PE giants see ‘a tale of consolidation’ for the industry
Joe Bae, co-chief executive officer of KKR & Co., during the Global Financial Leaders Investment Summit in Hong Kong, China, on Tuesday, Nov. 4, 2025.
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Private equity fund managers are bracing for a wave of consolidation as investors demand higher returns and stronger governance, causing a shakeup in an overcrowded industry, several industry veterans said at a high-profile financial summit in Hong Kong on Tuesday.
“How is it that there are more private equity funds in North America than there are McDonald’s franchises?” Joe Bae, co-CEO of KKR & Co, said on Tuesday. he said, noting that the United States has approximately 14,000 fast-food outlets and 19,000 private equity funds.
Bae told the Global Financial Leaders’ Investment Summit that the bifurcation of funds’ performance had become more “extreme” than at any time in the last decade. “In a market like this, you need to be very disciplined and focus on creating core, operational value in companies, bringing better governance to the table,” he said.
The widening deficit follows a private capital spending spree in 2021 as firms rushed to deploy unspent funds, with activity also supported by ultra-low interest rates. Because private equity firms often hold portfolio companies for more than five years before exiting, many of these investments are now more difficult to sell or revalue in a higher interest rate environment.
In an interview with CNBC’s The China Connection, Howard Marks, co-founder and co-chairman of Oaktree Capital Management, warned that “the era of ultra-low interest rates is over.”
He predicted that the current easing cycle would see US interest rates fall to just 3-3.5%, which would be “neither stimulative nor restrictive.” The Federal Reserve cut interest rates to a range of 3.75%-4% last week.
According to Bae, firms that remained disciplined during the post-pandemic liquidity rush and stayed away from inflated valuations and cheap leverage were the ones that performed better.
Private equity groups have struggled to raise new funds in recent years due to a significant accumulation of unsold assets and a slowdown in cash returns to investors. Limited partners (fund investors) are also scrutinizing managers more closely than ever before, demanding stronger performance and tighter governance.
Per Franzen, CEO of EQT in Sweden, said that of the private equity firms in existence today, only about 5,000 have successfully raised funds in the last seven years. he said in an interview With the Financial Times earlier this week. He added that 80 percent of these companies will likely turn into zombie companies in the next decade, only managing existing investments because they cannot raise new capital.
According to Franzen, fewer than 100 globally diversified firms could capture nearly 90% of the capital flowing into private markets in the next fundraising cycle.
While this sounds dire, private equity industry veterans say consolidation will ultimately strengthen the asset class, weed out weaker players and restore discipline to the sector.
Speaking at the Hong Kong summit panel, CVC Capital Partners CEO Rob Lucas said, “There will be winners and losers… it all comes down to performance,” adding that consolidation is inevitable and a “sign of strength” rather than “a negative in any way.”
renewed optimism
Private equity giants are optimistic about signs of rising capital demand and returning liquidity, supported by the growing popularity of secondaries, or secondaries, which purchase shares or assets from primary private equity fund investors.
Referring to global economic growth and a turning point for technology that creates new investment opportunities, Carlyle CEO Harvey Schwartz said, “The demand for all kinds of capital is increasing in the industry we are in for the next 5, 10, 15 years.”
Secondaries, one of Carlyle’s fastest-growing businesses, is “just at the beginning of creating a more dynamic flow of capital for the entire industry,” Schwartz said.
The secondary market has grown rapidly in popularity; Transaction volumes rose from $160 billion last year to $200 billion this year and could reach $381 billion by 2029, according to one report. iCapital’s industry report.
While experts predict ultra-low interest rates are no longer on the horizon, the prospect of relatively low borrowing costs as the Fed announced the end of monetary tightening last week and has made two interest rate cuts since September will further improve the financing environment for a deal.
Another sign of renewed optimism, private equity Activity rebounded in the third quarterCompanies reached a record deal value of $310 billion, benefiting from narrowing valuation gaps and renewed market confidence, according to EY.
Private equity groups are increasingly expanding their access to U.S. pensions and endowments in the wake of the Trump administration earlier this year issued an administrative order 401(k) allowed retirement plans to invest in a range of alternative assets.
According to a survey was conducted 90% of private equity firms surveyed by AlphaSights and EY said they were at least “somewhat interested” in developing products for the 401(k) market.
