Carlyle Group co-founder David Rubenstein said the year ahead would be difficult but that successful deals could have high returns and he predicted that banks will lend more in the latter half of 2009.
Painting a bleak, near-term view, Rubenstein, who was speaking at the SuperReturn private equity conference in Berlin, said the major focus this year would be the dialogue between limited partners (LPs) -- the investors in private equity funds -- and the private equity executives, known as general partners.
"Going forward, the LPs will be heard much more and their concerns on deal fees, size of funds... will have to addressed," he said. "The pendulum will have swung... for the next few years, they have the balance of power."
He said private equity firms would find fundraising hard and predicted that "very few new firms will be able to raise money at all."
Relatively few buyouts will be completed this year, he said, and he didn't expect to see many exits from deals already completed in the first six months of the year. He added that a lot of deals done in the last couple of years would not survive.
However Rubenstein still had some hope.
"Clearly the need for private equity capital is greater than it ever has been and that will increase," he said, adding any deals that get done in this period could make spectacular rates of return.
But private equity firms will reduce the sizes of their organizations in response to the economic climate, he said.
Rubenstein predicted that increased government scrutiny on banks could impact the amount they can loan for private equity deals.
"I believe that there will be some critical discussion about whether financing these buyouts is a good thing," he said. "In the end when reason comes forward I think the governments will let the banks make the decisions. But I think banks will not want to do some of the deals they did before."
While banks won't be lending much in the first half of the year, he predicted that in the latter half of 2009 and 2010 there would be more leverage available to buyouts.
He predicted more minority stake deals, which don't require so much leverage.
"The theory of evolution applies to private equity as well as animals and we need to evolve," he said.
Carlyle is one of the world's largest private equity firms. It has more than $91.5 billion under management and investments in companies such as fast food chain Dunkin' Donuts, semiconductor firm Freescale Semiconductor and pharmacy chain Alliance Boots.