DEALTALK-Private equity sees new fund sources amid slowdown

By Megan Davies and Eleanor Wason

LONDON (Reuters) - Facing an extended vacuum in funding for leveraged deals, private equity firms are looking as far afield as hedge funds and sovereign wealth funds to fill the gap.

At the same time, they're making their business models less reliant on the buyout deals that sustained them through boom times.

Banks are clogged up with $200 billion (101 million pounds) or so in unsold debt that they need to unload before financing other deals, and it's anyone's guess how long that will take.

For an industry built on aggression, sitting back until banks lend again isn't an option. Finding other sources of funding is.

Private equity bosses in the U.S. and U.K. said this week at a conference in Munich that they'd tap sources such as sovereign wealth funds, hedge funds and pension funds to finance deals.

As U.S. buyout firm Carlyle Group's founder and managing director David Rubenstein said: "When there's a vacuum, people go in to fill it."

Already, buyout firms are going directly to hedge funds for financing. Among the lenders for Hellman & Friedman's $1.8 billion purchase of manufacturer Goodman Global Inc were GSO Capital Partners and Farallon Capital Management.

UK-based Terra Firma Capital Partners' Chief Executive Officer Guy Hands said at the conference that if banks refused or were unable to underwrite mega-deals, private equity would go straight to the pension funds, sovereign wealth finds and even the global money markets.