Nov. 20 (Bloomberg) -- Private-equity firms will suffer as governments force banks to restrict lending for future takeovers following their bailout of the financial services industry, British financier Guy Hands said.

Governments ``are unlikely to encourage those banks to lend to private-equity firms, and will insist on tougher terms,'' the Chief Executive Officer of Terra Firma Capital Partners Ltd. told delegates at the Super Investor conference in Paris today. ``Unfortunately, as recession deepens, the world is looking for scapegoats and we're most certainly easy targets,'' he said.

Private equity firms have struggled to finance acquisitions after the collapse of the U.S. subprime mortgage market last year roiled credit markets and ended a two-year boom in leveraged buyouts. The firms have led $201 billion of LBOs worldwide this year, less than a third of the amount in the same period a year earlier, according to data compiled by Bloomberg.

``We've never had it so good in the West, and unfortunately it was all driven by debt and cheap foreign goods,'' Hands, 49, said. ``All of us in the West, and our children, will suffer from the coming downturn.''

Fundraising by private equity firms will drop by half, while returns will be ``negative, very negative,'' Hands told the conference. Buyout firms are also likely to cut jobs, while ``those who remain will be paid substantially less,'' he said.

Investments made in 2006 and 2007 will probably show ``negative returns,'' while future takeovers will generate ``substantially lower returns,'' Hands said.

Greater Regulation

Greater regulation and a lack of bank debt are likely to hamper attempts by private equity firms to profit as what Hands called a ``huge global stock market correction'' produces investment opportunities.

Hands built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting and starting 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 ($3.6 billion) last year.

``In the last few weeks at Terra Firma, our deal partners got substantially busy,'' he said. ``We're finally seeing sellers, and sellers of decent assets, and willing to consider selling at distressed levels: some down 60 percent, some others down 80 percent.''

Unable to raise debt, Hands said his firm is only looking at deals that don't require any.

To contact the reporter on this story: Anne-Sylvaine Chassany in Paris achassany@bloomberg.net

Last Updated: November 20, 2008 08:35 EST