Private equity fund managers are bracing for a wave of consolidation as investors demand higher returns and stronger governance, forcing a shakeout in an overcrowded industry, several industry veterans said at a high-level finance summit in Hong Kong on Tuesday.

"How is it that there are more private equity funds in North America than there are McDonald's franchises," said KKR & Co's co-CEO Joe Bae on Tuesday, noting that the U.S. has about 14,000 of the fast-food outlets and 19,000 private equity funds.

The bifurcation of funds' performance has become more "extreme" than at any time in the past decade, Bae said at the Global Financial Leaders' Investment Summit. "You have to be very disciplined in a market like this and focus on ... fundamental, operational value creation in companies,

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