The New York-based company's largest investment in the last 12 months was the $9.4 billion deal to buy 593 U.S. shopping centers from Australia's Centro Properties Group. It would be the largest cash purchase of real estate in the world since the collapse of Lehman Brothers Holdings Inc. in 2008, Schwarzman, 64, told investors in an April conference call.

Blackstone has three investment businesses "equal to or greater in scale" than private equity, James said.

At Carlyle Group, ranked second by assets under management, co-founder David Rubenstein has steered the Washington-based firm into the fund-of-funds business by taking over AlpInvest, a Dutch asset manager that spreads money for investors among other buyout funds. Rubenstein, 61, also agreed buy a majority stake in Claren Road Asset Management LLC, a hedge fund that trades debt, and is considering taking the company public.

KKR, created in 1976 by Kravis, Roberts and Jerome Kohlberg, is best known for staging what at the time was the largest LBO in history, the $30 billion takeover of RJR Nabisco Inc. in April 1989. It has ventured into underwriting stock and bond offerings, investing in infrastructure deals and, most recently, operating hedge funds. Like their peers, KKR's founders are reducing dependence on the deals that vaulted them into the ranks of the world's richest men and formed the cornerstone of what is today a $2.5 trillion industry.

KKR Returns

Investors in KKR's 1986 fund got more than 13 times their money back, a performance the firm hasn't been able to repeat, according to its annual report.

Buyout funds use a mix of cash and debt to buy companies and typically try to improve operations before selling within about five years. To pay the debt, the new owners often slash costs by cutting jobs, closing factories and selling assets.

The LBO business has become more crowded, with almost eight times as many firms last year as the 60 active in 1990. Cheap debt has fueled competition and driven up bids, making it harder for managers like Leon Black's Apollo Global Management LLC to find suitable targets, President Marc Spilker told investors last month. Raising funds has also become harder.

'Not Fun'

"As the business exploded, more and more people rushed into private equity, which made competition for money fierce," said Richard Beattie, chairman of New York-based law firm Simpson Thacher & Bartlett LLP, who helped KKR engineer the RJR Nabisco takeover and remains an adviser to many private-equity firms. "As a result, the founders spent more time fundraising, which is not fun. Going to the public markets for permanent capital is a solution."

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