PE Funds Challenged to Deliver Healthy Returns in 'Frothy' Environment: Bain

"The good news," the report said, "is that these changes and shifts can all be analyzed and understood."

Private equity firms are also continuing to sharpen their activist approaches to creating value in partnership with management, since passively investing and simply trusting management to do the job is no longer efficacious.

One example in the business-to-business space is the emergence of aggressive commercial excellence programs to stimulate organic growth, which has eluded many industries since the recession.

As well, funds are applying many other approaches to working with management on both the revenue and cost sides, according to Bain.

On the strategic side, the report noted that abundant deals exist that could absorb the huge amount of dry powder general partners have raised. Last year, some 38,000 companies around the world were bought and sold, but private equity was involved in less than 10% of those deals.

Last week, a PitchBook study examined the implications of record dry power for private equity and venture capital fund managers.

Bain said that in order for private equity to reduce its overflowing coffers, the industry could bump up its share of the M&A market by winning more large-scale deals. How?

It said private equity funds have to earn greater equity returns than their competitors, corporate buyers, while avoiding the perils of overreach that characterized the industry in 2006 – 2007.

Bigger firms could become more like a "corporate," it said, but more efficient and aggressive. This would entail using scope and scale deals to add large assets to equally large platforms in order to capture synergies and play the same game as many corporations, but with a higher bar.