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Traditionally, a private equity fund’s performance follows a J-shaped curve over time. In the early life of a fund, investments and restructuring push returns into negative territory. Performance gradually improves as these actions bear fruit, with returns turning gradually more positive until the fund is closed and the proceeds are distributed to investors.

The financial crisis has altered the private equity alphabet. New performance data from Preqin, a research firm, tracks the quarterly internal rates of return for various vintages of private equity funds. Funds launched in 2006 and earlier followed the usual J-shaped pattern until the downturn hit, with returns falling sharply between the third quarter of 2008 and the first quarter of 2009. Funds have recovered a bit since then, but many remain below water. Thus, as Preqin points out, recent private equity performance looks more like a W than a J.

Under the proposed “Volcker rule”, banks in America will not be allowed to own private equity funds. But they can still profit from them.

Freeman & Co., a financial services research firm, reckons that a rise in buyouts could boost fees for investment banks by 20% this year. This follows a fallow spell in 2009, when fees plunged to their lowest level in a decade. At US$3.3bn, fees collected from private equity firms last year fell by 30% from 2008, led by a particularly steep decline in Europe. Globally, 2009’s fees were only a fifth of what banks collected during 2007’s buyout bonanza, a high-water mark unlikely to be revisited any time soon.

As a card-carrying member of the BRIC group of emerging markets, India is expected to serve as a key growth engine of the global economy. For many industries, this remains the case. For the private equity industry, not so much.

For one, Indian private equity deals accounted for only 2% of global transaction value in 2009, according to ARC Financial Services. In addition, dealmaking in India collapsed last year like it did it most other developing, and developed, markets. Deal value, at US$3.4bn, was down nearly 70% on the year before. The average deal size, US$17.5m, was half of what it was in 2008.

Of course, size isn’t everything. With banking penetration low, microfinance institutions in India have plenty of scope for growth (from a deliberately low base). Some 10% of private equity deal volume was in this sector last year, with more to come in 2010, ARC predicts.

It’s no surprise that private equity firms have had trouble raising money recently.

Preqin, a research company, reckons that global fundraising in the fourth quarter of 2009, at US$35.1bn, was the weakest in six years. The amount raised for the whole of 2009, US$245.6bn, was the lowest since 2004.

These relatively meagre sums were not collected without difficulty. The time that private equity managers left funds open in 2009 was roughly double what it took to close a fund in 2004. Around half of private equity investors polled by Preqin say that they will not make any new commitments until the second half of 2010 or later. These days, convincing cash-strapped investors to devote cash for debt-laden buyouts is a tough sell.

Private equity group KKR reported third-quarter results recently, the first time as a listed company. Despite rising profits and assets under management, details on the valuations of some of its largest company holdings didn’t make for particularly pleasant reading.

Stakes in hospital operator HCA and discount retailer Dollar General were valued above their initial costs, but investments in 11 other portfolio companies remained underwater. With time, many of these investments may pay off. But now that KKR must answer to outside shareholders, it will need to make a special effort to preach patience on the US$14bn it has yet to invest.