Private equity firms changing strategy by moving into new markets, such as buying leveraged loans or investing in Asia, should give investors their money back, says Guy Hands, head of Terra Firma, the buy-out firm.

Mr Hands wrote in his quarterly letter to investors that some private equity groups had responded to the credit crisis with “knee-jerk reactions to the market rather than well-thought out strategic moves”. He added that by shifting strategies, private firms were diverting money raised from limited partners (LPs), such as pension funds and endowments, away from the strategy they had initially undertaken.