Investors are increasingly concerned. Managers may have curtailed any investment excesses as credit markets have closed, but are they still in denial as capital market pain turns to economic reality?

Delegates to European trade association the EVCA's recent annual investor forum in Geneva could have been forgiven for believing everything was alright.

According to numbers revealed to the congregation of the faithful, at worst the industry had gone sideways. As long as you were prepared to strip out the record-breaking year of 2006, when private equity firms raised €112 billion ($173 billion) for investment in Europe, the preliminary fundraising figure for 2007 at €74.3 billion looked healthy. Just ahead of the fundraising total for 2005. Normalcy restored.

And the preliminary performance figures for 2007 showed stable performance. The Thomson Financial Performance Benchmarks, compiled by Thomson Financial in collaboration with the EVCA, showed the private equity industry has returned 11.7 percent, net of management fees and carried interest, with buyouts and venture capital returning 16.1 percent and 4.5 percent respectively.

These returns were on a pooled average basis. Best performers were the buyout funds with above median returns, with slight variations in returns by fund size: 17.4 percent for the $250 million to $500 million range; 21.9 percent for the $500 million to $1 billion range; and 15.6 percent for buyout funds of more than $1 billion.

As Helmut Schuesler, managing partner of Techno Venture Management and this year's chairman of EVCA, observed: “The industry is holding its own at a time when other sectors are being severely punished.”

Sunny side up, the credit crisis should create opportunities, Sandra Robertson, chief investment officer for Oxford University's asset management arm, reported from a closed session for limited partners.

She said some limited partners were encouraging their general partners to double down and to invest in impaired debt of portfolio companies: “Don't just go out and raise a fund, talk to your limited partners and adjust your terms.”

Meanwhile European venture capital was creeping back on to the agenda, a sure sign of boldness among investors.

And yet the gathering took place against a backdrop of extreme volatility in the markets. Gold soared. Again. And oil hit $111 a barrel. It was also the week in which an $81 billion private equity manager failed to persuade the banks to cut it some slack and help it bail out its beleaguered credit affiliate. Instead, The Carlyle Group handed over the keys of the Carlyle Capital Corporation to the banks after failing to stabilise its financing of the AAA-rated mortgage vehicle.

As one investor noted, the velocity of capital is screeching to a halt. That is the sound of the brakes being slammed on, of systemic de-leveraging. And no one knows where or when it will stop.

But when it does managers could do worse than to take a page, or 120 to be precise, out of Guy Hands' book. A week after the Geneva jamboree, his firm became one of the first mega-funds to publish a Walker-compliant annual review of its activities. And he far exceeded the expectations set out by Sir David Walker in his review of the UK industry's approach to transparency and disclosure.

Terra Firma's analysis of its activities and the portfolio companies it owns was thorough and frank. And while it was a long way short on the details an investor in its funds receives – just as it should be – it will go a long way to disarming the industry's critics.

Predictably, it made headlines for the wrong reasons. One or two mainstream papers led with Hands' review of his business's location in the light of negative UK tax changes. The firms still to follow Terra Firma should not be dissuaded however from a similar disclosure. As the novelty of these reports fades what will remain is a measured assessment of private equity's impact on the economic life of the UK, free of cant and hysteria.

But the last word in Geneva and probably the last laugh went to Jeremy Coller, founder of secondaries firm Coller Capital, who had handed out a fresh edition of his famous IRR calculator. For the first time he has included a red line of negative IRRs to show what happens when you lose half your money. He said it was for the benefit of the buyout firms.

And for the record, after 10 years the IRR when you have lost half your money is -7 percent. Ouch.