Private equity firms got “a bit lazy” in the good times, the head of their own trade body said, as 3i, Britain's biggest, prepared to lay off 100 staff in the face of more hostile conditions.

Simon Walker, chief executive of the British Private Equity and Venture Capital Association (BVCA), conceded that before the credit crunch some private equity firms had prospered on leverage alone. “There is some truth in the accusation that in recent years, with the availability of easy credit, private equity has maybe got a bit lazy,” he said.

“With people falling over themselves to lend and to get a piece of the private equity action, the role of leverage became increasingly important. That has all changed.”

Instead of focusing on financial engineering, firms now had to be more creative, rely less on borrowing and be more skilful in producing operational improvements, Mr Walker said.

While making a plea for regulators not to strangle the industry with red tape, he admitted that the jury was still out: “What these tougher times will also reveal is whether private equity really does make a difference ... or whether, as its critics claim, it is simply stuffed full of people who have brilliant degrees in maths, know how to do clever financial modelling but don't actually know how to run a business.”

Mr Walker was speaking as it emerged that today 3i will announce heavy job losses among its 660 staff. Britain's biggest private equity group, with £10 billion under management, is preparing to adjust to a world with fewer deals. “As we said at the half-year results, we are reviewing our costs,” a 3i spokesman said. He declined to say more. About half of 3i's staff are based in the UK.

Private equity firms have been hit by a sudden collapse in deals as credit dries up, and by a fall in deal profits as equity values slide. The value of the buyout market halved in the first half of 2008 and the total number of deals hit a 15-year low.

MidOcean Partners, another private equity firm, which bought the LA Fitness gyms group in 2005, is winding down its London office.

Mr Walker, a former PR man to the Queen, who was hired by the BVCA to spruce up the industry's battered image, conceded that some private equity-backed deals would fail over the next couple of years. However, he suggested that the industry would save businesses that might otherwise go to the wall.

Woolworths, which collapsed into administration last week, might have been saved if it had been taken over by a private equity firm, he said. Three years ago Apax Partners bid £840 million for the stricken retail group, but the deal fell through because of resistance from Woolworths' board and the retailer's pension fund deficit.

A successful bid would probably have been Woolworths' “best chance of survival”, Mr Walker said. It would have created “a business owned by people with skin in the game, who had a real incentive to make it profitable again”. Jobs would have been cut, “Apax would have been labelled asset-strippers, locusts, sharks and jackals [but] today we might have had a viable business called Woolworths on our high streets.”

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