It was the best of times, and it was the worst of times.

The period from mid-2002 to mid-2007 saw private equity flourish as never before. Deals, funds and profits were larger than most people would have thought possible at any point during the industry's prior history. During this “Golden Age” of private equity, the industry yielded larger returns for investors than any alternative.

But high profitability never fails to draw attention, and concern. The critics of private equity felt that this profitability came at the expense of workers, the tax base, companies' longer-term prospects and the safety of our economic system. Private equity's public image took a beating.

The result was an increasingly global effort to impede private equity by restrictive legislation, tighter regulation, higher taxation and even public demonstrations.

Yet all these weapons proved less effective than a turn in the credit cycle. So, for reasons that sprang initially from the sub-prime mortgage crisis in the United States, the Golden Age of private equity has ended.

So what can be expected from the new era? Will private equity go the way of the diversified conglomerate? Or will private equity reinvent itself and abandon the mega-buyout for other attractive pursuits?

In 2008, we are likely to see the private equity world continue to do what it has always done - find ways of achieving high returns by growing the value of companies in which it invests. Since financing for mega-buyouts is unlikely to be available on affordable terms for some time, the focus will probably be on other areas. They include:

1. Existing holdings. The best way for private equity firms to generate returns in the new environment will be for them to leverage their now considerable stores of operating expertise to efficiently manage the companies they already own.

2. Non-leveraged investments. Private equity firms can generate extremely high returns by buying non-levered stakes in companies and helping them to surmount operational and strategic challenges.

3. Joint ventures. Companies with strong balance sheets and sovereign wealth funds flush with cash will make attractive investment partners for private equity firms, which will in return offer access to their deep pools of talent and unrivalled deal expertise.

4. Emerging markets. The upside of investing in emerging markets now seems more than worth the risk, and investments in these markets often require little to no leverage to produce desired returns.

5. Diversification. Private equity firms increasingly will seek to diversify their business lines so as to become less beholden to the state of the leveraged debt markets. Hedge funds, funds of funds and, most significantly, traditional asset management will be areas of focus.

Through these activities, private equity firms will increasingly seek to enhance their franchises' value. This will enable some to go public and others to sell stakes to strategic investors. Proceeds will be used to recruit and retain high-quality investment professionals and to ease the leadership transitions that so many firms will undergo over the next decade.

But private equity's most important endeavour will be a concerted effort to explain how private equity adds value - how it creates jobs, enhances tax bases, benefits workers and makes entire economies more competitive. Unless this is done successfully, private equity firms know that their ability to add value for their companies and investors will be diminished.

There will be a new age for private equity down the road. But unless the industry better explains what it is doing and works closely with its many constituents, the next era may turn out to be a Rust Age, rather than a Platinum Age. And that would benefit no one. A Platinum Age could, however, benefit everyone.

The author is co-founder and managing director of The Carlyle Group

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