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.