Not so long ago, private equity players dominated the headlines of the financial media with their multi-billion buy-outs of the world's biggest firms.

Not so long ago, private equity players dominated the headlines of the financial media with their multi-billion buy-outs of the world's biggest firms. But since the credit crunch hit in mid-2007, private equity has kept a low profile.

In the UK, private equity activity dropped to its lowest level for more than 13 years in the fourth quarter of 2008, according to the Nottingham-based Centre for Management Buy-out Research, which reports that the value of buyouts reached just GBP994m million in the fourth quarter, compared with GBP5.6bn in the previous quarter and GBP5.7bn a year earlier.

The main reason deals have dried up is the sharp fall in liquidity in the market, so when and how can private equity make a comeback? The chief executive of the British Private Equity and Venture Capital Association, Simon Walker, recently said that private equity has a potentially huge role to play in limiting the damage of the recession, but it will depend on banks playing their part by starting to lend again.

Many private equity firms have large amounts of uninvested capital, and while they may not be under pressure from their investors to start spending it, they are on the lookout for opportunities. With company values extremely depressed, a lot of private equity firm seem to be just waiting for the right moment to make acquisitions, and there is no shortage of distressed assets waiting for buyers.

That's not to say there is no activity from private equity firms, although some are looking outside the traditional buyout arena. Leon Black's Apollo Management plans to raise about USD500m for a hedge fund trading copper, gold and mining stocks, and it could eventually take in as much as USD2bn from investors. Meanwhile, CVC Capital Partners is reported to be considering a bid for a minority stake in the UK postal service if government plans to part-privatise it come to fruition.

Private equity players are readjusting to a new economic environment characterised by lower profits and little of the leverage made buyouts a one-way bet a few years ago. Certainly the industry has every chance of making a comeback, but whether it will be on the scale of John Travolta's triumphant return in Pulp Fiction remains to be seen.