“Caution”, “nervous”, “uncertain”… not exactly the kind of words usually heard at a private equity conference. Attendees usually have far too much swagger for safety. But those, and worse, were the reiterated remarks at such a conference in New York on Tuesday, hosted by Dow Jones.

“It is going to be eerie for a while,” said Goldman Sachs global head of merchant banking, Richard Friedman. “Risk will become a four-letter word at this point. Everyone’s going to be more cautious.”

Friedman said it was too soon to predict the consequences of Lehman’s bankruptcy and Merrill Lynch’s hastily arranged takeover by Bank of America, but said having fewer providers of capital “I don’t think will be a good thing”.

For private equity, the hurdles to doing deals remain, with financing sources shrunk and daily blows of bad news from Wall Street. Both Friedman and Thomas H. Lee’s Scott Sperling, on the same panel, said prices being asked for businesses were still too high to be attractive. 

Pension fund managers are also nervous. “We’re stepping up conversati0ons with GPs (general partners) about everything we’re doing,” said CalPERS portfolio manager Michael Dutton. Dutton said in this environment, investors had to raise the bar and do more cautious diligence.

“My guess is it will become Darwinian,” said Goldman’s Friedman, when asked about fundraising. Investors will have to make tough choices about where to funnel their funds and which private equity firms to choose.

Still, those in the eye of the storm from the weekend’s developments soldiered on. William Hughes, the head of Lehman’s U.S. Loan Syndicate Group, showed up to speak on an LBO panel discussion, alongside Greg Margolies, Merrill Lynch’s head of leveraged finance and capital commitments. 

(Picture credit: Reuters)