Since the era of jumbo deals and whopping profits ended painfully for private equity, the industry has vied to regain traction, with notable success. But spasms of panic that have roiled the markets since late summer stalled the forward progress it had made since late 2009. Entering 2012, prospects for the business are clouded, with profit pressures mounting on several fronts.

Buyout activity still hasn't recovered from the September scare over European debt, and a failure to contain the Continent's credit crisis could continue to hinder financing for new deals in 2012 and beyond. For now, a retreat by lenders has jacked up interest rates and forced sponsors to kick in more equity to clinch deals. A case in point: Kohlberg Kravis Roberts & Co. LP's $7.2 billion deal in November to buy oil and gas developer Samson Investment Co., which will be half-financed with equity, much more than had been the norm. Other deals have been derailed entirely by lenders' tough demands. Says one private equity executive: "Financing hasn't dried up, but it's a knife fight to negotiate terms with lenders."

More worrisome yet is the increasing difficulty of harvesting investment profits. Just as balky markets have slackened the pace of new deals, they've hurt sponsors' ability to exit old ones, via initial public stock offerings or by selling companies to rival sponsors. A third traditional path to an exit, sales to strategic buyers, has largely been shut down since 2008, when many big corporations pulled back from making acquisitions and took to hoarding cash. They're unlikely to soften that stance and fire up their acquisitions programs until such time as the markets stabilize and the economy strengthens.

On top of all that, PE funds raised and invested during the bubble have performed feebly. While the economic recovery and overall rise in asset values since 2009 has lifted returns of many funds into the plus column, overall gains have lagged behind the historical norm. A big reason for that is the tens of billions of dollars of losing bets made at the market peak on supersized leveraged buyouts of Texas utility Energy Future Holdings Corp., radio group Clear Channel Communications Inc., casino operator Caesars Entertainment Corp. and other enterprises that continue to struggle under masses of debt.

The litany of trouble may well trigger a restructuring of the industry. Pension funds and other PE investors are expressing their displeasure by refusing to stump up new money for firms with shoddy records, a trend that could doom a fair number of shops. Even marquee players such as Blackstone Group LP and KKR have been unable to raise as much funding as in flush times. To meet even today's diminished funding targets, firms are having to give ground on the fees their investors pay.

It's little wonder, then, that in accounting firm EisnerAmper LP's latest semiannual survey, U.S. private equity executives said they expect new deal activity and fundraising to stagnate and a drop-off in exits.

Importantly, however, the same survey found that many PE houses are thinking beyond their near-term difficulties and laying the groundwork for growth. "The one positive [in the survey] was investing in the future, with firms starting to consider growing their staffs," says EisnerAmper partner Peter Cogan.

Indeed, the most salient forward-looking trend to emerge since the start of the financing crisis is the drive by elite private equity houses to diversify away from buyouts and to push into fast-growing emerging markets. The slump that saddled them with heavy losses has turbocharged such efforts, which are altering­ -- even reinventing -- the industry's business model.

The diversification efforts dovetail with another theme, the push by big firms to go public, in the wake of Blackstone's and Fortress Investment Group LLC's pathbreaking IPOs of 2007. Aware that public-market investors prize diversity and devalue the shares of firms too reliant on LBOs, top-tier firms that are already public or that intend to list (Carlyle Group, Oaktree Capital Management LP) have branched into everything from real estate to distressed credits and hedge fund investing. KKR, the pioneering outfit that once lorded over the LBO trade, has hatched more than eight new businesses in recent years, three since the end of 2009.

"Firms are focused on the next stage" in their evolution, says Cogan. "If they sat back and said, 'We're not going to look outside of our sweet spot,' they'd be in trouble."

However 2012 unfolds for buyout firms, it won't be business as usual for this industry in flux.