Welcome to a new, humbler private-equity industry

During the past decade it sometimes seemed as if anyone could make a healthy return from private equity. Rising valuations for portfolio companies, and cheap financing with which to buy them, boosted returns and reeled in cash at an astonishing clip. Improving the efficiency of a firm, by contrast, contributed less to returns. As acquisitions accelerated, more Americans came to be employed, indirectly, by the industry; today over 10m toil for its portfolio firms. But last year private equity’s tailwinds went into reverse, as valuations fell and leverage became scarce. By the summer, dealmaking had collapsed. Transactions agreed at high prices in headier times began to look foolhardy.

Private equity is entering a new era. After months of inaction dealmakers are getting back to work. Economic uncertainty is still driving a wedge between the expectations of buyers and sellers, but more big deals were announced in March than any month since May last year. In one such deal Silver Lake, a tech investor, announced it would buy Qualtrics, a software firm, for more than $12bn, with $1bn in debt commitments—not much leverage, but a buy-out nonetheless. The industry that emerges from this period will be a different beast from the all-consuming giant of the 2010s. Private equity will be dogged by its folly at the top of the cycle. Growth in assets is likely to be less rapid. And the new phase will favour owners willing to roll up their sleeves and improve operations at the companies they have bought.