Though 2009 was a watershed year for private equity—a record seller’s market, peak dry powder levels, another big post-Recession fundraising boom—the number of new US firms slowed to a crawl and never really recovered. The decline intensified in 2017. Last year marked the first drop in the number of US PE firms active in the market, with 3.3% fewer of them against year-end 2016 numbers. But as the accompanying graph shows, the numbers have been sliding for some time now. From 2004 to 2007, the YoY increase was 11.3%, 16.0%, 14.6% and 12.4%, respectively. By 2008, that percentage was down to a still respectable 6.3%, but in the decade that followed, that percentage hasn't exceeded 6%. 2016 added just 1.3% more firms, which turned out to be a sign of things to come in 2017 (and quite possibly 2018).
In a recent analyst note, we predicted another fall in US firm counts this year. There are a few broader trends that we don’t see reversing any time soon, which points to a sustained culling of PE players over the near term. For one, first-time funds aren't forming fast enough to make up for the number of firms at risk of being inactive (i.e., having not closed a fund in the last four years or a deal in the last two). Through November, we counted 265 such at-risk funds in the market, the highest we’ve recorded, against just 26 new funds in 2017. Far from a blip, those 26 first-time funds were in line with what we’ve seen going back to 2012 (about 32 per year, on average). Those new firms represented about 1% of the 2017 totals—10 years ago, first-time funds made up about 10% of the total.