Private Equity Giants Warn of Industry Shake-Up as Funds Outnumber McDonald’s

Hong Kong — Private-equity leaders are predicting a major wave of consolidation as investors demand stronger returns and stricter governance across an industry that has grown overcrowded since the post-pandemic boom.

At the Global Financial Leaders’ Investment Summit in Hong Kong, KKR & Co. co-CEO Joe Bae said there are now more private-equity funds in North America than McDonald’s outlets, roughly 19,000 funds versus 14,000 restaurants. “You have to be very disciplined in a market like this and focus on fundamental, operational value creation,” Bae noted.

The warning follows a 2021 spending surge, when buyout firms deployed record capital at inflated valuations, aided by cheap credit. With higher interest rates now in place, many of those deals are proving harder to exit or reprice. Oaktree’s Howard Marks cautioned that the era of ultra-low rates “is over,” predicting U.S. borrowing costs will settle near 3%–3.5%, levels that are “neither stimulative nor restrictive.”

Fundraising has become tougher. Only about 5,000 of today’s 19,000 firms have raised capital in the past seven years, according to EQT CEO Per Franzen, who warned that as many as 80% could become “zombie firms”, managing old assets without new money. He forecast that fewer than 100 global firms may eventually capture 90% of investor inflows.

Still, major players see opportunity ahead. Carlyle CEO Harvey Schwartz said the demand for capital will keep growing as technology and new industries expand, adding that the secondary-market boom, where investors trade stakes in existing funds, has created a more flexible capital system. Transactions in this segment are expected to surpass $200 billion this year, up from $160 billion in 2024.

Industry veterans argue consolidation will strengthen private equity overall by eliminating weaker managers. “There are going to be winners and losers … it will all come down to performance,” said Rob Lucas, CEO of CVC Capital Partners.

Despite headwinds, optimism is returning. Deal activity rebounded in the third quarter to a record $310 billion, according to EY, while fresh access to U.S. retirement capital through expanded 401(k) rules may fuel long-term growth.