Sept. 24 (Bloomberg) -- Private equity dealmakers' pay may drop by 75 percent after the credit crunch as firms take longer to invest their funds, British financier Guy Hands said.

``Compensation for everyone in the financial services industry is clearly going to fall over the next few years,'' Hands, 49, said in a telephone interview today. ``This will be particularly true for private equity general partners who are having the reduction, both because of the time it takes to invest and because of the time it takes to harvest.''

Hands based his prediction on an assumption that private equity firms will own the assets they buy for an average of eight years, twice as long as before. He also expects the companies to take about four years to invest the funds they raise, up from as little as two years before the credit crunch.

Private equity firms are struggling to finance acquisitions after banks and investors cut off the debt financing that had fueled a two-year buyout boom. The firms announced $143 billion of takeovers in the first half of this year, a 75 percent drop on the same period a year earlier, according to data compiled by Bloomberg. KKR & Co. LP, the firm run by Henry Kravis and George Roberts, this week said investment losses in the first half of the year erased net income in the period.

Hands built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to start up his own firm with Nomura's backing in 2002. Terra Firma, his London-based private equity firm, bought EMI Group Plc, the record label of the Beatles, for 2.4 billion pounds ($4.5 billion) last year.

Buyout firms typically use loans secured on the targets they acquire to finance about two-thirds of the purchase price, and cash from their own funds for the remainder. They typically seek to expand those companies, or improve performance, before selling them within four years to other funds or to investors in initial public offerings.

Hands made similar comments in a speech at the Super Return Asia conference in Hong Kong yesterday. Those remarks were reported by the Financial Times today.

To contact the reporter on this story: Cathy Chan in Hong Kong at Kchan14@bloomberg.net.

Last Updated: September 24, 2008 05:29 EDT