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.
Yet, for strong firms, the current environment creates a really attractive setup, as it’s likely to be the fifth or sixth best year for fundraising in aggregate dollars, he said. There’s a lot of money being raised for firms that can generate returns for their investors, Charles said.
Arctos earlier this year finalized a deal to acquire a 10% stake in the National Football League’s Atlanta Falcons, the fourth NFL team in its portfolio, the most of any private equity group. The NFL limits stakes to 10% and the number of teams a single firm can own to six.
Charles said he sees the US professional sports league ownership rules continuing to evolve to meet the leagues’ needs, noting that the National Basketball Association raised the number of teams an institutional backer can own and Major League Baseball lifted the cap on the percentage of a team an investor can own. Arctos has investments across the four major US sports leagues.
Arctos has had eight full or partial exits over the last 12 months, returning almost $1 billion back to investors, he said.
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