« The process of innovation is one of creative destruction: it incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. » — Schumpeter
Rising interest rates and economic uncertainty have jammed the private equity machine: fewer exits, fewer distributions, and fundraising that has hit a ceiling. The industry’s biggest players speak of a coming “carnage” among mid-market funds in particular, as reported in Anne Drif’s recent article in Les Echos on 29 September. But should these prophecies be taken at face value?
A radically different cycle
For more than a decade, PE prospered: cheap money, quick exits, ever-rising multiples — 6.1x EBITDA in 2004, 11.6x in 2021 (Argos Index). Since 2022, the fundraising climate has changed.
United States: according to McKinsey, 2024 fundraising fell 24%, its lowest level since 2016. Europe: according to Bain, for every $3 sought, only $1 is invested. Renowned houses such as Insight Partners, Trilantic and Onex have missed their targets.
« If you don’t have anything special, LPs will go elsewhere. » — Sean Ward, Blue Owl
Zombie funds proliferate
On both sides of the Atlantic, LPs complain of funds unable to raise new vehicles yet still charging 2% fees on assets under management. As early as 2024, 48% of LPs reported having “zombies” in their portfolios (Coller). In the United States, Bruce Flatt (Brookfield) predicts the disappearance of 4,000 firms out of 7,000.
Accelerating consolidation of asset management platforms
Mega-deals: EQT buys Baring Asia ($7.5bn), BlackRock takes over HPS ($12bn) then GIP ($12.5bn). In Europe, Sagard absorbs Unigestion to manage $23 billion; Amundi acquires Alpha Associates with combined assets of €20 billion. The phenomenon touches every segment, with 150 transactions recorded by Bain, but chiefly targets mid-sized players.
Inevitable polarisation
The reshaping takes the form of a polarisation. The global giants (Blackstone, KKR, Apollo, EQT) are becoming “one-stop shop” platforms capable of attracting large institutional clients and retail money. Ultra-specialised niches survive on their expertise (healthcare, life sciences, green infrastructure). The single-strategy, undifferentiated middle market is withering.
« If you’re in the middle, it’s complicated. » — Valérie Baudson, Amundi
Many reports focus on fundraising, assets under management and performance — but not on the number of management firms themselves. It is therefore hard to establish with certainty that this reduction in the number of players has actually begun. Invest Europe’s latest statistics show the number of “active firms” rising from 2,675 in 2015 to 3,095 in 2024 (Positioned for the Challenge: Capital Under Management & Dry Powder 2024). In France, 203 management firms raised money in 2008, against a record 341 in 2024.
In 2008-2009, at the heart of the financial crisis, a mass extinction of funds was already being announced:
« Private equity investors (LPs) expect to see: the disappearance of many existing private equity fund managers (GPs)… » — Coller Capital, Summer 2009 Barometer
« The entire private equity model is broken. » — Brett Hellerman, Wood Creek Capital (late 2008, Bloomberg)
Announcements of “carnage” are part of PE folklore. They reflect a phase of adjustment — certainly not a hecatomb.
A self-serving narrative
It should also be noted that these prophecies of consolidation are often voiced by… the largest players themselves, who find in them an argument to reassure LPs and assert their dominance. All the more so since the study Does Fund Size Impact Equity Performance, published in March 2025 by the National Bureau of Economic Research, shows that funds above $1.12 billion tend to underperform smaller ones.
The reality is therefore more nuanced: polarisation is accelerating; the middle is suffering, but some will find a way out (alliances, GP stakes, specialisation); diversity will endure, because innovation always creates new entrants.
Conclusion
« Private equity is going to undergo a Darwinian evolution », sums up Jim Zelter (Apollo). True. But Darwinism is not extinction: some will disappear, others will adapt, and new ones will emerge.
Here is what McKinsey’s May 2025 Global Private Markets Report stated:
« What struck us most when writing this report, however, is the resilience shown by private market stakeholders as they navigate an industry in transition. Fundraisers are looking beyond closed-end channels to raise capital in new vehicles, such as evergreen funds. Dealmakers and operators are moving from traditional financial engineering to focus on sustained operational transformation. And LPs are moving from being passive allocators to investing in general partners (GPs) themselves (as thriving secondaries and GP stakes markets reveal). […] After two years of murky conditions, private equity started to emerge from the fog in 2024. For one, the long-awaited uptick in distributions finally arrived. For the first time since 2015, sponsors’ distributions to LPs exceeded capital contributions (and were the third-highest on record). »
Consolidation is a structural trend. But it is also a narrative of power. It is up to LPs to keep a critical mind, and to keep looking for value and innovation beyond the behemoths.
Eric Dejoie’s perspective
« We are at a Darwinian moment », the heads of a few PE giants proclaim in unison. Without denying that the PE industry has probably entered a phase of reconfiguration, history is not yet written — and let us not be naive: these executives’ predictions serve first and foremost their own interests, not an objective forward-looking analysis.
The question we must ask is whether this reconfiguration results from a simple turn of the cycle, from a gradual drift in the way some GPs practise the trade that ultimately gets sanctioned by the market, or whether we face a genuinely “Darwinian” moment — a brutal market shock that tests GPs’ capacity to “adapt”, condemning the least adaptable (a notion that would then need rigorous definition) to disappear.
In our industry as in the economy at large, structural shifts are almost always overestimated relative to the effect of business cycles. We saw the same cyclical turn in 2008 and the proliferation of the same narratives about an inexorable concentration of our industry. With an equivalent sequence: a long phase of volume growth and soaring valuations that feeds a bubble, fuelled by the widening gap between transaction prices and the real value of assets. The overvaluation of financial assets is then laid bare by an exogenous event (the subprime crisis in 2008, the brutal rise in interest rates in 2022), and the PE industry enters an adjustment phase to absorb the bubble and set off on a new growth cycle. That is the phase we are currently in.
So, nothing new under the PE sun? Not quite, for this new crisis has some specific features. It comes after an extraordinary fifteen-year bull run in invested volumes, and therefore applies to a stock of PE-invested assets at an all-time high. The sector’s restructuring is likely to be more severe than in 2008, given the outsized contribution of external factors — continuously falling interest rates and massive credit availability — to the past decade’s performance, relative to the intrinsic qualities of investment strategies and portfolio construction models. With these performance amplifiers gone, at least for now, the awakening may be more painful.
Moreover, the world’s supply of GPs has never been so abundant and diverse, meeting the demand of LPs in search of performance, safety and dreams. Top performers can keep convincing their clients they have found the winning formula, the big platforms can reassure with their scale and brand, and new entrants can conjure a new PE horizon. But in a market that has become more demanding and selective, the challenge of continuing to convince LPs will be greater for undifferentiated players with average performance, whose shortcomings were partly masked by fifteen years of euphoria.
David Graeber, the celebrated anthropologist, proposed the following method for defining a “bullshit job”: imagine the activity disappearing and assess the impact on society. To avoid painful awakenings and chart their own evolutionary path through this phase of “Darwinian selection”, every GP could perform a salutary thought experiment: imagine their own disappearance and assess its impact on the world of investing…