More Money than They Know What to Do with

Private-equity companies now have approximately $1 trillion in reserves. Of that money, they must spend nearly $200 billion from funds raised in 2007 and 2008 over the next 12 months or give it back to investors. Faced with this deadline, many firms have already been spending lots of cash, and some have put the word out to Wall Street banks that they are seeking big deals worth as much as $10 billion and will pay a special bounty for acquisition targets. As money floods into the market, there could be a glut of bad deals with even worse returns. In addition, acquisition prices are likely to balloon over the near term as firms overbid for assets. If the private-equity firms don't spend the money that they have in reserve, they are unlikely to raise more funds in coming years and will see a drop in the management-fee income on which they have become increasingly dependent.

Read more in the NYT Dealbook.