More than a third of private equity firms are concerned about the quality of companies that are coming to market, as firms vie for the best deals, according to a new Ernst & Young survey. 

Despite concerns over quality, improvements in credit markets and ample stores of dry powder mean that deals will continue, the report claims. 

It is not just mediocre companies that are making private equity firms anxious –confidence in the global economy has declined from 46 per cent to 23 per cent since April.

“Private equity firms have significant capital to invest and continue to search for good-quality deals in this tough environment, when compared with their corporate peers, who are less confident in pursuing M&A,” said Jeffrey Bunder, Ernst & Young's global private equity leader.

While leverage was all but impossible to come by immediately after the crunch, 49 per cent of the survey respondents said they believe they will be able to fund deals with 35 per cent or less of their own money over the next year.