The private equity party seems to be coming to an end, leaving the buyout firms to take the money and run. The fallout from the subprime mortgage defaults are making the banks nervous and investors are turning to safer bets. Not surprisingly, takeover czar Carl Icahn now says private equity seems to have peaked.

The bail-out by US investment bank Bear Stearns of two hedge funds exposed to the US subprime housing market, something I examined earlier this week here, has heightened the nervousness about the appetite for risk and the pricing of risk.

In the US, we have seen Kohlberg Kravis Roberts' leveraged buyout of US Foodservice delayed as banks hold out and other deals in the pipeline are being shelved or repriced. Robert McAdie, head of global credit strategy at Barclays Capital has warned we can expect more ahead. "Looking beyond 4 July, some of the more leveraged deals where credit quality is further questionable will find it significantly harder to come to market. We expect the net impact of this will be to drive secondary loan and high yield bond spreads wider, with a greater differentiation between the more leveraged, lower-quality credit deals and the lesser-leveraged and better-quality deals."

Translated, his take on it is this: the fallout will separate the wheat from the chaff and the quality deals will still get up. But then, he would say that.

The reality is that banks are tightening the supply of credit and raising the price of debt and that's eroding how much private equity can make on the deals. The banks are not only forcing them to pay more for a smaller amount of debt but they have to put more of their own skin in the game by putting up more equity to make up the debt shortfall. As a result, they will have to lower how much they are prepared to pay. If they moderate their taste for risk, and if other investors follow suit, it might prevent bigger problems ahead.