NEW YORK — A year ago, private equity executives were Wall Street's new masters of the universe, riding an era of easy money to unparalleled success by pulling off record-setting buyouts and pulling down monstrous paydays.
The industry became so synonymous with making money that buyout giant Blackstone Group, a specialist in taking companies private, itself went public in June in a multibillion-dollar stock offering. And the firm's chief executive, Stephen A. Schwarzman, made a splash with the upper crust of New York society with a pledge to donate $100 million to the New York Public Library.
Those heady days seem long gone. Now the onetime world beaters are taking a beating at the hands of the credit crunch and the stumbling economy.
This month, Blackstone reported a $251-million first-quarter loss. Its stock is trading at less than half its initial public offering price. And its vaunted deal making, like that of its peers, has shriveled.
The private equity market is in "the eye of the hurricane," Hamilton James, Blackstone's president, said at a conference two weeks ago.
Scores of buyouts agreed to before the credit crunch hit have been renegotiated or fallen apart. New deals are much harder and more expensive to finance. As a result, the use of borrowed money -- the lifeblood that buyout firms employ to boost their returns -- is way down. And the mega-deals that generate the biggest profits and the most buzz have ground to a halt.
"It's sort of like the bursting of a bubble," said David Fann, chief executive of PCG Asset Management, a La Jolla-based consulting firm that advises institutions on private equity investments. "Late 2006 and early 2007 can be characterized as a bit of a private equity bubble, and clearly we won't see that again."
The business still has many things going its way, including the continued willingness of big investors to sink billions into the buyout funds managed by Blackstone and other private equity firms. In addition, the economic downturn has increased the opportunity to buy companies on the cheap. And credit markets have improved in the last several weeks, offering hope that the worst of the debt crisis is over.
But the industry must confront a changed environment in which buyout firms have to work harder and put more of their own capital into deals -- potentially crimping their outsize returns.
