The End of the Private Equity Party

FASB 157 will force publicly traded firms to mark their investments to market, meaning they will need to find comparable publicly listed investments on which to base valuations. This will force firms to identify poorly performing investments before they are realized. Without the ability to hide bad calls on the schedule of investments, performance could suffer, hobbling fund raising.

The full impact of private equity commitments' performance this year has yet to be felt by investors, and the real story may not be known until the summer as private equity funds, notoriously slow in reporting results, reveal how they fared in the crash.

With the new accounting rules now in effect, it is difficult to argue that private equity funds' performance would be any different from the market as a whole. One of the most enticing aspects of alternative assets is diversification from the general market. With that benefit having evaporated and illiquidity ever present, it is hard to imagine a reason to commit any capital to private equity at all.

To top it off, funds will now have a much harder time obtaining the leverage that can supercharge returns. Lending, even for the safest borrowers, has ground to a halt. As such, Blackstone, KKR, Fortress and any other private equity firms that comes to market are unsustainable, spelling what is probably the beginning of the end of private equity firms' foray into public financing .