Why leveraged buy-outs are in trouble

Held in february 2007, the 60th-birthday celebrations of Stephen Schwarzman, a private-equity magnate, captured the spirit of an age. Nothing distils the hubris of Manhattan on the eve of a financial crisis like Rod Stewart belting out “Maggie May” to a fizz-drinking crowd in Hermès ties. Within two years Mr Schwarzman’s firm, Blackstone, had lost more than 80% of its market value. Yet the striking thing is that the private-equity industry, including Blackstone, soon bounced back to enjoy a gargantuan boom. Today private equity is again on the ropes. But shifting investment patterns and higher interest rates mean it is unlikely to enjoy such a miraculous recovery.