Private equity, along with hedge funds, have become important parts of the financing cycle. Not surprisingly tracking their movements is an interesting task and can provide some insights into the state of the capital markets.

breakingviews in the Wall Street Journal notes some big name private equity shops are raising new investment funds to focus on the debt of distressed companies. breakingviews notes that these firms and other buyout shops will likely be the source of distress as some deals go belly up. Indeed they could have a chance to play both sides of the cycle.

If LBO firms think the cycle is heading the same way, they're right to launch debt funds now. By the time they've raised the capital, there might be more opportunities to chase — many in the portfolios of rival private-equity houses.

Lisa Scherzer at SmartMoney.com interviews David Brophy, director of the University of Michigan's Center for Venture Capital and Private Equity Finance. Brophy in contrast seems more sanguine about the future of private equity.

SM: There's concern about the sustainability of private-equity firms' rate of returns. They have plenty of money at their disposal, but are there enough companies to buy?

DB:People have always said that there's too much money chasing too few deals. It's often a mantra. From time to time I'm sure that's true. But there's a ton of liquidity in the world right now. After the stock market crash, Y2K, the 9/11 experience and the recession that followed that, central banks increased the growth of the money supply. If you want to say they erred, they erred on the side of being conservative. They made sure there was enough money around.

Paul Kedrosky points to an IDD article that implies that private equity firm IPOs are imminent. That is the equity in the firms running private equity funds or interests in the underlying funds themselves would be brought public. Decide for yourself who the “smart money�? and “dumb money�? will be in those transactions.