Joe Bei, co-chief executive officer of KKR & Co., attends the Global Financial Leaders Investment Summit in Hong Kong, China, Tuesday, November 4, 2025.
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Private equity fund managers are bracing for a wave of consolidation as investors seek higher returns and stronger governance and are forced to weed out a crowded industry, multiple industry veterans said at a high-level financial summit in Hong Kong on Tuesday.
“Why are there more private equity funds in North America than there are McDonald’s franchises,” Joe Bay, co-chief executive officer of KKR&Co, said Tuesday, noting there are about 14,000 fast-food restaurants and 19,000 private equity funds in the United States.
Bae told the Global Financial Leaders Investment Summit that polarization in fund performance is now more “extreme” than at any time in the past decade. “We need to be very disciplined in a market like this and focus on fundamental operational value creation in companies and bring about better governance,” he said.
The widening gap comes as private equity spending soared in 2021, with companies rushing to utilize unspent funds and ultra-low interest rates spurring activity. Because PE firms typically hold portfolio companies for five years or more before exiting, many of those investments are now difficult to sell or revalue in a higher interest rate environment.
“The days of ultra-low interest rates are over,” Howard Marks, co-founder and co-chairman of Oaktree Capital Management, warned in an interview with CNBC’s China Connection.
He expected U.S. interest rates to fall to just 3-3.5% in the current easing cycle, which he predicted would be “neither stimulative nor restrictive.” Last week, the US Federal Reserve lowered interest rates to a range of 3.75% to 4%.
Bae said companies that remained disciplined during the post-pandemic liquidity rush by limiting high valuations and low leverage were outperforming.
Private equity groups have struggled to raise new capital in recent years due to large amounts of unsold assets and slowing returns to investors. Limited partners, investors in funds, are also scrutinizing management more closely than ever before, demanding stronger performance and tighter governance.
Per Franzen, CEO of Sweden’s EQT, said in an interview with the Financial Times earlier this week that only about 5,000 private equity firms in existence had successfully raised capital in the past seven years. He added that 80% of these companies will not be able to raise new capital within the next 10 years and are likely to turn into zombie companies that only manage existing investments.
Fewer than 100 globally diversified companies could capture about 90% of the money flowing into private markets in the next funding cycle, Franzen said.
As dire as it may sound, private equity industry veterans say consolidation will ultimately strengthen the asset class, weed out weaker players and restore discipline to the industry.
“There will be winners and losers… it all depends on performance,” Rob Lucas, CEO of CVC Capital Partners, told a Hong Kong summit panel, noting that consolidation was inevitable and was not “by any means a downside” but a “sign of strength”.
new optimism
PE giants are optimistic about rising capital demand and signs of a recovery in liquidity, supported by the growing popularity of secondary funds (secondaries), which buy shares and assets from primary investors in private equity funds.
Carlyle CEO Harvey Schwartz said, “The demand for all forms of capital in our business over the next five, 10 and 15 years is only going to increase,” citing the technological tipping point that is creating global economic growth and new investment opportunities.
Secondaries, one of Carlyle’s fastest-growing businesses, “is just beginning to generate more dynamic capital flows across the industry,” Schwartz noted.
The secondary market is exploding in popularity, with trading volume expected to exceed $200 billion this year, up from $160 billion last year, and potentially reach $381 billion by 2029, according to an industry report from iCapital.
While experts expect ultra-low interest rates to no longer exist, the prospect of relatively lower borrowing costs following the Federal Reserve’s announcement last week of an end to quantitative tightening and two interest rate cuts since September should further improve the financing environment for deals to occur.
In another sign of renewed optimism, private equity activity rebounded in the third quarter, with companies taking advantage of narrowing valuation gaps and a rebound in market confidence to achieve a record deal value of $310 billion, EY said.
Private capital groups are expanding their reach into U.S. pensions and endowments after the Trump administration issued an executive order earlier this year allowing 401(k) retirement plans to invest in a variety of alternative assets.
According to a study conducted by AlphaSights and EY, 90% of private equity firms surveyed said they were at least “somewhat interested” in developing products for the 401(k) market.
