies could swell their debt load and delay any reckoning insolvency should have brought. And they could choose among all the distressed assets available, drawing upon their record $976 billion in “dry powder” capital committed by investors but unallocated to any investment. Vultures like carrion, and 2020 was a carcass-rich environment. Deal count soared in the second half of 2020, after being subdued in the bottomed-out months of April and May. In 2021, total deals hit $1.1 trillion, setting a new record. And for the first time ever, average deal size was over $1 billion, as souped-up demand and stock market increases caused valuations to soar.
High valuations don’t faze fund managers, who derive most of their income from management fees paid by investors and companies, along with other wealth-stripping activities like selling off company real estate. It was easy to exit investments at a surplus, with IPOs and mergers peaking in 2021. And there was so much money available that nobody really cared how much they were paying. But if the portfolio companies don’t thrive and exits cannot be secured, new money won’t continue to pour in to keep the cycle repeating.
That became precisely the situation in 2022, when the S&P 500 fell by almost 20 percent and pandemic inflation forced the Fed to raise interest rates, increasing debt service costs. Eileen Appelbaum, co-director of the Center for Economic and Policy Research and co-author of Private Equity at Work, thinks fund managers miscalculated when, instead of adjusting in concert with public markets, they deemed their portfolio companies properly valued. “My basic thesis is that the industry shot itself in the foot in 2022 when it failed to mark its companies to market,” Appelbaum said.
The downturn caused portfolio company exits to collapse. Of the 354 startup companies that received valuations over $1 billion in 2021—signified by the label “unicorns”—only six had held initial public offerings over the next four years. A handful of others were sold for less than $1 billion or merged with special-purpose companies looking to go public. But most lingered as “zombie unicorns,” businesses that hadn’t closed a funding round since the Obama administration, no longer grow, strain to service the debt that PE firms put on their balance sheets, and have no buyers in the marketplace. Overall, private equity has more than 31,000 unsold companies on its balance sheets, with more than half of them held for more than four years, the highest level ever recorded according to McKinsey. For decades, the typical holding period for portfolio companies has been around five years; now the hold cycle is up to seven, with more from the 2021 gold rush coming due every day. “They totally bought too high and they can’t figure out how to unload these things when they want out,” said Brendan Ballou, former Justice Department lawyer and author of a critical book about private equity called Plunder.
Without exits, limited partners (as private equity fund investors are often called) can’t recover their returns, or roll the proceeds from initial investments into new ones. Combine this with the fact that PE firms have performed no better than the public markets for the past 20 years (and are often significantly worse), and you have a distinctly unattractive investment. The biggest private equity firms traded on stock markets have fallen in value by at least 30 percent since the beginning of last year. Ivy League endowments are scaling back contributions, and total fundraising has fallen every year since 2022. Realizing losses in zombie companies would diminish fund performance and lead to even more investor flight. “It’s not like the industry is getting no money, but it’s not the money they expected or were hoping for,” Appelbaum said. “Everyone can see this big overhang of aging portfolio companies that have to be gotten rid of.”
The few revaluations that have occurred reveal this disconnect with reality: In February, two firms dropped the Swiss watchmaker Breitling to half of its prior value. A large proportion, likely the vast majority, of those 31,000 unsold portfolio companies owe more money than they are worth. Private equity overlords used borrowed money to buy them at inflated prices, and/or subsequently forced them to take out billions of dollars in loans to pay ownership “dividends” with no basis in financial reality, and they’re now saddled with overinflated payments.
In sum, the big private equity firms are anxious to keep a delusion alive, locked in a race between their creative financial engineering and an economic reckoning. During the financial crisis, this kind of thing was sardonically described as “extend and pretend”; a better phrase would be “denial of reality.” And a key part of the quest involves a side business that has increasingly become the main event, bringing back yet another buzzword from the financial crisis era: shadow banking.
SINCE THE MID-2010S, when venture capitalists soured on the software-as-a-service (SaaS) products businesses use to manage operations, it has become a robust private equity target, with firms like Thoma Bravo, Vista Equity, and Permira leading the way. According to Bloomberg data, PE firms bought more than 1,900 software companies between 2015 and 2025, a $440 billion investment smorgasbord; Bain & Company estimates that tech deals made up roughly 1 in 5 portfolio purchases since the pandemic. The deals were mostly ironed out by enterprise software specialists who loaded the transactions with enormous sums of debt, with little regard for whether revenues would be able to finance the interest payments. The idea was that new cash flows could be easily manifested by converting to a subscription model and hiking the fees. Anyway, as Ed Zitron has explained, SaaS was thought to be “sticky,” in economic parlance; no company reliant on SaaS for payroll, HR, and scheduling was likely to replace its system wholesale.
Some of these deals were obvious busts from day one—Citrix Systems ran out of cash in 2022 before the first interest payment on a $15.5 billion debt deal—but because the underlying companies no longer had to disclose financial numbers, they fell out of the headlines. Now, with the great iron door slammed shut on exits, private equity is stuck with a portfolio that has recently suffered from the perception that it is replaceable, actually, since anyone with Claude can vibecode their own software. It’s been called the SaaSpocalypse, with equity indexes of public software companies down 30 percent since last fall despite a bull market. Roughly $1.6 trillion in market value evaporated in the first two months of 2026. (Somehow Thoma Bravo hasn’t been fazed, acquiring Dayforce for $12.3 billion last year and raising a $24 billion fund as the mass sell-off was playing out, even while co-founder Orlando Bravo told CNBC in February that most publicly traded software companies “don’t have enough profits.”)
Every private equity big shot—Thoma Bravo and Vista included—ran to investor conferences and TV cameras in February to downplay SaaS fears as overblown, which is probably correct; Salesforce and Intuit aren’t going to be re-engineered by AI overnight. Yet PE managers were maybe the worst messengers for this reassurance. Despite what he acknowledged as “a very violent technology cycle,” John Zito, co-president of Apollo Asset Management, told CNBC that “none of us at Apollo think that software is going away,” which was not as soothing as he might have thought, especially given that a few months earlier in Toronto, he stunned an investor crowd by posing the question: “Is software dead?”
Yet the biggest risk from the SaaSpocalypse is not forced write-downs on private equity portfolio companies, but defaults on the junk bonds they can’t service. That’s because direct lending to software companies makes up at least 20 percent, and maybe more, of the debt exposure of the private credit industry, the new name finance bros have given to the practice of private equity firms becoming lenders.
As Jeffrey Hooke, a former private equity director who teaches at the Johns Hopkins Carey Business School, explained, between 80 and 90 percent of the loans go into leveraged buyout deals and private equity–owned companies. Those largely unregulated loans were made at the point of a proverbial gun: Piled-on debt can keep companies afloat for another year of management fees, while secondarily extracting lucrative interest and dividends for hungry investors.
In the past five years, private credit has grown into a $3 trillion juggernaut, as fund managers promise large returns, the long-sought “alpha.” But in a recent research paper, Hooke and two colleagues found that if you do a proper comparison between private credit funds and a basket of leveraged loans, you get roughly the same returns. The difference is that when a loan goes bad in the public markets, the losses get recognized; with private credit, they don’t. “If a loan goes sour, they paper it over … they’re deferring all the problems to later,” Hooke told the Prospect.
His paper showed that many private credit funds, which after ten years should be mostly paid down, were only partially liquidated, with lots of deferred payments. This gives fund managers wiggle room to define returns on the unrealized residual value. “It’s all based on what the private equity manager says it is,” Hooke said. And one way to mask this is through—wait for it—continuation funds, which recycle old loans into new instruments. “I was pretty stunned … I didn’t think limited partners would put up with it,” Hooke said. But the promise of alpha is a hell of a drug.
What this means is that private credit balance sheets are potentially a nuclear bomb waiting to detonate. And last fall, the first bits of radiation started to seep out.
BACK IN 2006, THE CARLYLE GROUP forced its portfolio company United Components, Inc., maker of oil filters, water pumps, and transmission components purchased with $585 million in debt three years earlier, to float an additional $235 million in “payment in kind,” or PIK, certificates—bonds so junky they can’t legally call them bonds—which would in turn finance a $260 million “dividend” for themselves and investors. Auto parts companies would randomly become a collector’s item for private equity. Apollo had a lighting supplier called Lumileds before bankrupting the company and passing it to Cerberus; Torque Capital Group had Illinois-based Brake Parts, Inc.; and the Michigan-based inventor of windshield wiper blade manufacturer Trico passed to a small but prestigious private equity firm called Kohlberg & Co., founded by the estranged co-founder of private equity giant KKR.
By 2024, all these disparate auto parts firms, and 20 others, had been strung together into an entity called First Brands, owned by a little-known financial engineering veteran who lived in an unspeakably palatial compound in Chagrin Falls, Ohio, and was so elusive that private investigators charged with probing his fortune concluded he’d hired professionals to scrub the internet of every photograph ever snapped of him. Patrick L. James had moved from Kuala Lumpur to Ohio as a teenager to attend the College of Wooster, then began to buy and flip local automotive suppliers in the mid-1990s, eventually acquiring more than a dozen with two partners during the Bush administration, nearly all of which closed up shop by 2009. A series of articles in the Columbus Republic, the daily newspaper of the southern Indiana town where the crew had shuttered a factory formerly owned by Arvin Industries, documented a distinctive pattern across the trio’s businesses: making drastic cuts, paying vendors late if at all, and leaving town with a pile of lawsuits and broken promises.
By 2011, the group had been sued by the state of New York, a regional commercial bank, a massive private equity firm, and a constellation of other creditors for extracting tens of thousands of dollars a month in “management” and “consulting” fees and facilitating dubious asset transfers out of companies they had financed. Somehow, none of these documented legal problems stopped the investment bank Jefferies from lending James $455 million in 2014 to acquire Trico, which Kohlberg & Co. had acquired just seven years earlier for $95 million cash and a $16 million loan. Almost quintupling the initial investment would usually suggest that there wasn’t much juice left to squeeze.
A unique feature of the term loan that financed Kohlberg’s exit is filed with the U.S. Patent and Trademark Office: an agreement signed by James and Jefferies banker Brian Buoye that assigns to the investment bank 70 of Trico’s brand names and taglines (“The foremost in wiper technology”; “Wiper blades that just click on easy”) as part of the “trademark collateral” securing the loan. Such an agreement is rare but not unprecedented; a few years later, J. Crew’s second round of private equity owners would use “intellectual property” to secure a $300 million loan they then used to pay dividends, in a gambit famously nicknamed the “J. Screw.” In this case, either Trico already had creditors it might need to screw by signing away the rights to the company’s most irreplaceable asset, or the bankers were concerned James might try to screw them first.
In 2018, James rapidly snapped up other private equity automotive rollups and bolted them onto Trico, thus constructing First Brands. This is when a federal indictment handed down in January claims his elaborate conspiracy to defraud lenders began, though there is vital exculpatory context on the third page: First Brands’ customers (the Big Four auto parts retailers, including stock market darling AutoZone, controlled for years by a succession of private equity firms and hedge funds) “routinely negotiated extended payment terms—at times permitting payment up to a year after delivery.” That time lag literally required vendors to master the dark arts of financial engineering
To make up the cash shortfall and build capital for more acquisitions, James and Co. took out billions of dollars in private credit loans. Many were never placed on the company’s books; First Brands would borrow from private credit against one invoice, and then borrow again against the same invoice, a scheme known as double-pledging collateral. There were loans secured by its inventory from an outfit called Evolution Credit, loans secured by invoices from a high-flying SoftBank-backed “supply chain” financier called Greensill Capital (and after that collapsed in 2021, another financier called Raistone, founded by one of Greensill’s founding employees), and $2.3 billion worth of sale-leaseback agreements on various First Brands factory equipment with Utah financier Onset Financial that were so predatory the firm reported internal rates of return as high as 300 percent. Greensill and Raistone sold the loans primarily to Credit Suisse and UBS, respectively; Evolution pooled its loans into a hedge fund marketed to endowments and public pension funds; and Onset sold a chunk of one deal to Patrick James’s brother Edward, who secretly invested $150 million in a sale-leaseback hoping to quickly double his money “before the house of cards came crashing down,” according to one lawsuit.
The companies brought into First Brands were just tools for extraction. As a longtime employee posted on a Reddit thread on the company’s bankruptcy: “I worked for a company for 20 years, then First Brands purchased them and immediately made big cuts and MASSIVE price hikes (like 3-5x). Employees jumped ship. Customers (OEMs) ran away to other suppliers. Buildings have been shuttered … We had been owned by 4 different private equity groups over the 20 years I was there … [First Brands is] 50X worse than the previous worst ownership.”
The continuation fund is designed not primarily to shed debts but to recirculate investor funding, maintain high valuations, and generate more fees.
It was abundantly clear to insiders that First Brands was a Ponzi scheme; Patrick James was lavishing the $700 million he sucked out of the company on conspicuous extravagances—17 “exotic” cars, two houses in Malibu, a mansion in the Hamptons and a townhouse in Manhattan, a private jet and a massive security detail—while his brother was loan-sharking the company alongside its biggest lender. The private equity firm that triggered the company’s ultimate demise, Apollo, was so certain First Brands was a goner that it began buying “synthetic” credit protection on the company’s loans a year before any trouble hit.
First Brands term loans traded at par throughout summer 2025, until a routine effort to refinance $6 billion failed to find enough buyers and the market panicked. When the company filed for Chapter 11 in September, its attorneys were wholly unprepared to contend with a collection of creditors suddenly interested in seizing assets, clawing back interest income, unearthing the truth, and sending fat cats to jail. Once the feds began sniffing around, their CFO wasted little time admitting guilt and negotiating a plea.
Through a spokesperson, Patrick James “unequivocally denies all allegations and charges against him,” while adding that “the strategy of relentlessly attacking Mr. James and the Company’s financing arrangements has led to a loss of revenues and customers as well as factory closures that cost employees their jobs.”
Week after week, new revelations about the escapades of Patrick James and his gilded menagerie of yes-men filled The Wall Street Journal and the Financial Times, as though this was not just how large swaths of post–private equity corporate America functions these days. As JPMorgan Chase CEO Jamie Dimon said after charging off $170 million from the First Brands debacle, “when you see one cockroach, there are probably more.”
Inevitably, new cockroaches began filling the headlines: the London mortgage lender linked to a disgraced Bangladeshi finance minister that had triple-pledged most of its assets, the BlackRock-backed lender to cellular tower operators that was actually just an industrial-scale manufacturer of forged invoices. Blue Owl Capital, an upstart private lender that amassed a portfolio worth $300 billion in a few short years, saw its stock fall more than two-thirds since it went public last year, due to those pesky software loans; after liquidating $1.4 billion in assets to pay off investors who wanted out, it halted redemptions entirely in one fund.
The biggest funds keep reporting upticks in troubled loans, from BlackRock to KKR to Apollo. The default rate has hit 9.2 percent, and UBS has pitched a worst-case scenario of 15 percent. And the fallout isn’t limited to fund managers, as Dimon’s charge-off confirms; Moody’s estimates that U.S. banks, which have been restricted from these exotic loans since Dodd-Frank and want the high yield, have $300 billion in exposure to private credit, meaning the impact could cascade out to the broader financial system. You know this could be bad because Goldman Sachs is running a sequel to The Big Short, helping hedge funds structure derivative short bets against collapsing private credit loans. Good thing derivatives have never magnified a crisis before!
PRIVATE EQUITY USING ARCANE financial mechanisms to escape trouble has a long tradition. Dividend recapitalizations force portfolio companies to borrow more (usually from private credit) so funds can pay out investors; they approached a record high last year. Net asset value loans, which also distribute cash to investors, are taken out on the whole fund, so if they go bad, every portfolio company in the fund suffers. Private credit facilitates this lending, but as we’ve seen, this can catch up to the lenders.
Even recirculation is an old story. As Ballou explains in Plunder, when restaurant chain and children’s birthday party fave Friendly’s filed for bankruptcy in 2011, its owner Sun Capital was also, through a private credit subsidiary, its largest lender. The firm offered to forgive Friendly’s debt if it could buy the company from itself. It won an “auction” of exactly one bidder, in the process pushing off $115 million in pension liabilities to the Pension Benefit Guaranty Corporation, which objected to the sale but was denied by a corporate-friendly Delaware judge. The ice cream merchant fell back into bankruptcy nine years later, and now is part of a multi-brand investment group. But Sun Capital emerged unscathed, having sold the company in 2016.
Continuation funds solve a different problem, designed not primarily to shed debts but to recharge investor funding liquidity, while maintaining the high valuations that have the industry so stuck. The fund manager can effectively pick their sale price, rather than nod to reality. Just 5 percent of private equity exits were continuation funds in 2021, but that number rose to 13 percent in 2024 and around 20 percent in 2025. In July, French firm PAI spun the parent company of ice cream maker Häagen-Dazs into its second continuation fund, something the industry calls “CV-squared” (“CV” is short for “continuation vehicle”).
The deals have been sold as an opportunity for investors to earn back profits on invested capital. But fund managers have incentives to lowball them, while presenting self-serving information and offering limited time—usually just 20 business days—for due diligence. Rosy claims of future growth to entice new investors are also a concern: The story of Wheel Pros, which went from a continuation fund to a bankruptcy that wiped out the investment entirely in just two years, is a cautionary tale. “I’ve said to limited partners, you aren’t sure if you’re getting shortchanged or if the limited partners in the continuation fund are,” said Hooke. “Are they cheating people in the first or second fund?”
General partners can also benefit by imposing transaction fees on old investors, management fees on new investors, and potential performance fees on aging companies. In addition, Appelbaum writes, exit sales trigger the full 20 percent carried interest for the general partner, even though these are not real transactions but circular deals. “Right away they’re cheating the LPs,” Appelbaum said.
Private equity firms argue that independent evaluations from third-party fairness opinions, as well as a sign-off procedure from advisory boards made up of the largest investors, protect limited partners’ interests. But the investment banks who create the fairness opinions are paid by the private equity firm, putting their objectivity in question. And the allegations by the Abu Dhabi Investment Council in its lawsuit against EMG reinforce that advisory boards may not be a meaningful check.
ADIC is not the first limited partner to complain about continuation funds. Last spring, Dailane Investments Limited sued H.I.G. Capital, known for its rollup of prison service monopolies, over a sale of Maillis Group to itself in 2022 for 157.5 million euros. Dailane claimed that H.I.G. overstated the company’s pension obligations to make the company seem less valuable, and dismissed a third-party bid at a higher sale price. H.I.G. has denied wrongdoing, and the case was dismissed on jurisdictional grounds, though it is now under appeal at the 11th Circuit.
ADIC had similar troubles getting heard. As the lawsuit notes, under the agreements of the EMG fund, parties must take disputes to mandatory arbitration; ADIC filed the lawsuit to seek “a preliminary injunction in aid of that AAA Arbitration.” The lawsuit cites as counts things like “Breach of the Implied Covenant of Good Faith and Fair Dealing,” which Ballou said is “sort of what you do when you don’t have anything else to argue.” By March, the arbitrator had ruled in EMG’s favor, allowing the continuation fund vote to proceed. Lawyers for ADIC declined to comment to the Prospect.
Nevertheless, ADIC was able to postpone the sale for a few months. In the meantime, two firms have made bids for Ascent well above the $5.5 billion valuation EMG targeted in the continuation fund deal. The Ascent board—which is currently stacked with EMG surrogates—never responded to the bids, and the week after the lawsuit was filed, one of the suitors, minority shareholder Mason Capital Management, accused ubiquitous BigLaw firm Kirkland & Ellis of representing both Ascent’s board and EMG in the lawsuit with ADIC, and accordingly rigging the sale. EMG, Ascent, and Kirkland did not respond to a request for comment. The Wall Street Journal described the kerfuffle as “an unusual development in what was already a highly atypical conflict for the private-equity field.”
THE FINANCIAL TIMES REPORTED on a survey from Bain & Company finding that nearly two-thirds of limited partners prefer third-party sales or IPOs over continuation funds. Yet outside of ADIC and Dailane, few limited partners have pushed back. Experts have a variety of explanations for this meekness: a feeling that private equity general partners must be smarter and more sophisticated about money, a comfort with following the herd rather than changing investment strategies and failing, a fear of missing out on the next boom. Ludovic Phalippou, a French financial economist who runs the website PE Laid Bare, thinks it’s about career advancement for people who may aspire to run their own private equity firm someday. “Suing a GP can mean burning bridges, losing future allocations, and destroying one’s professional reputation inside a small ecosystem,” Phalippou wrote in an email. “The legal path risks more for the career than it is likely to return for the institution.”
Concern for the poor, downtrodden sultans of Abu Dhabi may seem out of touch in a world of extreme inequality. But private equity’s financial engineering contributes to keeping the haves far ahead of the have-nots. We know what happens when losses don’t spread equitably to those responsible, and inevitably ordinary people get hurt, either through a massive recession or the inevitable taxpayer bailout in the aftermath.
Continuation funds and other extend-and-pretend schemes also trap portfolio companies in the grasp of private equity, which can devastate workers, damage quality, and monopolize markets in ways that keep prices high. It was bad enough when your favorite department store or restaurant chain endured five years under private equity ownership; the longer it lingers, the more pain that gets distributed. Plus, some of the most prominent institutional investors potentially shortchanged in these circular deals are employee pension funds; teachers, firefighters, and city workers are directly exposed.
But the biggest reason that you should care about this is that the ultimate repository for the consequences of private equity’s blunders could be your retirement account.
For years, private equity has longed for inclusion in 401(k) plans offered to employees in the wake of the destruction of the defined-benefit pension. There’s $14 trillion of capital holed up in those 401(k) accounts, representing the last pot of gold fund managers have been largely unable to reach. The main hurdle for employers has always been fear that employees could sue them over losses or high fees. But a Trump executive order last August directed regulators to help “democratize access” to alternative investments. New Labor Department rules released on Monday aim to limit employee lawsuits. Along with an upcoming Supreme Court ruling, that could make enough companies comfortable to clear the way, though success isn’t guaranteed.
PE managers are already pressuring companies, third-party administrators, and the consultants who advise them to list their offerings. And one staffer at an institutional investor who is not authorized to speak to the media told the Prospect about their primary worry: that private equity will stick their most overvalued companies into continuation funds exclusively for 401(k) plan holders, or “retail investors,” as they are known. Private credit firms are retailoring their funds for 401(k) plans as well, and some of the biggest have already struck deals with asset managers like Voya and Vanguard. “I’d be shocked if the industry doesn’t attempt to dump their garbage onto retail,” the staffer said.
The royal families of the Emirates may not like being ripped off, but an office drone like you, who puts 5 percent of your paycheck into a vaguely worded target fund chosen on the first day on the job, may not know what hit you. Years from now, you’ll mindlessly scroll to your remaining balance and find that most of it has been spent on a fourth home and a yacht in the Hamptons for a guy named Brant.
If we had a functioning rule of law in America, private equity’s self-created losses would be crammed onto their own balance sheets. As it is, the pliant Trump administration is enthusiastically abetting the industry’s efforts to use other people’s money to pay for their mistakes. To the titans of Wall Street, it doesn’t matter if the whole shitpile comes crashing down someday, as long as they construct an umbrella to deflect it onto unsuspecting innocents.
This article appears in Apr 2026 issue.