Private equity has been the biggest driver of a takeover spurt that could hit record levels for the second year in a row. Buyout firms make their money by snapping up struggling companies, turning them around as private companies, and then cashing in with an initial public offering.
The amount of money private-equity firms have spent buying companies totals just over $900 billion this year alone, according to financial data provider Dealogic. Last year, all global mergers and acquisitions -- which includes private equity -- totaled about $1.3 trillion.
Icahn said one thing spurring these big leveraged buyouts is the availability of cheap credit. Private equity deals tend to be backed by bank loans and debt offerings, which have been easier to obtain in the past few years because of relatively low corporate borrowing costs and strong liquidity. But, there are concerns on Wall Street that this might be ending after a pair of financing deals were pulled this week.
Dutch supermarket group Ahold Group and gas tanker operator MISC both pulled debt offerings worth a total of almost $2 billion. Investors backed off the financings because they wanted higher premiums and more protections.
But, Icahn said the industry won't wither away. The bankers behind the nation's biggest private equity funds will adapt to tap new sources of funding and more sophisticated ways to make deals happen.
"You have real smart guys working these private equity funds," he said. "They are by and large a very bright group of guys."
"They aren't stupid, and that's the reason to monetize," Icahn said. Wall Street analysts have warned that private-equity funds need to find new sources of investment, and profits, to remain viable.
Blackstone, the nation's second-largest buyout fund, completed an IPO of its management partnership last week. The IPO, which raised about $4.1 billion, is widely expected to be the model for similar public offerings by private-equity firms going forward.
After a blockbuster day of trading Friday, Blackstone shares have fallen below the IPO price of $31 per share. Concerns on Wall Street about debt markets sent shares down 83 cents, or 2.7 percent to $29.92 Wednesday.