Private equity in 2010 is expected to evince normal conditions, says Neuberger Berman, which runs funds of private-equity funds, among other asset classes. Because some excesses from the mid-2000s are no longer in vogue, the current PE cycle may carry on for some time, it concludes.

A published outlook for the asset class suggests that what's acceptable today -- a demand among investors for liquidity, more co-investment from general partners, longer duration funds -- are hallmarks of a traditional PE environment.

Neuberger Berman's strategy in managing private equity fund of funds is to overweight secondary transactions, distressed asset investors (particularly in commercial real estate) and managers that focus on refinancing non-investment grade credit.

Big buyouts show no sign of recovery, and the reduction of leveraged buyouts means there is less need for investors to hedge via mezzanine deals. Neuberger Berman's PEFOF strategy is to underweight these areas. It is also targeting an underweight allocation to venture and growth equity.

The picture for Asia is a little different, however. Brock Williams, senior vice-president in the private equity fund of funds group, notes that there is a relatively lower supply of distressed assets in Asia. Japan would be expected to have an ample supply of distressed assets -- but companies there seem to have learned how to cope with a declining or stagnant economy without being forced into selling assets.

"What a 'return to normalcy' means for Asia is more deals with the traditional private equity players and fewer transactions led by prop desks or hedge funds," Williams says.

Because there was relatively less leverage deployed in markets such as China, the 'return to normalcy' here is more about the pace of transactions. For example, Williams sees an end to companies relying on low-diligence convertible bonds for quick and easy financing. Hedge funds and prop desks financed these, often with a parent bank's balance sheet, with few covenants or questions asked.

Today the emphasis is back on due diligence, Williams notes.

One area of uncertainty involves Asian private placements. Some members of the Neuberger Berman team, including managing director Alan Dorsey in New York, expect to see higher public valuations encourage private-market capital raises for issuers seeking flexibility pertaining to timing and liquidity.

Williams is less certain that Asian companies will use PIPEs to raise capital. He notes that private investment in public equities (PIPEs) have died down in India, the only market in Asia that has been active in this area; there could be a pick-up of such deals in China, but so far PIPEs have not emerged as a preferred source of corporate financing.

He does see one important development in Asia, however; an increase in experienced people. More Asian expatriates working in the West, with a Western business skill set, are seeking entrepreneurial ventures in their home countries. More experienced business managers deepen the pool of talent that PE firms can tap to run portfolio companies. This supports the 'return to normalcy' for traditional private equity.