The stage seems set for an underwhelming spate of private equity transactions in 2008 and beyond.

After an 18-month span that characterized a new Golden Age of blockbuster private equity deals led by the likes of billionaire Stephen Schwarzman's

Blackstone Group

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and Kohlberg Kravis Roberts, Wall Street can expect to be peppered with leveraged buyouts in the ballpark of $1 billion to $3 billion, "with $5 billion being immense", says

KKR Financial


CEO Nino Fanlo.

Fanlo said the tightening of credit and the broken balance sheets of big banks such as


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Merrill Lynch

( MER) and


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, which are still on the hook for hundreds of billions in unsold LBO loans, is making it tougher to do the megadeal of the go-go 2006-2007 era. Overall, the executive expects a "de minimus level of activity" on the buyout front in 2008.

Speaking during a Citigroup financial services conference on Tuesday, Fanlo suggested that the idea of a deal that exceeded the single-digit billion dollar range would be a shock. "I would just faint if somebody said to me

that there was a $15 billion

LBO being structured," he said, answering a question about expectations for leveraged buyouts in an environment marked by credit worries and recession fears. Fanlo's remarks mirror comments made by a number of private equity executives, who have voiced concerns about the impact the credit crisis and a softening economy may have on deal flow.

For its part, San Francisco-based KKR Financial -- a publicly-traded affiliate of private equity shop KKR, which focuses on investing in the credit markets -- has been shaken up by its investments in structured mortgage debt and leveraged loans. Those securities have fallen in value, leaving KKR Financial with losses last year of $100.2 million, or $1.11 a share.

The financial firm also reported fourth-quarter earnings Monday of $59.9 million, or 52 cents a share, compared with profit of $37.4 million, or 46 cents a share. Analysts polled by Thomson Financial had forecasted fourth-quarter earnings of 56 cents a share for the investment manager.

Still, Fanlo is hoping that KKR Financial can be one of the beneficiaries of the credit crisis and identify distressed opportunities. Fanlo noted that the company has about $1 billion in cash that it aims to put to work but expects that deployment of fresh capital into areas the skittish markets, including in mezzanine and distressed debt, may take until about the third quarter to complete.

KKR also targets markets in Asia and Europe to source investments and says that the secondary market for debt may prove an attractive area to uncover deals.