According to CNBC, private equity leaders at Hong Kong’s Global Financial Leaders’ Investment Summit revealed startling industry numbers that signal massive consolidation ahead. KKR co-CEO Joe Bae noted there are 19,000 private equity funds in North America compared to just 14,000 McDonald’s franchises. EQT CEO Per Franzen revealed only about 5,000 firms have successfully raised funds in the past seven years, and he predicts 80% of existing firms will become “zombie” operations within a decade. Oaktree’s Howard Marks declared the era of ultra-low rates is over, with U.S. rates likely settling around 3%-3.5%. The combination of higher rates, investor scrutiny, and performance gaps is forcing a dramatic industry shakeout.
Way too many chefs in the kitchen
Here’s the thing about having more private equity funds than McDonald’s locations – it’s completely unsustainable. The industry went through a massive growth spurt during the zero-interest-rate era, with firms rushing to deploy capital in 2021 when money was practically free. Now we’re seeing the hangover. With rates normalizing, all those investments made during the cheap money party are looking pretty shaky. And investors aren’t playing along anymore – they’re demanding actual returns, not just promises.
The coming zombie apocalypse
When EQT’s CEO says 80% of firms could become zombies, he’s talking about a bloodbath. These aren’t firms that will suddenly disappear – they’ll linger, managing existing investments but unable to raise new funds. Basically, they become asset managers rather than growth engines. And with less than 100 globally diversified firms expected to capture 90% of future capital, we’re looking at an industry that’s about to get incredibly concentrated. Think about that – from 19,000 funds to maybe a few hundred real players.
Why discipline suddenly matters
What’s fascinating is how quickly the tables have turned. During the liquidity rush, the firms that said “no” to inflated valuations and excessive leverage looked like they were missing out. Now they’re the ones outperforming. KKR’s Bae emphasized that operational value creation and better governance are what separate winners from losers in this environment. It’s back to basics – actually improving companies rather than just financial engineering. The firms that stayed disciplined during the frenzy are positioned to thrive while others scramble.
The new normal isn’t what you think
Howard Marks made a crucial point that many investors are missing – we’re not going back to zero rates. A 3%-3.5% federal funds rate is what he calls “neutral” territory. That changes everything for private equity. The cheap leverage that powered returns for years? Gone. The ability to refinance portfolio companies easily? Much harder. This isn’t a temporary blip – it’s the new reality. Firms that built their models around perpetually cheap money are about to discover that their entire business strategy no longer works. And honestly, that’s probably healthy for the industry long-term.
