Concerns with past deals that were over-priced and over-leveraged (with the benefit of hindsight) are very considerable. Understandably, this makes it hard to look forward, but unless the industry does just that there will be paralysis. A wholesale renegotiation of the covenant between limited partners (the investors) and general partners (the managers), on both existing and future funds, needs to take place or paralysis may turn into rigor mortis for some of the existing players.

The large leveraged new deals of the past few years are not going to come back for some considerable time. The attitudes of the banks, other lenders and capital markets to leverage have changed, if not for all time, for a considerable time. Lack of leverage makes it generally difficult to get the returns that investors currently expect. Those expectations are, in turn, pretty aspirational in a low interest rate environment. “What is a fair return for the risks of private equity investment” is a difficult question to answer at the moment, with senior debt trading at yields higher than 15 per cent. Clearly the risks need to be rewarded with commensurate returns, or the asset class has no future.

Funds of the size that have been raised in recent years are in effect unspendable when deals are fewer and smaller. The limited partners that committed to those funds are significantly over-extended, in many cases, for two reasons. First, because many deliberately over-committed on the basis of their experience that funds started to return cash before their commitments were fully drawn. Second, the value of their listed investments has fallen, causing them to be overweight in private equity.