(FORTUNE Magazine) – WHERE HAVE ALL the dealmakers gone? From their low profile you might assume they had retired en masse to a Caribbean tax haven. Or perhaps joined the witness-protection program. Well, they are traveling under an alias. The new name for people who used to call themselves venture capitalists or leveraged- buyout specialists: private equity investors. Says Steven P. Galante, who publishes the monthly newsletter Private Equity Analyst: ''Let's face it. Instead of calling yourself an LBO artist, you might as well just call yourself Satan.'' Much more than the name of the game has changed. The conditions that made these investors so successful, at least for a glorious blip of time -- Silicon Valley's boom, Wall Street's limitless leverage -- don't exist anymore. The word got out that despite some highly touted killings, venture capital partnerships started up after 1983 produced meager average annual returns of less than 4%. Even some of the LBO partnerships at Wall Street's Noble House, Kohlberg Kravis Roberts, brought annual returns only in the mid-20s to their backers. The sources of capital began drying up. Banks and insurance companies, stuck with acres of bad real estate loans, didn't want any more illiquid, high-risk, low-return investments. From year-end 1989 through October 1991, the assets of these private equity partnerships fell 34%, to $24.9 billion, according to a Private Equity Analyst survey. In particular, capital held by LBO firms dropped 32%, to $11.2 billion. Figuring that the feasible debt-equity ratio for deals has shrunk from 9 to 1 down to 3 to 1, the actual purchasing power of LBO firms has fallen 73% in only two years. Despite this difficult environment for dealmakers, a select group of firms is surviving and even prospering in the hung-over Nineties. Here's how:

Capturing the Cash Flow C. KEVIN LANDRY, TA Associates

-- Approaching a quarter century in the business, Boston's TA Associates is one of the most admired, longest-running, and largest of the venture capitalists. The firm has $700 million under its wing, and managing partner Kevin Landry, 47, gets ideas for putting it to work by scouring the annual Inc. magazine listing of the 500 fastest-growing private companies. He figures that only 5% received financing from professional venture capital firms because these little speedsters are increasingly cropping up outside venture capital's traditional domains of computer and medical technology. So Landry is no longer poking into garages and elbowing his competitors out of the way looking for the startup that will become the next Apple Computer. Now he is looking for service companies that have proven growth records, for example HMOs or money management firms, and continue to whiz along at a good clip. TA calls these financings ''growth buyouts.'' A case study: Jenny Craig International, the chain of weight-loss centers founded in 1983 by Sid and Jenny Craig. TA financed a $100 million leveraged recapitalization of the company in 1989 and received a seat on the board of directors. In 1991, Jenny Craig had sales of $412 million, a 16% increase over 1990, itself up a plump 99%, and earnings of $31 million. Now it's the third- largest player in weight-loss centers, behind Weight Watchers and Nutri- System. Says Landry, who joined TA after receiving his MBA from Wharton in 1968: ''We like companies that have long-term competitive products.'' Human nature being what it is, that's exactly what Jenny Craig has. Customers drop their excess weight, then gain it back and re-up for the program. Far from faulting the regimens as unsustainable fad diets, they blame themselves for lack of discipline. After all, they did lose the weight in the first place. The underlying characteristics of the service businesses TA invests in are good cash flow, low overhead, and a stream of revenues from the customer rather than from selling a few big-ticket items. These guidelines rule out technology fields such as computer hardware where the maddeningly short product cycles keep getting even briefer, in favor of software outfits, as well as money management firms and medical service companies. When they cashed out in the past, venture capitalists traditionally sold stock to the public. But that's changing too. ''In our business we've always judged success by initial public offerings,'' says Landry. ''When we get outside the technical area, the entrepreneurs often ascribe some value to being private. Their friends and competitors aren't public, so that's not a symbol of success for them.'' TA must find other ways to get its money back, and these can include special dividends or a merger with another company.

High-Tech Traditionalists SHELLEY AND SUSANNE HARRISON Poly Ventures

-- The thread that runs through Shelley Harrison's investments is a desire to link American innovation with Asian manufacturing skill. His first deal, in 1988, came about because he discovered the American inventor of a high- performance computer printer that uses optical fibers rather than lasers. Harrison was intrigued by the chance to compete in a field dominated by the Japanese, who make the critical components of virtually all the laser printers sold in the U.S., including those marketed under the Apple and Hewlett-Packard brands. Several major American companies turned down his invitation to invest in the printer company. ''They yawned and said, 'We're not manufacturing companies anymore, we're marketing companies,' '' Harrison recalls. So the dealmaker, who speaks Mandarin, set up a joint venture with Taiwanese investors to manufacture the products there. The company, Photon Imaging, plans to release a printer in 1993 with a resolution of 600 dots per inch, twice that of today's standard Japanese-made, American-marketed laser printers. Harrison is co-founder of a determinedly high-tech venture capital firm, Poly Ventures, in suburban Farmingdale, Long Island. Its offices are on the graduate campus of the old Brooklyn Polytechnic -- now called Polytechnic University -- where Gordon Gould invented the laser. A New York City native, Harrison studied under Gould while pursuing his Ph.D. in laser physics. In 1973 he co-founded Symbol Technologies, which holds worldwide patents for its light, hand-held laser bar-code scanners that companies use to keep track of inventory. But Harrison left Symbol after its second public offering in 1981 to travel through the Far East and pursue life as a venture capitalist. In 1987 he raised $30 million from pension funds, insurance companies, and Asian investors to start Poly Ventures at his alma mater. Polytechnic University is a special limited partner in the company and gets 5% of the capital gains in return for giving Harrison's group access to the university's patents. Harrison, 49, and his three partners -- including his wife, Susanne, 47 -- raised a second fund of $23 million in 1991. The idea is old-style venture capitalism: small-dollar equity stakes in high-tech startups. Poly Ventures has invested in 17 companies so far, and Harrison never goes anywhere without a small card bearing the home phone numbers of his 17 CEOs.

Leverage in Disguise THEODORE FORSTMANN AND BRIAN LITTLE, Forstmann Little & Co.

-- The walls of Forstmann Little & Co.'s Manhattan offices are decorated with Depression-era posters. Aptly so, because the LBO firm does well in hard times. Between September 1988 and March 1990, it did not make a single investment, looking a little foolish but determined to wait for the right opportunities. Then in 1991, after prices had fallen, Forstmann raised $1.5 billion and began actively hunting big game. The firm bagged two huge quarries: Gulfstream Aerospace for $850 million and General Instrument for $1.75 billion.

In forceful speeches and op-ed articles, Theodore Forstmann, 52, has been a cranky critic of the irresponsible use of junk debt in 1980s deals, especially the kind practiced by his archrival a half block away, KKR. But while Forstmann has refused to finance his deals with junk bonds because they place perilous interest burdens on companies, his deals were, and continue to be, highly leveraged affairs. LIKE OTHER FIRMS, Forstmann has an equity fund, but its ace in the hole is a huge, $2 billion pool dedicated to buying subordinated debt from the companies it takes over. The firm's way of crafting deals is illustrated by its purchase of Gulfstream. First, Forstmann put up half the money, over $400 million, from its own funds and then borrowed the other half from banks. One-quarter of the Forstmann contribution is equity. The rest is subordinated debt, paying one percentage point above the rate for five-year Treasury bills, which is less than most junk, and the other quarter is equity. That means the overall debt- to-equity ratio is a hefty 7 to 1, likely to magnify the ultimate rate of return and not much less than the lofty 10 to 1 common a few years ago. But thanks to the subordinated-debt fund, Forstmann doesn't need to issue junk bonds or dubious payment-in-kind paper to complete its work. How did the firm line up such a big, cheap, captive source of debt? Forstmann has a love-me, love-my-dog policy. The 20 limited partners -- mainly pension funds, plus a few insurers, banks, and wealthy individuals -- must contribute to this debt pool if they want a piece of the action in the lucrative equity fund. Although the details aren't subject to public disclosure and thus can't be checked, Forstmann claims an 87% annual rate of return for its completed equity investments over 12 years, subtracting the general partners' fees and percentage of the profits. To improve the subordinated-debt fund's rate of return -- 32% a year on completed investments -- Forstmann sells it 37% of the equity in each deal.

The Low-Techies STANLEY GOLDER, CARL THOMA, AND BRYAN CRESSEY Golder Thoma & Cressey

-- When Stanley Golder, 63, Carl Thoma, 42, and Bryan Cressey, 42, began working together at First Chicago's venture capital arm in the mid-1970s, they backed a then-obscure upstart called Kohlberg Kravis Roberts. In 1980 they left the bank to start their own firm, Golder Thoma & Cressey. Located in Chicago, far from the blandishments of Silicon Valley, they decided to specialize in low tech. GTC's first deal, a beeper outfit called Paging Network, created a pioneering model that combined elements of venture capital, leverage, and empire building that the firm has imitated many times since. The model calls for finding a highly fragmented service industry ready for consolidation. Then the partners launch or buy a company and build it into the leading player by recruiting top managers and backing them in a series of acquisitions. The investment profits come partly from the effects of leverage -- the deals usually have a 3-to-1 debt-to-equity ratio -- but more importantly from improving operations and achieving economies of scale. Paging Network has brought its original investors 60 times their money. Rather than waiting for aspiring entrepreneurs to approach them, hat in hand, GTC comes up with its own ideas for new companies. Once the deal is done, a GTC partner may work close to full time with the company for as long as a year, often serving as chief financial officer. No passive investors here. GTC currently manages $400 million, with stakes in 30 companies in fields such as lawn care, propane distribution, fast-food restaurants, and printing. A typical deal: In 1989 the firm launched Golf Enterprises with the purchase of Jim Colbert Golf. The company, with 1991 sales of $29 million, now owns 19 public courses in seven states and is aiming for 100 courses by decade's end. Because many public golf courses lose money, ''this is a case when good management makes a huge difference,'' says Cressey. So when Golf Enterprises buys a course, one of its first steps is installing cash registers so that the greens fees don't disappear into some employee's pockets. Astonishingly, many courses don't have registers. No wonder they don't have profits either.

KKR's Course Correction WILLIAM REILLY, CHARLES MCCURDY, AND BEVERLY CHELL K-III Holdings

-- Now that the kind of huge deals it engineered in the 1980s are thin on the ground, Kohlberg Kravis Roberts is taking a leaf from Golder Thoma's book. KKR's first ''annual review,'' which the habitually secretive firm released in early 1990 to explain its ways and deflect public criticism, announced an important new vehicle for future investments. The firm would create companies ''by finding an experienced management team, backing them financially, and helping them build a business from scratch by acquiring several small companies in a related industry.'' The pilot effort is K-III Holdings, a partnership formed by KKR in January 1989 to acquire publishing companies. Prices had fallen to attractive levels in that industry because potential buyers could not find bank financing and most of them were reeling under enormous debt loads anyway. The K-III general partners are three former top executives from Macmillan: William Reilly, 53, Charles McCurdy, 36, and Beverly Chell, 49. Together they own 25% of K-III. KKR, which had backed Reilly's unsuccessful bid to save Macmillan from the depredations of Robert Maxwell, contributes the equity portion of K-III's investments and owns the rest. Reilly says that K-III aims to build a publishing giant on the scale of the one he left, planning ultimately to take it public. So far he has ten acquisitions, including the Funk & Wagnalls encyclopedia, the Daily Racing Form from Rupert Murdoch's News America Corp., and a passel of Murdoch's consumer magazines. K-III's properties also include scientific and professional books and trade publications, such as Ward's Auto World. The companies had total revenues of $800 million in 1991. Reilly's deals have around 40% equity, with the rest coming from bank lending, which even in these parlous days is available to financiers with the KKR imprimatur. The buyout firm is busily cloning the K-III model in two other industries. Last April it created Granum Communications to buy undervalued radio stations; so far the partnership has bought two in Dallas and one in Orlando, Florida. In June, KKR launched a partnership with Cablevision Industries Corp., a cable TV operator, and endowed it with $250 million of equity capital for buying cable companies. The first purchase, a 65,000-home system in Long Beach, California, was made for $132 million in December.

Dancing Amid Despair SAM ZELL AND DAVID SCHULTE Zell/Chilmark Fund

-- It's amazing how time can refine rough edges. For years Sam Zell, 50, has preyed on troubled companies and distressed real estate, reveling in epithets such as ''grave dancer'' and ''vulture capitalist.'' In keeping with his roughneck persona, Zell motorcycles to his Chicago office and rarely wears ties, preferring sweat suits to dress suits. Outsider though he may be -- at least by Wall Street standards -- Zell's time has most definitely come. Says he: ''Restructuring is what I've always done for a living.'' And the point isn't lost on backers. In 1990, Zell raised $1 billion from pension funds, endowments, and foreign investors, dedicated solely to investments in troubled companies. The partnership, called the Zell/ Chilmark Fund, is co-managed by David Schulte, 46, a former Salomon Brothers investment banker, whose summer home is located in the Chilmark section of Martha's Vineyard. Between 1988 and 1991, Zell lined up another $1 billion in a separate fund for real estate investments. He was able to raise big money partly because he offered unusually favorable terms to his backers. Dealmakers typically charge their investors an annual fee of 1.25% to 2.5% of the money under management, plus 20% of any capital gains. Not Zell. Before he and Schulte may receive their 20% of the capital gains, they must achieve at least a 10% annual return for their limited partners and give back all management fees -- often tens of millions of dollars. Zell is frank that these arrangements were ''crucial'' to attract such a large pool of capital. So far, Zell/Chilmark has completed two deals. Last October it paid $280 million to buy 80% of the bonds of Carter Hawley Hale Stores Inc., the big West Coast department store owner, which had filed for Chapter 11 the previous February. In March it clinched a deal to buy 18% of the Revco chain of drugstores, also in bankruptcy, for up to $250 million. Zell propounds a contrarian view of real estate as well. When almost no one is buying, he is. ''Our strategy is to buy the best-quality product in the best-quality location at below replacement cost,'' he says. ''The real estate arena is full of despair. Every deal you want to do translates into a loss for someone else. You must convince the seller -- 99% of the time a financial institution -- that it's in his economic advantage to take the hit today rather than wait for recovery.'' Never mind that it's also to Zell's advantage.