In the US, the Blackstone Group is trying to raise US$11 billion for a new fund. If successful, it will cap the record US$8.5 billion raised earlier this year by Goldman Sachs, and the US$7.8 billion collected by Carlyle.

Much of this money will find its way to Asia. According to data compiled by the Centre for Private Equity Research, private equity capital invested in the region has rocketed in recent years, from US$6.66 billion in 2002 to US$12.43 billion last year.

Blackstone and Carlyle have each earmarked US$1 billion of new funds for Asian investment, and firms are opening offices in the region on almost a weekly basis.

Private equity is catching on fast with Asian investors, too. South Korea's US$150 billion national pension fund recently awarded US$350 million to two private equity managers. Eventually it plans to allocate as much as 10 per cent of its assets to the sector.

That is a massive turnaround from a few years ago, when private equity companies were lambasted as vultures for acquiring Korean banks on the cheap during the Asian financial crisis.

For any private equity firm looking for opportunities, China is near the top of the list of potential destinations. Sealing investments in mainland companies is often fiendishly difficult and getting the money out again can be even trickier but investors say that conditions are improving.

Visiting China last month, Philip Yea, the chief executive of London-listed private equity company 3i, shrugged off corporate governance horror stories. 'We just make sure our interests are aligned with the company management's,' said Mr Yea, who is looking to offer pre-IPO financing to Chinese companies.

Trade sales have become easier too. Last week H&Q Asia Pacific sold its 48 per cent stake in Amperex Technology, which manufactures lithium batteries in Dongguan, to Japanese electronics giant TDK. According to H&Q chairman Hsu Ta-lin, the firm realised US$110 million on the sale, a 'pretty good' 900 per cent return on the US$12 million it invested back in 1999.

But potential investors should not get too excited. Returns from private equity are likely to fall in the future. The vast pools of capital allocated to the sector are chasing a finite number of opportunities and prices are being bid up. The threat was starkly illustrated yesterday by reports that a group of private equity investors, together with Chinese white goods manufacturer Haier, is considering capping a US$2.1 billion bid for US washing machine-maker Maytag by another consortium led by Ripplewood.

The sheer size of the funds now being raised is also likely to be a drag on performance. Multibillion-dollar firms are interested only in making big investments - of hundreds of millions or even billions of dollars. The 10-million-dollar-magnitude deals that have long been the stock-in-trade of private capital investors are just not worth their while.

Unfortunately, however, it is a lot more difficult to produce a 20 per cent annual return on a US$1 billion dollar investment than on one of US$10 million. That means private equity firms will have to begin making riskier deals to try to generate the sort of gains their investors now expect.

Even at the smaller end of the market, proliferating firms risk crowding each other out. One problem is the shortage of good managers. As funds under management grow, so will the demand for personnel to invest the money. Already executives are leaving banks and corporations to join private equity companies. As the trend continues, the quality of the staff recruited must surely fall.

It has all happened before in the hedge fund sector when funds under management exploded, and it remains the main reason given for why hedge fund returns are so lacklustre today.