Private Equity's Clock is Ticking, Warns Verdad Advisers

Research firm Verdad Advisers published an analysis in 2023 warning that a cohort of highly leveraged private equity portfolio companies face a reckoning as debt assumptions built on near-zero interest rates collide with a substantially higher-rate environment. The firm found that the median analyzed PE-backed company carried leverage ratios nearly five times higher than comparable S&P 500 companies, with interest costs consuming 43% of EBITDA and the majority of companies operating at a cash flow loss.

Verdad founder Dan Rasmussen described the situation as "pretty scary," noting that floating-rate debt costing nearly 12% had transformed manageable obligations into existential pressures for overleveraged companies with deteriorating margins and no clear path to a sale. The report argued that the private equity model's structural dependence on cheap leverage means that a prolonged period of historically poor returns may be unavoidable as firms attempt to exit assets in a fundamentally changed capital markets environment.

Verdad's arithmetic has aged well, and the industry's answer has been to stall rather than sell. Bain's midyear 2026 report counts four years of record low distributions and a capital cycle near seven years, while Institutional Investor puts $1.2 trillion, 12 percent of global private equity assets, in zombie funds over ten years old still charging fees on marks nobody will pay. Fitch clocked a record 6.0 percent private credit default rate in April 2026 after First Brands collapsed, per Forbes. The proposed exit is retirement money: a Labor Department safe harbor for 401(k) alternatives drew over 37,000 comments, 24 state attorneys general opposed. Watch whether the final rule lands before year end and how fast the lawsuits follow.