NEW YORK ( TheStreet) --This was not a big year for private-equity deals. In fact, the biggest buyout of a public company in 2014 was the $8.7 billion deal for PetSmart (PETM) .
The lack of big deals is expected to continue in 2015. It's not hard to see why: Investors are losing faith in private equity.
The toxic combination of too much leverage and overpaying for assets tarnished the reputations of some of the industry's top names: David Bonderman, Henry Kravis, Stephen Feinberg. Each one did debt-laden deals in the LBO boom that preceded the financial crisis -- only to see assets levered with billions of dollars default. Other sponsors are still nervously looking for an exit.
Henry Kravis and KKR's ( KKR) partnership with David Bonderman and Goldman Sachs' ( GS) private equity arm produced the $45 billion buyout of TXU in 2007. It also produced the biggest bankruptcy in the history of private equity this April. Stephen Feinberg's $7.4 billion Chrysler bet had to be bailed out by the U.S. government -- although, according to reports, Cerberus Capital Management managed to salvage much of a soured deal.
For Bonderman and TPG Capital, the headaches are only beginning: Friday, Caesars Entertainment Operating Co., which runs Caesars Entertainment ( CZR) , said it plans to file Chapter 11 early next year in an attempt to reduce $18 billion in debt.
The biggest private equity firms on Wall Street have spent the years after the crisis inflating assets under management, adding secondary investing arms, real estate portfolios, debt financing shops and trading desks. Either diversification or common sense has taken the focus off big leveraged buyouts.
With so many flops among the biggest LBOs of all time, even winning exits, it seems, are relative disappointments. Blackstone Group (BX) , which has a portfolio containing over $1 billion in assets under management -- isn't yet out of the woods on its biggest LBO, Hilton (HLT) .
The sponsor still has a majority stake to unload; since Hilton's late 2013 initial public offering, Blackstone has exited shares in piecemeal fashion as Hilton's shares rose. Stephen A. Schwarzman appears to be better at doing big deals than his contemporaries. But even his limited partners probably prefer Schwarzman not go out hunting with his elephant gun again.
The $21.7 billion Blackstone fund that bought Hilton -- Blackstone's fifth fund -- posted internal rates of return in the 5% to 7% range, according to data posted by public pensions. Performance of Blackstone's second, third, fourth and sixth funds each outpace the one that bought Hilton; a rate of 5% to 7% of return on investments is considered poor by private equity industry standards.
Right now, Schwarzman is pitching limited partners on his next flagship fund, in the neighborhood of $16 billion. While he's likely showing off Hilton's IPO, it's equally safe to say Schwarzman isn't pointing to the disparity between his funds' performance.