The number of active private markets firms peaked 18 months ago and has started to decline as more firms become zombies because they’re not able to raise their next fund, according to Arctos Partners Chief Executive Officer Ian Charles.
His firm, which was acquired by KKR & Co. earlier this year, maintains a database of firms that have raised money in the last seven years, and that dataset started to contract for the firm time ever, he said in an interview at the Bloomberg Invest conference in Dallas.
“Firms are rolling off of the active list into the zombie list at a higher rate than new firm formation,” Charles said Tuesday.
About $3 trillion of net asset value was raised globally for buyout funds between 2018 and 2023, and 57% of that capital is in funds that are in the “danger zone” of not being able to generate carried interest, he said. Carried interest is the slice of profits that dealmakers take on winning bets after clearing a certain return hurdle.
“For firms that aren’t great, that breakdown in alignment with all of their different stakeholders creates all these challenges,” he said.