(Bloomberg News) After making their founders billionaires, buyout specialists such as Carlyle Group and KKR & Co. are turning into asset managers that run hedge funds and strip malls as fresh capital and takeover targets become scarce.

Stephen Schwarzman's Blackstone Group LP, the biggest private-equity firm, is earning twice as much from owning property, including office buildings in India and senior communities, as from buyouts. New York-based KKR, whose co- founders Henry R. Kravis and George R. Roberts helped pioneer leveraged buyouts in the 1980s, now owns a stake in a 5,500-mile U.S. pipeline and lends to distressed companies.

The firms have little choice if they want to grow. Takeover candidates are expensive after a two-year, 95 percent rally in stocks, and commitments from backers such as pension funds have waned amid the weakest fundraising environment since 2003.

"The large-cap leveraged buyout business has become mature," said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire. In the future, private- equity firms will look "more like the large money-management enterprises, with a big emphasis on assets under management."

The transformation comes with challenges. Three of the five biggest leveraged-buyout, or LBO, companies have sold shares to the public to finance entry into ventures where they face stiff competition and sometimes earn lower fees.

"It's not hard to start or buy other businesses," Blackstone President Tony James said in an interview. "What's hard is creating businesses that are best at what they do."

Aging Founders

Fund managers are stepping up efforts to diversify, a trend that began in the 1990s as a way to smooth the boom-and-bust cycle of LBOs. That makes their firms more attractive to public investors, who must overcome doubts about whether they should buy stock from people who built their fortunes picking the right moment to sell. For aging founders, now in their 60s, a public listing creates liquidity for their ownership stakes.

Blackstone was one of the first to go public, in June 2007, when earnings from real estate and buyouts were about equal. This year, property deals propelled quarterly economic net income, a measure of profit, to a record, rising fourfold to $361 million in the first three months, while private equity fell 9 percent to $175.5 million.

Property Deals