Carlyle: Private equity to transform over 2-3 yrs

* Private equity industry to

* Says private equity made mistakes in bubble

* Deals will be smaller, less frequent, holding periods up

By Megan Davies and Nicolas Parasie

DUBAI, Oct 13 (Reuters) - Carlyle Group [CYL.UL] co-founder David Rubenstein said the private equity industry would grow larger than before the bubble burst as it transforms itself over the next 2-3 years.

Private equity firms struck ever larger deals during the 2005-07 period, fuelled by cheap debt. Since the credit crisis, they have been unable to strike deals of such scale and have had problems keeping their portfolio companies healthy.

"Private equity contributed to the problem I think we made some mistakes ourself," Rubenstein said on Tuesday.

"Clearly we contributed a little by paying higher prices. We rely on very cheap debt. It was intoxicating to get debt with no covenants people wanted to do more and more deals and there was a greater focus on very large deals," he said at a conference.

Rubenstein said the industry would transform itself -- investments will be smaller and less frequent, equity levels put into deals will rise, debt will be more expensive than before and holding periods will rise. Ultimately, however, the industry will grow larger than before, he said.

D.C.-based Carlyle, one of the largest private equity firms in the world, with more than $86.1 billion under management, has investments in companies such as fast food chain Dunkin' Donuts, semiconductor firm Freescale Semiconductor and pharmacy chain Alliance Boots.